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Starbucks plans next week to launch warm sandwiches, called Piadini, on artisan breads filled with sausage, egg and cheese or Portobello mushroom, spinach and ricotta cheese.

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He says about 30% of McDonald’s U.S. business comes from breakfast, and credits breakfast with “a majority of McDonald’s growth in the last two to three years.”

I thought I read they were ending the warm English-muffin based egg sandwiches. Appaprently it was all a ruse.

“We are not reversing our decision to replace the breakfast sandwiches. Rather we are continuing to evolve our food offerings,” says a spokeswoman. “We have found small ingredient changes that address the aroma issues of our current breakfast sandwiches, and have implemented these already.”

The company says it recently changed the kind of cheese it was using in its warm breakfast sandwiches to neutralize the cooking smell. Starbucks has ovens in about 3,000 locations and plans to add them in 800 more stores. Over time it wants ovens in 90% of its stores, according to Michelle Gass, the company’s senior vice-president of marketing.

Dream Dinners is an example of good idea but profit challenged business model.   It’s just too expensive to attract and retain customers.

A Forbes article looked through the Dream Dinners FDD from the state of Washington, and focused on the required audited financial statements.

As of Dec. 31, the company boasted $2.9 million in assets, against which it carried $3.4 million in liabilities. (Such negative book value implies that if Dream Dinners were unwound today, shareholders wouldn’t get much.) That’s a snapshot, but here’s a trend: Last year, the company lost $628,000 on $7.5 million in sales; compare that to 2005, when it earned $928,000 on sales of $4.5 million.

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Typically, new business concepts need up to five years to season before they can be franchised successfully. Dream Dinners–along with its next largest competitor Super Suppers, now with 165 stores–both began franchising in less than two years.

Franchisees accused the franchisor of false promises and unsubstantiated financial projections.

A major point of contention has to do with rosy promises Dream Dinners seemed to have made to its franchisees. Under the Federal Trade Commission’s franchise law, franchisers are not permitted to make “predictions” about franchisees’ financial success–unless they do it in the Uniform Franchise Offering Document, which typically contains a host of disclaimers.

Dream Dinners “totally disregarded these regulations,” says Garner. It not only posted financial projections on its company Web site, he says, it also put them in a Power Point presentation given to potential franchisees.

Jennifer Hemann, a former Dream Dinners franchisee in Maryland and one of the plaintiffs in the suit, alleges that she was shown that Power Point presentation–which included estimated profit margins for a given volume of customers–when interviewing with the founders. “They told us, ‘Our lawyers said not to show this to you, but if you write fast, you can get it all down,’” she says…

The slides, provided by Garner, present some tantalizing figures: Allen and Kuna projected that, at 187 customers per month, a franchisee could expect to earn $75,400 in profit annually, or 18.9% of total revenue. On the high end, at a quoted 328 customers per month, net profits jumped to $163,300, or 23.3% of sales. The estimated distance customers would be expected to drive: two to five miles. Allen and Kuna insist that “the figures were realistic and based on the actual performance of stores.”

The owners look innocent and reliable enough, eh?  On face value and blind trust, I would be tempted to believe Allen and Kuna.

Meal Assembly Watch has an insightful 5 Ways to Save Dream Dinners.

I have acted as general counsel to franchisors in my law practice.  From what I have observed, most smaller franchisors do not have experienced managers.  This inevitably turns growth sloppy by allocating too many resources and cash to new franchise sales.  Marketing programs for their franchisees and brand/product development suffer.  Inevitably, the franchise sales process is much longer and more expensive than projected, and ends up monopolizing the franchisor’s time and money.  Sometimes this get worked out (McDonald’s), and sometimes it doesn’t (Quiznos).

Why do many franchisors tend to reduce their holdings of company owned stores?  To stabilize earnings from same store sales swings.

Safety In Franchisees

For franchised concepts, sales are diffused throughout the entire system, with the franchisor, or parent company, taking a little off the top for themselves in the form of royalty payments. Costs are also shouldered by the franchisees.

The difference between franchisee and company-owned models is evident in the effect fluctuations in same-store-sales, a closely watched industry metric, have on earnings.

At Darden, for example, each percentage point in same-store sales accounts for a roughly 14-cent swing in earnings per share, or roughly 5.1% of annual earnings, according to Larry Miller, restaurant analyst at RBC Capital Markets Inc. Compare that with McDonald’s Corp. (MCD), the fast-food giant that owns a little over 21% of its more than 31,000 stores, which sees EPS move about six cents, or 1.7% of annual earnings, for each percentage point change in comparable sales.

The relative isolation of franchise concepts from same-store-sales swings is one reason why investors have flocked to place their money in companies like McDonald’s, whose stock is up about 29% over the last 12 months, and Burger King Holdings Inc. (BKC), which owns about 12% of its roughly 11,500 stores and whose shares are up almost 9%.

“Right now, people are crowded around the defensive investments,” Miller of RBC said. Comparatively, Darden has lost more than 27% over the previous 12 months, while its casual-dining competitor Brinker International Inc. (EAT), owner of Chili’s Grill & Bar and others, has lost nearly 31%.

To be sure, the mix between franchisee- and company-owned stores is far from the lone factor affecting stock performance. Also contributing to that is a penchant for consumers to “trade down” and eat at fast-food joints rather than sit-down chains.But several chains in recent years have taken measures to transfer some of their company-owned stores off their books. DineEquity Inc. (DIN), formed after the merger of Applebee’s International Inc. and IHOP Corp., is re-franchising its Applebee’s locations, selling them off to investors.

Brinker has also said that its near-term focus will be less on company-owned restaurants, which make up a little more than 55% of its 1,600-plus eateries.

I’ve become much more interested lately in the study of Customer Experience, a rapidly growing field especially in retail and restaurants.  Every touch point with the customer, both before, during, and after the visit,  impacts the customer’s decision to buy.   In franchising, the customer experience is mostly defined by the franchisor, with only minor execution responsibility for the franchisee.  The store layout, marketing, the parking lot, the type of flooring, the web site, the lighting, the registers, employee training, customer service processes…all contribute to the customer experience, which in turn, contributes to repeat and referral sales.

Understanding the elements that make a customer experience successful is critical when evaluating a franchise opportunity.   Before you can evaluate it, you need to understand what makes a good and bad customer experience.  Learning and keeping tabs on the trends in customer experience is easy with blogs.  Here is a list of 36 blogs in the area of brand and customer experience.