Do the franchisees believe this is $10,000 well spent?

Through 2007, Itasca-based Midas Inc. plans to spend up to $4 million to spruce up the interiors and exteriors of its 1,800 stores nationwide. The goal: Enhance curb appeal, reduce clutter and create more educational displays to draw customers into the auto repair chain’s stores.

and

A Midas spokesman says franchisees — at least those willing to participate — would spend about $8,000 to $9,000 per store. Midas plans to chip in up to $2,500 per store, he says, which will cost the company between $2 million and $4 million through 2007….
When Midas underwent its ’90s makeover, the company spent about $15,000 per store which included new signage.[edit: analysts say it did little to improve sales.]

Personally, I’d prefer to invest ~$2,000 in sprucing up the curb appeal and ~$7,000 on innovative (educational) promotions, or something that promotes “trustworthy and honest service”. The game is obviously increasing the quantity of customers through the door in the first place and offering honest services at a fair price. Once the potential customer is in the store, low-pressure upselling of recommended repairs or maintenance is routine.

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I stopped to read this press release because I’ve never heard of a retail radiator franchise before…1-800 Radiators looks interesting for those who enjoy autos and cold-calling sales. But, is it too narrow of a niche?

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One company has about $8 million in sales with 10 employees in the franchise industry, and was just acquired for $21 million. No, it’s not PostNet, Great Wraps, or American Male, it’s the franchisor-advertising web site - Franchise Gator. Most of their money is earned with listing fees and click throughs to the franchisors’ web site, I’ve heard earnings of $30 per click among other arrangements.

On a related note, potential franchisees should always be aware how people are getting paid. A “consultant” or “independent rep”, for example, are generally paid by the franchisors essentially on 100% finder’s fee. When the consultant or rep only gets paid after you buy pay a franchise fee, do you think they have the franchisees’ best interests in mind or are they biased toward their own commission? What about the good franchises that refuse to pay the fee or those franchisors who pay the highest fees, do you think that influences their recommendations? Do you think sites like franchisegator.com who highlight franchisors with “Franchise of the Month” and “Franchise Spotlight” do it because those spots are paid for by franchisors? Don’t kid yourself, follow the money.

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Raging Brands, the company and franchisor of the successful Moe’s, P.J.’s Coffee, and Planet Smoothie, seems to have found another interesting niche - quick-service barbecue. What I like about Shane’s Rib Shack is that it boasts a very authentic, down-home “look” that is timeless and fun. The building literally looks like a rough shack. In the franchise business, the ability to enable customers to step through the front doors and enter another time in history, or another distant locale, is the type of dining experience that will last and benefit from tremendous word of mouth. Assuming the food is above average, I’d consider buy this BBQ franchise.

Growth plans may be a bit excessive though:

Shane’s has some bone-breaking long-term growth plans to boast 1000 deals in development by 2010…just five years away. To date, this new-to-franchising concept has about 75 deals in development across nine states. Investors from Phoenix to Cincinnati to Tampa have put money on the national appeal and financial success of Shane’s

On a side note - BBQ joint Famous Dave’s sales increased this past quarter by 5%.

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• Triarc Cos., owner of the Arby’s restaurant chain, said Friday same-store sales were up 4%
• Fatburger system-wide same store sales for the first quarter increased .5% over 2005 results
• Cosi: Comparable restaurant sales, as measured for restaurants in operation for more than 15 months, increased 5.3 percent, Cosi’s 18th consecutive quarter of increases. Factors driving the continued growth included a 2.1 percent increase in transaction count and a 3.2 percent increase in average guest check. The higher average guest check was primarily due to a 1.6 percent favorable shift in sales mix and a 1.6 percent increase in pricing.
• Good article on the 5 Mistakes a small-business owner should never make…I agree with them all.
1. too little cash
2. thinking small
3. skimping on technology
4. underestimating the important of sales
5. losing focus
• T.G.I. Friday’s same-store sales up 3.3%

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I came across a few franchsies that I would not want to own:

1. Snack-In-The-Box: UK based firm that delivers candy to the workplace (difficult to work and sell)
2. Nick-N-Willy (founded by former Quiznos exec)/Take-and-Bake: this take-and-bake pizza idea where cusotmer get the raw dough with toppings didn’t catch on 10 years ago, and won’t catch on despite some short-term success driven by PR and unique gourmet toppings. Gourmet pizza that is already baked is where I’d make my bet if I had to enter the pizza business.
3. The Dinner Station/Meal Assembly (check out the nice store pics): The industry is already seeing a high number of closures; I’d do this perhaps without a franchise
4. MRI/recruiting franchise: I knew several smart people that tried to make the MRI recruiting franchise work, but had a very tough time generating any placements, and placements from MRI corporate contracts were nil (operating profits and same store sales were down from last year)
5. It’s Just Lunch: Some locations have been turning over several times each year, with franchisees literally giving them away to escape the cash drain.

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Camp Bow Wow continues to sell franchises at a fast clip. They have a nice offering and compelling business model for pet lovers. But keep reading…

I’ve visited a good number of non-franchised doggie daycare and doggie hotels, and most were extremely well run and popular.

In my opinion, it’s not the type of business that requires the burden of franchise relationship. For example, Camp Bow Wow requires a $50k franchise fee, 6% royalty, and $300k-500k in total startup costs. A sensible, business-oriented person would ordinarily do much better spending that $50k on advertising and promotions, keep the 6% spread, and not be burdened by the franchise requirements should you have to scale back or alter your operations.

The Competition

The margins in this pet-care business are high, and the big boys have noticed. PetsMart have invested heavily to convert part of their stores into PetsHotel, providing services such as day and overnight care, grooming, training, groomed while staying at the “hotel”. Many locations also have The Pet Hospital with Veterinarians on-site. If I’m a franchisee, how do I compete? There are a few ways, such as pick-up and delivery of pets (I don’t think PetsHotel currently does this)…but that’s a time consuming endeavor and another layer of expense.

My Conclusion

This is a tough decision betweeen I’m Neutral On It or I Wouldn’t Buy It with respect to doggie day/night care franchises. We’ve listed a few pet franchises before, and I can imagine low-competition areas where you can get away with the cost/benefit of a franchise. However, in my own community which even has its own pet service review web site (Chicago), I wouldn’t buy it. There is no evidence here that a franchise give you a leg up on the heavy day/night care competition here.

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Here’s a free tip for franchisors - start a franchise specifically for veterinarians called “VetPet Suites”. This franchise would be sold ONLY to veterinarians. Vets are easy to target in your sales effort, they are generally doing well financially, and can leverage their own reputations to build both the day/night pet care buisness and simultaneously expand their own vet practice. They will have an immediate competitive advantage over all other non-vet pet care business (except PetsHotel with The Pet Hospital).

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