Scott Pooler, a former official eBay Trading Assistant, and a master franchise representative for an eBay drop store franchise chain weighs in on the subject of franchising and stand alone eBay drop stores in Trading Assistant Journal, a weblog that provides news and commentary for eBay consignment specialists.

Scott’s experience on both sides of the fence reveals certain truths, and since he was at one time a proponent of the franchise model, his views are helpful to anyone considering the purchase of a new franchise eBay drop store or opening one on their own. These views are Scott’s opinion and do not reflect upon eBay any eBay franchise drop store chain in particular or upon eBay consignment as an addition to any other type of business.

His views regarding the stand alone drop store franchise model and why it has failed are worth reading.

Read the whole story

Cross Posted at Let’s Talk Franchising

Performance differences between corporate-owned and franchised hotels are slim to none, according to new research.

Leah Sipher-Mann h Sipher-Mann writes in Michigan in the News that, for a company pondering the question, “To franchise or not to franchise?” new research from Michigan’s Ross School of Business suggests that performance differences between corporate-owned and franchised outlets, when chosen right, could be slim to none.

Ross Professor of Business Economics and Public Policy Francine Lafontaine and colleagues Renáta Kosová of Cornell University and Rozenn Perrigot of University of Rennes, studied the effect of vertical integration on the performance of individual hotels. They found that a company’s decision whether to franchise or own a particular hotel has little effect on yield (average price) or performance.

Lafontaine and her team studied an unnamed multi-chain hotel company that has both franchised and corporate-owned hotels under each of its several brands, running the gamut from budget to luxury. They collected data to determine whether organizational form for each hotel has an effect on any of three outcomes: monthly revenues per available room (i.e., what the industry calls “RevPar”), price or yield (average room rate per month), and monthly occupancy rate. Across all three variables, Lafontaine and her colleagues found that franchising per se does not have a statistically significant effect.

“We conclude that the firm chooses which outlets to franchise and which to own in a way that yields no differences in pricing or performance, in the end, between the two sets of hotels,” the authors state. “This result is important as it suggests that when firms can choose, they indeed adjust organizational form in such a way that there are no real differences in outcomes.”

“This does not mean that franchising and company operations do not have different incentive effects, because they do,” says Lafontaine, “but simply that firms are smart about how or where they choose to rely on these differences.”

In the past, empirical evidence had suggested there were persistent performance differences between corporate-owned and franchised businesses. However, the authors note that much of that evidence comes from studying firms that have been forced into a particular organizational structure by legislative intervention. For their research, Lafontaine and her colleagues instead studied a situation in which the decision-maker (here the hotel company) was not forced by legislation into its particular structure.

The authors also ruled out that their findings might be driven by other potential influences on the hotels’ performance such as the presence of air conditioning, swimming pools, or restaurants, as well as proximity to an airport or train station.

“We view the results as suggesting that multi-unit firms can choose organizational form in a way that is responsive to the differences in market conditions across outlets, such that when all is said and done, organizational form itself has no direct effect on outlet-level performance or pricing,” says Lafontaine.

Lafontaine and her team recognize that while their findings are conclusive, the evidence is limited to data from a single company. Future research might strive to include data from multiple firms and different industries.

Cross Posted on Let’s Talk Franchising

Jan Dennis, Business & Law Editor of News Bureau, reports that a new study co-written by Steve Michael a professor of business administration in the University of Illinois at Urbana-Champaign reveals that fast-food restaurants and other chain outlets are less likely to fail when super-sized training programs prepare fledgling owners for the challenges ahead.Advance, in-depth training on everything from bookkeeping to dealing with customers and suppliers is a key to survival for franchise outlets, said Steve Michael, a professor of business administration in the U. of I. College of Business.

But while some chains put aspiring entrepreneurs through months of schooling, others turn them loose in as little as two weeks, increasing the odds of failure, said Michael, whose study was published in January’s Journal of Small Business Management.

“The notion of just watching while somebody else does the job for a while is a mistake,” Michael said. “People need to realize these are sophisticated businesses that require extensive training. The more time you spend at Hamburger University or Dunkin’ Donuts University, the lower the failure rates.”

Michael and Florida State University business professor James Combs studied nearly 90 national restaurant chains to gauge whether franchisors contribute to the success or failure of franchisees, which number about 700,000 worldwide in industries ranging from lodging and office supplies to tax-preparation and cleaning services.

Along with training, franchisors can help keep franchisees afloat by pumping money into advertising that promotes the company brand, according to the study, “Entrepreneurial Failure: The Case of Franchises.” “Chains that are out there promoting themselves create value and drive up demand. When they don’t, franchisees are more likely to fail,” said Michael, who says the study is the most extensive look to date at how chains influence the fate of franchises.

The study also found that rules set down by some chains help franchise outlets succeed, such as offering exclusive territories that restrict intra-brand competition or requiring franchisees to be owner-operators. “Franchisors could be viewed as bullies for forcing owners to actually manage the franchise, but it helps both of them survive for the obvious reason,” Michael said. “If someone puts their full time and effort into an operation, they’re more likely to be successful.”

Michael compared his findings with those of previous studies on the keys to success for chains and found that overall what helps the franchisee survive also helps the franchisor survive. The lone difference, he said, is royalty fees, which tend to help franchisors but hurt franchisees. “It’s often billed as a symbiotic relationship in trade publications and the fact is that seems to be true,” Michael said.

The study found that 13 percent of franchise restaurants in the survey failed – higher than results of some previous studies but far lower than failure rates for traditional start-up businesses that can approach 70 percent. But driving franchise failure rates even lower would be welcome news for the nation’s economy, with chains accounting for more than 40 percent of U.S. retail sales annually.

“It’s a big chunk of the economy,” Michael said. “And it’s a growing part of the economy as more people seek self employment, either because of changes in the macro-economy or just because they don’t want to work for someone else anymore.”

Cross Posted at: Let’s Talk Franchising

It was announced in Convenience Store News that Dinner by Design, a meal assembly chain based in Grayslake, Ill., has unveiled a new package of convenience services that the company expects will change the easy meal prep industry.

Specifically, Dinner by Design’s new services include:

• Delivery services that allow people to preorder entrees and side dishes and have them delivered to their company, daycare, school or other organization. Based on a test marketing effort, the company already has more than 300 group delivery clients nationwide. Home delivery will be unveiled and tested in one location in mid-March.
• Pick Up meals for busy people who don’t have delivery service. Take & Bake entrees, desserts and side dishes are premade and can be picked up anytime during expanded business hours. Orders can be placed online, e-mailed, faxed or phoned in.
• Dinner Tonight selections geared for people who need something for dinner without defrosting time. This service helps meet the needs of nearly 37 percent of people who don’t think about dinner until just before preparing it, the company stated.
• Group delivery, Pick Up service and Take & Bake selections are already available and operating successfully at most locations nationwide. Dinner by Design has nearly 60 kitchens open, and agreements for another 40 locations in the U.S. and Canada.

“This is the wave of the future,” president and CEO John Matthews said in a company statement. “This new business model has been very attractive to existing and potential franchise owners alike. We anticipate that the new meal assembly model will mean added growth for Dinner by Design owners and operators.”

It may be a move in the right direction, though I am always concerned when a franchisor introduces a whole new program before the program has received proper testing. I think the move is indicative of the fact that the industry is failing to provide an ROI to franchisees, and is scrambling to come up with a new business model that can deliver profits.

The challenge with this approach is that it may require additional investments by the franchisees to implement. You wonder if that is just like putting more “good money, after bad money”.

Cross Posted at: Let’s Talk Franchising

QuikDrop is closing its eBay drop-off store franchise business at the end of the month, but franchise stores will be able to continue to use the QuikDrop name, logos, and signage. A conversation with the company’s cofounder Jack Reynolds on Wednesday netted a laundry list of complaints about the challenges of selling on eBay that contributed to his company’s demise, beginning in 2006 with the Stores search and fee changes.

QuikDrop storeowners did not seem surprised at the news of the closure, which arrived via email from QuikDrop headquarters on Friday night – and some actually seemed relieved.

The number of QuikDrop stores shrunk from a high of 95 in mid-2006 to under 30 stores today. Reynolds said the store closings, combined with a number of stores who were unable to pay franchise royalties, led to the decision to close the corporate franchise office.

In late 2005 and early 2006, Reynolds said eBay worked on joint marketing with QuikDrop and things were going well. eBay discovered that consumers who visited drop off stores became more active as buyers on eBay, so the auction site marketed to people who weren’t sellers to promote eBay Trading Assistants. But things took a downward turn in 2006, he said.

Read more in an article by Ina Steiner in Auctionbytes.com

Read an earlier article on Franchise Pundit about eBay Drop Off Franchises

Cross posted at Let’s Talk Franchising

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Franchising your business offers you some intriguing benefits:

• Attracting franchisees to invest their capital into your brand.
• Franchisees are manpower to work the business as stakeholders.
• Increased number of franchises contribute to the establishment of the brand.
• Gain royalty income without capital investment or an increase in contingent lialbility.
• Retain control of the trademark and the business format.

Before you consider franchising your business:

• Make sure the first units economics are strong and profitable.
• Then open a second unit to see if you can replicate the success of the first.
• If the second unit succeeds, try opening a unit at least an hour away. This will show you if your processes work without your being around all of the time.

If your experiment succeeds, you will be in a good position to consider franchising your business.

Cross Posted at: Let’s Talk Franchising

Since Tamarac-based Puroclean began franchising in 2001 it has sold more than 180 franchises, making it one of the 50 fastest-growing concepts in the nation. The company provides mitigation, restoration and reconstruction services for damage caused by fire, water or vandalism.

Part of the company’s success is that it’s a business-to-business model — working largely with insurance agents and adjusters. That draws franchisees who might shy away from traditional sales, said Puroclean President and COO Keith Gerson.

‘’We are one of those under-the-radar opportunities that most people don’t think about,’’ he said. “But when you align all the stars in terms of what makes a good business — growth opportunity, great margins and low cost of entry — it’s just one of those rare models that is firing on all cylinders.’’

Gerson, of Puroclean, said there’s a simple formula to keep fueling the growth of a franchise: Keep the franchisees happy. In fact, some of the company’s best marketers are owners who are eager to sell the concept — which is different than selling the business, said Gerson.

If you talk to a franchisee about buying in and they say, ‘ `Gee, you want to buy a business? I’ll sell you mine,’ ‘’ be leery, he said.

Cross Posted at: Let’s Talk Franchising

Fantastic Sams, a full service hair salon brand with nearly 1,400 salons in the US and Canada, was recently ranked as one of the “50 Top Franchises for Minorities” and the “Top 25 Franchises for Hispanics” by the National Minority Franchising Initiative and Hispanic Enterprise Magazine. Fantastic Sams was the only hair salon franchise system selected by both surveys.

As published in the September 28 edition of the USA Today newspaper, The “50 Top Franchises for Minorities” award recognizes Fantastic Sams as one of the exceptional systems that has demonstrated a focus on recruiting and supporting minority franchisees into its system. Selection was based on many factors, including historical performance, brand identification, market dynamics, franchisee satisfaction the level of initial training, on-going support and financial stability.

The “Top 25 Franchises for Hispanics” was featured in the June/July issue of Hispanic Enterprise Magazine. Fantastic Sams was recognized as a franchise that has made a corporate commitment to recruit prospective franchisees from the Hispanic community over the past several years. According to Hispanic Enterprise Magazine, “This commitment is not based on altruism; it is based on sound economics. The companies noted here represent exceptional opportunities for prospective franchisees and have demonstrated a commitment to properly training and supporting you once you become a franchisee.”

Fantastic Sams is also a charter member of Minority Fran, a program that was recently launched by the International Franchise Association’s Diversity institute. Minority Fran was created to build awareness of franchising within minority communities and to increase the number of minority franchise owners.

“We are thrilled about our recent recognition by the minority business community,” said Scott Colabuono, CEO of Fantastic Sams. “We want to recruit franchisees who are interested in running a business and who also understand the culture of the clients they serve.”

Fantastic Sams is currently concentrating its efforts on attracting quality franchise partners who want to invest in a leading hair salon brand with a solid operating system and a strong corporate support structure. The average initial investment to open a Fantastic Sams Hair Salon (ranging between $100,000 to $225,000) and the company’s fixed fee royalties make it one of the most competitive opportunities in the industry. “With Fantastic Sams’ attractive economic model, experienced franchise partners find our brand a worthwhile investment,” added Colabuono.

“Prospective franchise owners for Fantastic Sams should have well developed people skills to be successful. Our best salon owners set a standard for guest service that translates into highly trained and motivated hair stylists. Our guests recognize the difference when they step into our salons,” according to Jeff Sturgis, VP Franchise Development. “We have become the leading full service hair salon brand by offering the best in salon services and products, and by creating a customer loyalty that sets us apart from our competition, “he added.

Cross Posted at: Let’s Talk Franchising 

Uniform Franchise Offering Circulars, known as UFOCs, was a response to some unethical behavior in the 1960’s and 1970’s. Today franchises are regulated by federal and some state laws. The Federal Trade Commission (FTC) requires that certain information be disclosed to potential franchisees before a contract can be signed or any payment made. The information is presented to the prospective franchisee in the form of a document — the UFOC.The UFOC, contains information franchisors must provide to franchisees by law. UFOCs are deemed to be reliable and if the information provided is false, franchisors are subject to civil penalties. However, the FTC does not require filings. There are 13 states that do keep UFOCs on file, and 23 states that require business opportunity disclosure filings.

The UFOC is designed to give prospective franchisees all the information relevant to a franchise offering. It is made up of three basic parts: 23 sections (called Items) describing various aspects of the franchise program; a set of the franchisor’s audited financial statements; and a copy of each form or contract a franchisee is expected to sign if he/she intends to buy the franchise.

The UFOC is similar to a securities prospectus. It can provide the information you need to evaluate a company. An accredited franchise company, whether publicly traded or privately owned, must provide this disclosure document.

The UFOC is most valuable for potential franchisees, potential franchisors, franchisors, investors, financial companies and suppliers to franchisees.

You can obtain UFOC’s directly from the franchisor usually for free, from the California state franchise document portal, and from several online sources such as FreeFranchiseDocs.com which downloads and scans the documents from the California database.

Cross Posted at: Let’s Talk Franchising

[edited by Ryan on on Oct 20, 2007 @ 10:15PM]

I received an email from Source Book Publications regarding Earnings Claim in Item #19 of the UFOC, I agree with Sourcebook that all franchisors should be required to submit an earnings claim statement (Item 19) in their UFOC. Given that submission of an Item 19 is entirely voluntary, only 20% of franchisors choose to do so. The reasons for non-submission range from the ludicrous to vaguely plausible.

To myself and Sourcebook, it seems entirely one-sided to ask a prospective franchisee to invest in excess of $200,000 (on average) to “buy” a franchise without providing him or her with a clear understanding what he or she might earn from the investment. Although there are numerous variables that preclude franchisors from coming up with an exact projection of future Net Operating Income, the franchisors clearly have the ability to determine the historical sales and related expenses for operating units currently within their system.

At a minimum, they can work backwards from royalty payments to come up with a gross sales figure. To the extent that they closely monitor and support their franchisees, they should have a good sense of average operating costs as well. Given this information and the latitude they have to provide as much detail as they see fit, they can break out summary operating data for those franchisees or company-owned units that have been around for say 5 years, 10 years, etc.

My sense is that the FTC will ultimately acknowledge the need for a mandatory Item 19. Given the difficulty from industry to industry to provide a workable template for the submission of information, the FTC will continue to allow franchisors to provide as much or as little information as they deem necessary. Those franchisors that do in fact provide real, in-depth information will clearly enjoy a competitive advantage over those that do not. At any rate, those franchisors that go to the trouble of including an Item 19, even if only cursory, should be acknowledged and applauded.

As an on-going feature of future newsletters, World Franchising will publish an exemplary Item 19 each month. This month, they honor Papa Gino’s for the exceptional detail that they provide in their Item 19. My guess is that the rapid growth and success of their system has a great deal to do with the forthrightness with which they celebrate the success of their existing franchisees. To view their Item 19, please click here.

Those companies who feel they provide exceptional disclosure in their Item 19s are free to submit their Item 19 electronically for consideration in subsequent newsletters.

Cross Posted: Let’s Talk Franchising

Rush Nivet posted on his blog Rush on Business that last week he had the opportunity to attend the ABA’s Forum on Franchising.

He writes: What a great event! First and foremost, it was an opportunity to network with some of the best franchise lawyers in America. Second, I really enjoyed hanging out with fellow Iowa franchise lawyers, Matt Krigbaum of Cedar Rapids and David Bright of Iowa City. These guys are excellent lawyers and terrific individuals. If you are Eastern Iowa I recommend you talk with them regarding your franchising questions.

The initial seminar session I attended was the Fundamentals on Franchising. Some top-notch franchise lawyers spoke during this 4 1/2 hour session but of particular interest to me was the talk by Ron Gardner of the Dady and Garner Law Firm in Minneapolis. The law firm is regarded as one of the best firms in the country representing franchisees in disputes with franchisors. In my franchise law work I counsel and negotiate on behalf of franchisees so the talk was very informative.

Some highlights of Gardner’s talk:

1. If a franchisor is making certain promises you should attempt to have those promises included in the franchise agreement. Often a franchisor will say certain things to entice a franchisee to enter into the franchise agreement. But when you read the agreement these promises are no where to be found. Get those promises in writing. If not, you should have no expectation the franchisor will follow through on its promises.
2. Franchisees and their lawyers must communicate together on much more than just the franchise disclosure document or the franchise agreement. In order to advise you properly it is important to know your background, your needs and your expectations. Without this information it is often difficult to know what it important for you in a negotiation and what is not.
3. Run Away from Franchisors that Won’t Negotiate. Some franchisors will tell you that they won’t negotiate their agreements, or worse, tell you the laws and regulations do not allow them to negotiate their agreements. Tell them to take a long walk off a short dock! Ask youself whether you want to be in business with a franchisor that will not consider your busines goals and needs. Fortunately, my experience has been that many franchisors will negotiate at least certain key terms and conditions.
4. Key Disclosure Issues. Key disclosure issues generally include litigation, initial investment, vendor rebates, earnings, outlets and financial statements. It is important to closely review the information regarding outlets. Carefully study the number of transfers and not just the number of closures. A high number of transfers may be an indication that franchisees in the system are struggling but bad stores have not been shut down. As I have preached franchise due diligence must include interviews of franchisees, including those that have left the system, in order to get a full picture of the franchise system.
5. Be Willing to Walk Away. I have touched on this before. This is the paradox of negotiation. You should not fall in love with the deal. Prospective franchisees who are willing to walk away usually get much more from those who have decided to sign at all costs.

Cross posted at Let’s Talk Franchising

Visiting a franchise trade show is a great way to gather a lot of preliminary information and survey what’s out there in the franchise world in a short period of time, and you can find them in most cities. The National Franchise and Business Opportunities show will be in Boston on Saturday and Sunday October 13th and 14th. The show will be open from 11:00 am – 5:00 pm.

The National Franchise and Business Opportunities Expo is great for those who are considering owning their own business.

When attending a franchise trade show, keep a few things in mind. The companies exhibiting at the show do not make up all the franchise opportunities available. A franchise trade show showcases only a limited selection of the 2500 franchise programs out there.

You should take the opportunity to hear why the franchise representatives feel their opportunity is worth investigating. Ask questions about the business model, and the outlook of the industry.

Use these guidelines to help you make the best of your franchise trade show visit.

Before you attend the franchise trade show:

1. Identify what your “must have priorities” are!
2. Identify your financial situation. What is liquid, what can you borrowed from family and friends, and how much do you need to live on? What are your financial requirements?
3. Be serious. Dress conservatively, leave the kids at home, and take business cards if you have them. Show the representatives you meet that you’re a serious prospect.

At the franchise trade shows:

1. Look at the floor plan of the exhibitors listed. Check off the businesses you recognize or that look interesting to you.
2. Don’t waste time. Pass by the franchisors who are out of your price range or don’t meet your “must have priorities”. Prepare a short list of questions: 1. what is the total investment required? 2. Tell me about a franchisee’s typical day. 3. What are the prospects for the industry future? 4. Is financing available from the franchisor?
3. Collect printed information from all the companies that interest you.

After the franchise trade show:

1. Organize the materials you collected.
2. Follow up. Visit the websites and call the franchises to gather more information.

A franchise trade show is a great way for you to introduce yourself to some of the many franchise opportunities available.

Cross Posted at: Let’s Talk Franchising

Soup Kitchen International, the creators of the Zagat-rated soups of Al Yeganeh, the legendary soup man who inspired the “Soup Episode” on Seinfeld, and Cold Stone Creamery, today announced the grand opening of the first The Original SoupMan/Cold Stone Creamery at 2 Astor Place in New York, NY in early November. Recent Penn State graduate Daniel Petryszyn is opening the first hybrid, co-branded franchise that will feature both The Original SoupMan’s world-renowned soups and Cold Stone Creamery’s super-premium ice cream.

Petryszyn’s Original SoupMan/Cold Stone Creamery, in addition to ice cream, will showcase Yeganeh’s 50 varieties of soup as the “centerpiece of the meal.” Each meal will be presented with a piece of fresh, crusty baguette, fresh fruit and a piece of imported chocolate — just like Al Yeganeh served it at his original shop. As Yeganeh explains it, this is simply “the way to eat.” Alongside Yeganeh’s 50 varieties of soup there will also be an extensive line of gourmet salads and sandwiches.

“Customers demand choice and innovation,” said Dan Beem, Cold Stone Creamery President. “We’re pleased and excited to explore these opportunities with the Original SoupMan to introduce both the highest quality, most creative ice cream experience alongside premium, gourmet soups, all under one roof.”

It was reported on Let’s Talk Franchising that  “Seinfeld’ Soup Nazi Franchises Troubled”  that disgruntled franchisees say many of the franchises didn’t make it through their first year: At least eight have closed for good. Two more have shut their doors for now, although the company said it has deals in the works to reopen them.

Cross Posted at Let’s Talk Franchising

It was reported today that Byron Ashbridge and Joe Pitt, who operate five Sona MedSpa franchises in Charlotte, Greensboro and Raleigh North Carolina, have purchased the controlling interest in S0na MedSpa International, previously based in Franklin, TN. Since 2002, Ashbridge and Pitt have run some of the most successful locations in the company and will build upon their accomplishments in North Carolina to fortify, grow and improve the operation. This includes developing and implementing extensive staff training and marketing programs, and providing franchisees with proven systems and best practices to ensure optimal performance, customer satisfaction and profitability. The existing franchise locations will now be company-owned training centers and be the models for “best practices” in the medical spa industry. Franchisees will now have access to these company-owned centers in order to assist in the training and development of their respective staff, as well as determining marketing and operational tactics to use in their centers.

It was reported at Let’s Talk Franchising on May 26th, 2007 that Sona MedSpa Was Guilty of Fraud, Investors Liable! In that case an arbitrator in Atlanta, Georgia awarded nearly $400,000 to a franchisee who was duped into buying a Sona MedSpa franchise on the basis of “faulty” information about Sona’s hair-removal services. The arbitrator not only held liable the Nashville-based franchisor, Sona MedSpas, and its founder, Dennis Jones, but also a group of prominent investors that acquired the franchisor, but then failed to correct the misleading information. The investors included Carousel Capital of Charlotte, N.C., its Chairman, Nelson Schwab II, Jim Amos, former President of Mail Boxes, Etc., and his daughter, Heather Rose. As a result of the investors’ failure to act on the information, the franchisee not only proceeded with his investment, but also repeated the faulty information to its own clients.

Subesequently Sona MedSpa wrote a letter to Let’s Talk Franchising claiming the results of the arbitration were misrepresented, that letter was published Sona MedSpa claims the results of the arbitration were misrepresented on May 31st 2007.

The new owners of the franchisor; franchisees Ashbridge and Pitt offer the following five positioning statements, to summarize their approach to operating as the franchisor of Sona Med Spa, this is the platform upon which they will build the company:

• “We have been S0na MedSpa franchisees for the last five years and have managed highly successful, customer-centric centers. We understand our franchisees’ challenges and the enormous potential the Sona franchise possesses. We clearly understand our success as a company is completely dependent upon the success of our franchisees.”
• “We are dedicated to growing the business and committed to the financial stability and performance of the company and its franchisees.”
• “Before actively selling any new franchises, our primary focus will be on helping existing franchisees grow and become more profitable.”
• “We will provide the supplementary marketing and operational support to assist our franchisees in taking full advantage of their market potential.”
• “In addition to eventually growing the number of Sona MedSpa centers, we are equally committed to growing the number of company-owned locations.”

“Sona MedSpa is a proven concept, leader in the aesthetic industry, and is positioned for long-term success. We will bring the company to the next level using the experience we’ve gained from our accomplishments in North Carolina,” says Sona MedSpa International’s new President and Co-CEO Byron Ashbridge. “We have been franchisees, and strongly believe in the Sona MedSpa concept and brand. This positive experience will serve as the operational blueprint for the future. We also know the concept is a sound one and that the demand for personal aesthetic and wellness services will continue to grow.”

The new Sona MedSpa International will be based in Charlotte, North Carolina, where the company’s Business Development Center is located and the new training center will be established.

Founded in 1997, Sona MedSpa International, Inc. is one of the world’s largest medical spa companies, specializing in medically supervised aesthetic services in a luxury spa environment. Sona MedSpa’s offerings include the latest in laser hair removal, skin rejuvenation, botox and dermal filler injections, meso therapy and other fat and cellulite reduction services, medical-grade microdermabrasion, acne treatments, spider vein removal, and smoking cessation. Sona MedSpa centers are currently located in San Jose, San Mateo, Costa Mesa, Sacramento, Chicago, Grand Rapids, Raleigh, Charlotte, Greensboro, Las Vegas, Harrisburg, Memphis, Nashville, Richmond, Little Rock, Dallas/Ft. Worth, Virginia Beach, Newport News, Houston and Miami.

Cross Posted at Let’s Talk Franchising

Potential buyout offer has support of family of founder Dave Thomas

COLUMBUS, Ohio – It was reported in the Mansfield News Journal 6 that the owner of 134 Wendy’s franchises wants to make a bid for the nation’s No. 3 hamburger chain with two private-equity firms.

David Karam, president of Cedar Enterprises Inc., said Wednesday that he and his partners have been invited by Wendy’s International Inc. to a second round of talks. He is backed by Kelso & Co. and Oak Hill Capital Partners.

“I’ve been involved in the brand,” he said. “I see the great potential of it.”

Cedar Enterprises, based outside Columbus, owns Wendy’sfranchises across the country that have a combined annual revenue of $200 million.

Karam’s first-round proposal was enough to garner entry into a second round next month, where bids are expected. He would not disclose how much he is willing to pay for Wendy’s, but said the company’s current stock price is rich.

Wendy’s shares rose 20 cents to $33.26 Wednesday.

“Fundamentally, there’s great upside with the brand, but the reality is no one wants to overpay,” he said.

Billionaire investor Nelson Peltz has said his company, Triarc Cos., is prepared to offer $37 to $41 per share for Wendy’s in a deal that would peg Wendy’s total value between $3.2 billion and $3.6 billion. Triarc owns the fast-food chain Arby’s and is also a major Wendy’s shareholder.

Peltz said in July that he and his allies had increased their Wendy’s stake to 9.8 percent of all outstanding shares.

Wendy’s formed a committee in April to determine how best to boost its stock price, including a possible sale. Wendy’s spokesman Denny Lynch and Peltz’s spokeswoman Carrie Bloom declined to comment Wednesday.

In the past year, Wendy’s has spun off its Tim Hortons coffee-and-doughnut chain and sold its money-losing Baja Fresh Mexican Grill following pressure from Peltz and other investors to boost the value of Wendy’s stock.

As a franchisee, Karam said he fears Wendy’s sales and product development would continue to stagnate under owners who do not know the chain as well as he does.

Karam’s father, Joseph, was one of Wendy’s original investors and became a franchisee in 1975. David Karam has run Cedar Enterprises for 22 years.

Karam has the backing of the family of Wendy’s founder Dave Thomas, said Pam Thomas Farber, Thomas’ daughter. The family would like to see the company turned over to someone involved in the company, she told The Columbus Dispatch, which first reported Cedar Enterprises’ bid.

“We don’t want the company to leave,” she said. “It’s been very hard on the family.”

Wendy’s, based in suburban Dublin, operates about 6,600 restaurants in the United States and abroad.

It trails rivals McDonald’s and Burger King.

Cross Posted at: Let’s Talk Franchising

In 1996, the bagel business was taking off, with several franchises expanding rapidly across the country. Franchises of Brueggers, Einstein Bros., Manhattan, Noah’s and Chesapeake were selling like hot cakes (bagels that is).

The prospects for the bagel business altered dramatically in June 1997 when Dunkin’ Donuts announced that its 2,000 stores would begin to sell bagels. This, in one stroke it became the largest bagel retailer in the nation.

At about the same time fresh bagels were being introduced in supermarkets across the country. In 1996 Modern Baking Magazine reported that Fresh bagels sales were up 50% in supermarkets and represented over $125 million in sales nationwide. By 2000 the total was over $400 million.

Bagels were now everywhere: big grocery stores, fast-food menus, middle-America cafeterias, even frozen-food sections. In 1988, Americans ate, on average, one bagel per month; in 1993, it was one every two weeks. According to Modern Baking (May 2007), fresh bagel sales are over $500 million dollars per year in supermarkets alone.

Some say even the Bagel itself changed, over the years bagels have undergone a transformation from small, dense, and satisfyingly chewy into large, puffy, and a mere platform for sandwiches.

Sales dropped, franchises stopped selling and the bagel franchises closed many stores.

Brueggers, Einstein Bros, aren’t just about bagels anymore. They all have re-branded themselves as bakery café’s.

Einstein Bros. Cafe is just one example of a bagel concept reaching beyond the bagel. Bruegger’s Enterprises Inc., based in Burlington, Vt., also has expanded menu offerings and started redesigns on its 250-unit Bruegger’s chain to place itself in the fast-casual segment.

Bruegger’s once famous for authentic boiled and baked bagels, now offer a variety of other stone-hearth baked breads, such as Ciabatta and the exclusive Softwich, a softer, square bagel ideal for sandwiches. The redesigned Bruegger stores now offer a warm, comfortable café setting for guests to enjoy breakfast, lunch and dinner.

Cross Posted at: Let’s Talk Franchising

SoupMan Bid to Turn ‘Seinfeld’ Fame Into Empire Goes Off the Boil

David B. Caruso, Associated Press reports:

The chef who inspired the Soup Nazi character on “Seinfeld” makes a heck of a crab bisque, but a group of stewed investors says he’s having problems expanding his popular stand into a franchise empire.

Soupmaker Al Yeganeh closed his original Manhattan shop, famous for its strict ordering rules, in 2004 to focus on franchising Original SoupMan stores across the country. The company launched around 40 stores in its first two years and introduced its frozen soups to groceries.

But disgruntled franchisees say many of the new shops didn’t make it through their first year: At least eight have closed for good. Two more have shut their doors for now, although the company said it has deals in the works to reopen them.

Other franchisees told The Associated Press they want out of their contracts because of poor profits or bad relationships with the company. Several have sent the company letters threatening to sue.

Kevin Long, whose Original SoupMan franchise in Scranton, Pa., lasted just one winter, accused the company of misrepresenting how much it would cost to open and run the business.

He and other franchisees said the company also had early problems with its bowl and cup sizes, which were larger than expected and inadvertently gave patrons more soup than they paid for, and never lived up to promises to provide a product line that would sell during the summers, when demand for hot soups is low.

“They are just trying to get as many stores open as possible, and they aren’t supporting them whatsoever,” Long said.

Prices of $7 to $11 per 12-ounce bowl also made it tough to attract repeat customers, he added.

At least three stores have closed, at least temporarily, in New York City. Shops also have shut in Myrtle Beach, S.C., Harrisburg, Pa., Boulder, Colo., Colorado Springs, Colo., and Ottawa, Canada.

Franchisees in locations including Stratton Mountain, Vt., and Ridgewood, N.J., have asked to be released from their contracts so they may try staying open as a different type of business.

Original SoupMan spokesman John Rarrick chalked up the store failures to the normal “growing pains” associated with any new restaurant franchise.

“This is very common,” Rarrick said.

Of the struggling stores, he said, “They were really pioneers, and certainly there are risks associated with being a pioneer.”

Rarrick said the company had fixed the problem with the bowl sizes, abandoned an early idea of having most of its franchises operate as inexpensive carts and kiosks and struck a deal with Cold Stone Creamery that will create hybrid stores that will sell soup and ice cream.

He added that the soup company had delayed a plan to open 50 franchises in Britain while the it refined its business model.

“There are some really happy, really successful franchisees,” he added.

Original SoupMan opened its first stores in 2005, simultaneously capitalizing on and distancing itself from the “Seinfeld” episode that made Yeganeh famous.

On the show, a steely eyed chef makes his patrons follow a strict set of instructions dictating how they must order their soup, and he barks “No soup for you!” at those who fail to comply.

In real life, Yeganeh’s Manhattan store had similar rules posted: “THE LINE MUST BE KEPT MOVING. Pick the soup you want! Have your money ready! Move to the extreme left after ordering!”

Yeganeh, though, chafed at the Nazi nickname, which he felt insulting, and has discouraged his franchise owners from mentioning “Seinfeld” or saying “No soup for you!” on the job.

Crosds Posted at: Let’s Talk Franchising

Valerie Killifer reports in Fast Casual The culturization of yogurt  when a little-known frozen yogurt shop opened in West Hollywood in 2005, Californians from the Valley to the Hills (Beverly Hills) couldn’t get enough.Pinkberry unsettled an otherwise quiet neighborhood and gave health-minded patrons the ability to indulge. It also reinvigorated consumers’ taste for frozen yogurt.

Since the launch of the TCBY franchise more than 25 years ago, frozen yogurt has experienced a pop-culture roller-coaster ride of popularity. But with the launch of several new frozen-yogurt concepts, and the success of existing custard franchises such as Culver’s, the segment has completed its latest uphill climb and is once again ready for accelerated growth.

Pinkberry’s owner told the Los Angeles Times on Aug. 4, 2007, that she understands the consumer desire for low-calorie, healthy food. And she’s not alone.

Concepts such as TCBY and Beautiful Brands International are banking on that same mentality for the success of and launch of their premium and frozen yogurt franchise concepts, Yovana and FreshBerry, respectively.

Yovana brand manager Rob Hanson said the concept was created in response to consumer health trends and features proprietary premium and frozen yogurt offerings in addition to yogurt-based smoothies.

“Yovana took TCBY’s expertise in yogurt beyond frozen yogurt and presented a healthier alternative to consumers,” Hanson said. “I think it fits very well with where consumers are going.”

Yovana has four open locations, two in airport locales and two standalones, but Hanson said the concept is still in the test phase.

“Really, we’re refining the concept,” he said. “We’re making sure the menu is right and everything operationally flows the way it should.”

FreshBerry as well is in its infancy.

The first location is slated to open in October after sitting in concept development for about a year.

“The public is ready for a reinvention of frozen yogurt,” said Carolyn Archer, senior vice president of operations for Beautiful Brands. “FreshBerry is the antithesis of the yogurt shops of the 1980s and 1990s. The whole idea is light, refreshing and really healthy. It’s the new wave of yogurt shops that’s going to hit the country.”

The berry of it all
If the success of Pinkberry is any indication, consumers are more than ready for a frozen-yogurt resurgence — and healthful toppings are leading the way.

While ice cream and gelato shops offer toppings such as gummy worms and candy bar crumbles, yogurt concepts such as Yovana, FreshBerry and Washington, D.C.-based Sweetgreen are capitalizing on fruit, nut and granola toppings trends.

Hanson said Yovana’s most popular topping is fresh fruit, which fits with the trend Beautiful Brands is seeing, too.

Darren Tristano, executive vice president for Chicago’s Technomic Information Services, said yogurt concepts are successfully capitalizing on healthful toppings instead of ones bogged down with preservatives and sugary syrups.

Unique flavors also are driving the segment.

Pinkberry only offers two flavors — plain and green tea — but there is plenty of room for innovation, Archer said.

“The Italians have been doing gelato in herbal flavors for decades,” she said. “And that’s coming over into the U.S. People are more adventurous in trying new flavors.”

Tristano also believes Korean-style yogurt concepts, such as Sweetgreen and Pinkberry, will continue to spread across the United States.

“We’ll see more of them and they’ll branch out more from the West Coast and areas popular with smoothies and ice cream and traditional frozen custard,” he said.

Pinkberry alone has 21 locations in California and New York, with plans for 50 more by the end of 2007. And another concept, Red Mango (with more than 130 locations in South Korea), made its U.S. debut this fall in Los Angeles.

Cross Posted at: Let’s Talk Franchising

Knockouts, a full-service salon franchise that would make Floyd the barber blush, is busting into New England.Naomi Kooker reports in the Boston Business Journal that Neko Corp., headed by Bing Yeo of Lexington, bought the rights to franchise the salons that have been dubbed the “Hooters of haircutting,” where a scantily clad “specially chosen staff of female stylists” provides professional grooming services, including haircuts, coloring, waxing, manicures, pedicures and massages for men.

Yeo purchased the rights in June to develop the franchises or sub-franchise the stores in Massachusetts, Maine, New Hampshire and Vermont. He plans to open his first store in Greater Boston by the end of this year or early 2008. He is looking in Allston-Brighton, among other areas, to open the first store, though no lease is signed.

The franchise agreement gives him 15 years to roll out 20 stores; but Yeo, a business consultant, said his goal is to roll out that many in five years, focusing on the eastern Massachusetts and southern New Hampshire markets.

Yeo did not disclose the cost of his agreement. Knockouts’ one-time franchise fee is $20,000 per location, with a 6 percent royalty fee thereafter. A 1 percent national advertising fee is also implemented after a store opens.

To date, some Knockouts franchisees have reported brisk business and profit margins exceeding 20 percent.

The concept comes at a time when other salon chains geared toward men are entering Greater Boston. For example, Floyd’s 99 Barbershop opened in Boston earlier this year.

However, none require the stylists’ uniforms that Knockout does.

“I wouldn’t deny the sex appeal,” said Yeo, who lists his wife, Winnie Yeo, as the director of the company on his Web site. “It’s certainly part of the branding.”

Yeo confirmed that the stylists, all women, are professional and certified, yet need to be friendly and attractive. He conceded the short-shorts worn by Knockouts stylists in Texas may not go over well in New England, and he’s deciding on an alternative such as dresses that are worn by stylists in Atlanta. “That outfit works in terms of the girls willing to wear those, and the customers really appreciate them,” he said.

Yeo said the target demographic for customers is men, ages 18 to 55, though women and children are welcome.
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The stores, with a boxing theme, are 1,000 square feet to 1,500 square feet and feature eight to nine haircutting stations surrounded by a boxing ring. Each station has a medium-size flat-screen TV. In other states customers are offered a free beer, but Massachusetts’ stringent liquor laws prohibit that service. Complimentary nonalcoholic beverages will be offered instead.

Most haircuts cost $25 or more and include two washes, consultation and head and shoulder massages; other services cost between $3 for a beard trim to $90 for a massage.

Build-outs, which include the lease and remodeling, cost between $15,000 and $40,000. Total startup costs, including equipment, are between $90,000 and $190,000. Each store employs five to seven people.

Retailing expert and lecturer Rick Segel, based on Cape Cod, called the concept “inevitable” given the growth in the adult entertainment industry and extensions of it, such as establishments like Hooters. “If it’s done right and done professionally and tastefully … they’re a huge success. The old line, sex sells — it really does.”

“We’ve done an excellent job of not crossing the line,” said Tom Friday, CEO of Knockouts Management Company LLC, the chain’s parent company, based in Irving, Texas. He founded the concept when he opened the first store in Addison, Texas, in 2003.

Knockouts has nine locations nationwide with 123 franchises, including Yeo’s, slated to open over the next few years.

Texas-based Sports Clips Inc., another sports-themed haircutting chain geared toward men, is Knockouts’ main competitor. It currently has 447 franchised stores nationwide; it employs men and women stylists and does not require them to wear skimpy outfits.

Cross Posted at: Let’s Talk Franchising 

The fresh-Mexican chain puts franchised growth on hold in favor of company expansion.  Maya Norris reports in Chain Leader that Camp Fitch the CEO of Tijuana Flats has decided to forgo franchising at Tijuana Flats to concentrate on company growth.

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