Back in 2006, I listed MRI (Management Recruiters International) on a list of franchises I wouldn’t buy.  Today, a commenter named Bob Stewart in the forum reiterated from his own experience which included false representations about who actually was a valid franchisee.Here is Bob’s web site listing his alleged misrepresentations, with emails from MRI and MRI’s parent company CEO.  It certainly is an interesting case study.

Quiznos is helping franchisees renegotiate leases at no cost to the franchisee. Good move.

Since the teams have been in operation, Quiznos has negotiated more than 40 leases thus far, with an average reduction of 15-20 percent in lease payments

Here is one franchisee’s experience in the press release

Thomas Mihailovich, a franchise owner in Rochester Hills, MI, participated in the lease renegotiation program in late February. Quiznos and a third-party team worked with Mihailovich and his lessor to arrange a reduction in rent of more than 20 percent, a cost savings of $50,000 over the term of the lease.

“I began the process and within one week I was saving nearly $500 per month on my rent,” said Mihailovich.

How do you renegotiate a lease?


If you are currently leasing a space for your franchise and want to renegotiate the lease, you do have a few leverage points. First, the landlord doesn’t want to lose a tenant because it will usually mean unrecoverable expenses and vacant space for a period of time. Second, along the same lines, a long-term stable lease makes landlords smile, so offering to extend or renew a lease for a longer number of years is very attractive, even at a reduce price per square foot.

Here is a sample approach. Find another space nearby that fits your needs equally well and is less expensive. Then approach your landlord and ask him to match the rent or you intend to move. See what the response is. From that point, ask permission to sublet. Depending on how long you have on your lease, ask also offer to sign a longer lease in exchange for reduced lease payments.

Getting the assistance of a real estate broker or better yet an attorney is usually well worth the money in renegotiating a lease.

Here is an insightful article with examples on the subject.

Potbelly’s Sandwich Works with its core markets being Chicago, Washington D.C., and Texas, is walking away from some potential new locations, and renegotiating leases on existing locations to “reflect the new market conditions.”

In recent months the sandwich chain has walked away from at least two prospective deals in the suburbs, in Hillside and Romeoville, and local real estate sources say company executives have told them Potbelly is pulling back its growth plans here.

Potbelly founder Bryant Keil said last year that the chain could double its Chicago-area stores to more than 150, and hired former Sears CEO Aylwin Lewis to spearhead growth nationwide. Mr. Lewis said he wanted to accelerate expansion and at the very least maintain Potbelly’s growth rate of about 40 new restaurants a year.

But the dramatic drop in the economy over the last six months has hit even the private Chicago-based company known for its kitschy décor, toasted subs and fresh-baked cookies. Potbelly’s costs to build its stores are higher than its rivals’, sources say, so the company can’t afford too many mistakes in a climate where sales are likely to be slow.

Most restaurants have or would live to have a thriving catering business to augment sales.  A restaurant with a successful catering business typically increases sales sales by10% to 20%.  Here is a great article with advice from experienced caters on equipment, deposits, and marketing.  

“Our biggest catering customers are schools, offices and churches,” says Preston. “We market our service on our menus, on the Web, in the paper, and in schools and offices. We also hand out catering information at functions, feature it in our EClub newsletter, visit local businesses and leave info (then follow up with a phone call), and get involved in local charity events.” If you’re worried about spending too much money on advertising in the beginning, Skvorecz says, “Start slow and advertise to your existing customers by printing out your offerings and placing an easily visible sign on your countertop. Get through a holiday period and see how it goes; then consider expanding your ads into the Sunday paper or other media.” The possibilities for game days alone are amazing, according to Skvorecz. You can free up a lot of your time on days such as Super Bowl Sunday if customers have called ahead to cater their parties and already have their food before the game even starts.

“I can’t stress enough how important it is to have the proper equipment,” says Preston. “Keep your hot food hot and your cold food cold with a stackable Cambro (hot box); invest in midto high-quality chafing dishes; and don’t forget your canned heat! Make sure all catering platters, plates, flatware and serving utensils are kept in storage, and never (unless you want to buy more) put them into restaurant/pizzeria circulation.” Preston also advises being a stickler for details: “Be sure to qualify special requests and leave no loose ends,” he says. “The devil is in the details; I use email, which gives me a written record, which wins all discussions.” Get a deposit, too: “I shoot for 50% and will accept no less than 25%,” he says. “Of course, that can change with repeat customers.”

U.S. News & World Reports takes a stab at listing the healthiest fast food restaurants.

1.  Panera Bread
2. Jason’s Deli
3. Au Bon Pain
4. Noodles & Company
5. Corner Bakery
6. Chipotle
7. Atlanta Bread Company
8. McDonald’s
9. Einstein Bagel Bros.
10. Taco Del Mar

 Implyign that everything on the menu is “healthy” is decieving.  For example, a single burrito at Chipotle is likely to have 1,500 calories. 

Panera to experiment in Chicago with a greatly expanded catering strategy.

He said Panera has long provided catering, but “it’s always been an afterthought” to its restaurant business. He wouldn’t disclose financial numbers except to say that catering accounts for a very small percent of sales. The chain has more than 1,200 U.S. locations.Mr. Tristano said any new packaging that keeps the food fresh is a key to successful catering as well as competitive prices and timely service.Panera’s catering costs about $5 per person for breakfast; lunch ranges from about $8 to $12 per person. Mr. Rand said the chain will analyze the success of the new catering efforts in the next year and decide weather to expand the ideas nationally.

The pizza industry is in a larger downturn than I would have predicted.  Papa John’s is even delaying scheduled increases in their royalty: 

Papa John’s, meanwhile, is extending sweeping financial assistance to its franchisees. The company is delaying for at least six months an increase in its royalty rate on sales to 4.5% from 4%. It also is rolling back the royalty it collects on Internet-generated sales, a fast-growing part of its business, to 2% from 3%, and markedly cutting the price of cheese it sells to franchisees. Finally, those franchisees suffering the most will get special marketing support.  

While hamburger chain McDonald’s Corp. has posted consistent gains in its domestic same-store sales, with 4% growth in 2008, U.S. franchised same-store sales at Domino’s fell 1.7% in 2007 and 5.6% in the first nine months of 2008. Papa John’s is predicting its same-store sales will be flat to down 2% this year, and Pizza Hut, whose same-store sales slipped 1% in the fourth quarter of 2008, is off to a slower start than expected this year, according to Yum, which has called the division its biggest challenge.Pizza’s woes started before the current recession gripped the nation. Figures compiled by Chicago-based restaurant-consulting firm Technomic Inc. show that while the overall U.S. fast-food category experienced compounded annual growth of 6.4% from 2002 to 2007, pizza sales rose only 2.5% during that period.

Day’s Inn paid $600,000 for a shooting that occurred in a franchisees parking. Details and arguments below:

The national chain argued that it was a separate entity and that it did not maintain sufficient control over the local franchisee such as to establish an agency relationship.

….

The one area not specifically dealt with in the manual was guest safety. The victim’s lawyer argued that the chain’s failure to address security did not relieve it of liability for the negligence of the franchisee. The Trial Court agreed.

Both the local motel and the franchisee were liable to the victim because the area of Exit 97 off Interstate 95 where the Selma Days Inn was located had a long history of criminal activity including a pair of armed robberies at a hotel next door just two weeks before the victim was shot. Evidence would have been that the motel franchisee and the chain failed to take adequate precautions to protect their guest, including the victim.

After the Judge refused to release the national chain, the defendants agreed to $600,000 to settle the case.

The actual photo of the Selma Day’s Inn is to the right.

A 26-year-old woman became the youngest franchisee in the Schlotzky’s system. Is she too young? You may think, until you read this:

Jessica Johnson worked at the Schlotzky’s in Teays Valley for nine years – working her way from cashier to manager.Then in October, even though some people thought it was a little crazy, Johnson got a Small Business loan and bought her very own store.That made her the youngest franchisee in the Schlotzky’s chain.”I was not scared to do this because I believed 100 percent” Johnson said. “I knew it was something I wanted to do and if for whatever reason it didn’t work out I knew there was someone looking out for me and it wasn’t meant to be.”Johnson says she has been focusing on catering, delivery and customer service to keep profits up despite the economy.

She is probably more experienced and ready than 90% of Schlotzky’s independent franchisees.

You would think that if a retail business closes, those lost sales would be reallocated to other stores in the area. Brownsville, Texas is finding that not to be the case when stores such as Mervyns, Hooters, Taco Cabana, Circuit City, Starbucks, Petco, Kay-Bee Toys and Linens-N-Things closed.

During less tumultuous circumstances when one store or restaurant closes its sales shift to another business. But these are extraordinary times. As stores have closed it appears they are taking a portion of their sales receipts.According to Pete Gonzalez, deputy city manager and chief financial officer for the city of Brownsville, sales tax allocations are down more than 1 percent through the first four months of the fiscal year starting in October.And the trend could be accelerating. Total collections for January and February of 2009 are down 7.1 percent compared to the same period in 2008, according to the office of the Texas Comptroller of Public Accounts.

Other city’s sales tax “revenues” are down compared to the same month last year, too:

• Denver, CO down 8.4%
• Nassau County, NY down .9%
• Chandler, AZ down 16.8%
• Montgomery, AL down 10%

Longview, TX was up 6.5%, Norman and El Reno Oklahoma were both up about 17% while War Acres, Oklahoma was up 38%.

The very popular Potbelly’s in Chicago appears to be getting ready to franchise after opening 200+ company owned units.  Even though their web site still denies franchising is in the works, this job description has the following requirement:  

Must have franchisee expereince and knowledge of how to manage a mix company franchise system         

Photos and some random YouTube video of Potbelly’s are below the fold for you Chicago virgins. (more…)

Too funny….

The Sizzler restaurant in Antioch will stop serving students during school hours. It’s a way to stop them from cutting class.

Call me crazy, but I would rather kids hang out at Sizzler than hang out totally unsupervised somewhere else!

Australian franchisees have similar gripes to U.S.A. franchisees – disclosure issues and the renewal rights in agreements for franchisees.

It has not always been so crystal clear when a franchise chain collapses and there is an urgent need to clarify the legal rights, obligations and ranking of franchisees in a liquidation or sale of the business by receivers.           

The article brings up an interesting ethical question:  Is it legal or ethical for Franchisors that are at the brink of collapse to recruit new franchisees to their stricken businesses even as they face the very real prospect of bankruptcy?   

In my opinion, the legal and ethical answers are similar.  The franchisor must not lie or mislead in the sales process and it must disclose risks accurately, but within those boundaries it should do what is necessary to survive. 

Does a cash starved franchisor have tell a prospective franchisee – “We need to sell 10 more franchises this year or we will go bankrupt and you will lose your license” ? No, I do not believe that is or should be a requirement because many businesses live on the edge of financial survival.  But, if the franchisor knows that bankruptcy or winding down the business is a 100% certainty, I do believe the franchisor should ethically stop selling franchises, inform the franchisees of the situation, and work out a sale of the assets in the best interests of all stakeholders.  Franchisors who sell a few more franchises just to pay off some bills or salaries as they wind down the business are indeed unethical.

Being a franchisee in a larger system does have advantages if the franchisor goes bankrupt.  The likelihood is very high that some group will acquire the assets and enable the franchisees to continue operating.  Or, worst case, the franchisees themselves could come together and buy the franchisor’s assets out of bankruptcy.   Small bankrupt franchisors have such little book and IP value that there typically scant interest from investors.

How is a franchisee to know if the franchisor is near its end? The only sure way to know is to analyze at the franchisor’s financial statements such as it’s cash flow and balance sheet. If you don’t know how to do that, HIRE AN ATTORNEY OR ACCOUNTANT/FINANCIAL ANALYST TO GUIDE YOU!

Ontario attorney Michael Webster blogged on this franchisor bankruptcy issue last year. 

Rick Romell from the Sentinel Journal in Milwaukee called me to discuss the Meal Prep industry a few weeks ago.  He produced an informative article which can be read here.

Imagine if you were a franchisee and a mystery shopper from the franchisor anonymously visited your store and ordered a sandwich.  The meat in the sandwich you served happened to be 1/2 an ounce smaller that the standard 4.5 ounces.  Would it be fair to lose your franchise because of default?  You did break the rules, eh?  But what if was really a charade to encourage compliance?This was the situation a Denver court had to deal with.    The final judgment was that Quiznos had in fact breached the contract by wrongfully terminating the defendants, and awarded them $349,797.http://blogs.westword.com/cafesociety/2009/01/quiznos_gets_grilled_in_a_new.php