I had the opportunity to visit Washington DC this weekend and participate and attend the International Franchise Expo which ended yesterday.

It was great to see old friends and make new ones; as franchising continues to expand and prosper.

Walking the aisles I observed and heard many interesting things:

Read more: From the Aisles of the IFE

A group of franchisees, in a letter yesterday to Friendly Ice Cream Corp. shareholders, have voiced their support for the company’s restaurant operating system and for new CEO George Condos.

The Boston-based group, which represents 95 percent of Friendly’s Ice Cream Restaurant franchisees, was responding to the company’s recent announcement it would explore “strategic alternatives” including the possible sale of the company. Their letter appeared to be a vote for the status quo.

“We are writing to you to express our united support for preserving the long term interests of the Friendly Restaurant Operating System,” the franchise owners wrote.

“For many of us, our investment in Friendly’s and the success of Friendly’s restaurants is our livelihood,” they added. “We are very encouraged by the recent actions of the current Board in hiring George Condos … [and] believe he is in a position to grow our business for the benefit of Shareholders and Franchisees alike.

“Conversely, we oppose any investor(s) or shareholder(s) who do not look to protect the long-term interests and success of the current Franchisees and our significant investment as major ‘stakeholders’ in the Friendly’s Brand.”

Additional information, including the full text of the letter, is available at BusinessWire.com.

AmeriVestors, Inc. announced yesterday that it has commenced the preparation of legal documents to be filed with State and Federal Government agencies in order to offer franchise opportunities for Justice by the People . Upon filing of the UFOC, the company will file notice and fees with the Texas Secretary of State, so that it may commence the sale of franchise opportunities in the State of
Texas.

Justice by the People, Inc., a wholly owned subsidiary of AmeriVestors, Inc., serves consumers that wish to save hundreds, even thousands of dollars, in their simple, uncontested legal matters. The
US legal industry is a $184 billion sector. The company offers approximately 80 legal documents for uncontested legal issues such as uncontested divorce, living trusts, incorporation, etc. The company has designed a model to create a national franchise chain providing high quality, accurate and affordable legal document preparation services for simple, uncontested legal matters. Justice by the People does not offer legal advice in the preparation of its clients’ uncontested legal documents.

Now maybe there will be some “copy-cat” law franchises coming out soon. Can you submit some names?

To start things off how about: “McMalpractice” or “Lawless & Lawless”

It was reported in the Rochester Democrat & Chronicle in an article by David Tyler that the Kessler Family LLC of Brighton, NY, the largest franchisee of Friendly Ice Cream Corp., may be interested in buying the chain.

The Kessler company said Monday it has retained Mastodon Ventures Inc., a merger-and-acquisition firm in Austin, Texas, to explore “strategic alternatives,” including the purchase of some or all of Friendly’s assets.

The move follows Friendly’s announcement last week that it had retained Goldman Sachs & Co. to explore its own set of strategic alternatives.

Friendly Ice Cream has a network of 530 franchised and company-owned restaurants and distributes ice cream at 4,500 supermarkets. The company has been in a public battle with Sardar Biglari, head of the Lion Fund and Western Sizzlin Corp., which controls about 15 percent of Friendly’s shares. Biglari and associate Philip Cooley are seeking seats on Friendly’s board.

The company has also drawn criticism from 91-year-old co-founder Prestley Blake, who was 20 when he and his brother opened an ice cream shop in Springfield, Mass., during the depths of the Depression, selling double-dip cones for a nickel.

Kessler Family, run by brothers Dennis and Laurence Kessler, is the largest Friendly’s franchisee, with 46 restaurants. Reached Monday, Dennis Kessler declined to comment, citing the early stage of the process.

Robert Hersch, a principal in Mastodon, said the Kesslers wanted to explore options because “they believe in the Friendly’s concept.”

“Most of this is up to Friendly’s,” Hersch said.

Asked if the Kesslers supported Biglari’s effort, he said, “no comment.”

In addition to the Friendly’s restaurants, Kessler Family owns upstate Burger King restaurants.

When I was growing up: Wednesday’s was always Prince Spaghetti Day, but at least once a week we had pizza from Papa Gino’s.   It’s great to hear that Papa Gino’s is planning to more than double its restaurants to 335 pizzerias over the next five years and expand for the first time outside its hometown New England market.

The Dedham company is looking to add 135 stores in New England, including about 90 of its first franchised restaurants, and open shops in new regions along the East Coast in Florida, Virginia, and North Carolina.

“We’re taking a giant leap,” said Anthony Padulo, Papa Gino’s senior vice president of franchise development. “We’ve been a market leader in the pizza business here, and we want to grow at a faster rate than what we’ve been doing. The timing is right.”

The push comes as other major pizza purveyors, including Little Caesars, have targeted the competitive Boston market for expansion. Papa Gino’s, which was started nearly 40 years ago as a single East Boston pizza shop, was ranked as the 21st-largest operator with about $145 million in sales in 2005, according to the most recent figures from trade publication Pizza Today.

Last year, Papa Gino’s sales exceeded $160 million, and existing stores have seen a 5 percent sales growth annually over the past five years, Padulo said. Papa Gino’s says this makes it a prime time for the company to expand its brand through franchises and take advantage of the growing $35 billion US pizza market.

Papa Gino’s, whose parent company Papa Gino’s Holdings Corp. also owns D’Angelo Grilled Sandwiches, has already secured the market’s first franchise location, in Portland, Maine. Papa Gino’s recently unveiled the prototype for company and franchise stores that aims to create more of an authentic, yet contemporary ambience. The prototype features a new logo, larger interior, prominently displayed pizza preparation and baking area, and upgraded booths, tables, and chairs.

Read more: Papa Gino’s seeks bigger slice of pie By Jenn Abelson, Boston Globe Staff  March 9, 2007

In its first major overhaul of its franchising regulations in nearly 30 years, the Federal Trade Commission is finally calling for greater disclosure by franchisors.

The FTC aims to insure that prospective franchisees “avoid harm” when considering a franchised business, the FTC said in publishing the revisions, which will become mandatory next year.

Under the revised franchise rule, confidentiality agreements preventing current or former franchisees from talking about their experiences would have to be disclosed. Regulators often recommend that would-be franchisees contact former or current franchisees to get their take on a business.

The FTC also wants franchisors to provide information about franchisee associations operating under a trademark, so prospective franchisees can learn more about the pros and cons of a system. Some examples of franchisee associations are: North American Association of Subway Franchisees NAASF, and Dunkin Donuts Independent Franchise Owners DDIFO.

Franchisors will now have to reveal lawsuits they brought against their franchisees under the revisions; the FTC’s original rule only required that franchisors disclose litigation filed by franchisees.

“The nature of the relations between the seller and the purchaser, as reflected in litigation, is of central importance” in assessing a major investment such as a franchise, the commission concluded. Other requirements include disclosure of exclusive territory.

Often franchisees think they won’t have to worry about another franchise opening up down the street, only to find that they’re not protected. “Taken together, each of these amended disclosures … will enable prospective franchisees to better assess the quality of the franchise relationship, and their likely success as franchisees,” the FTC said.

However, I am disappointed that the revised rule fails to require disclosure of a franchise’s financial performance. I think it’s very important to the future success of franchising that more franchisors make financial representations and I believe it would have been a good time to require franchisors to make financial representations. Hopefully we won’t have to wait another 30 years.

The revised FTC rule becomes mandatory in July 2008, but franchisers may comply beginning July 1.

Cross Posted at Lets Talk Franchising

The single most important factor in the long term success of the best franchise systems is effective leadership. When you look at the cause of every significant achievement or problem there is always one driving force; effective leadership or lack thereof.  

Leaders have always faced the job of inspiring others while making important decisions with incomplete information. Franchise executives face even more significant and unique challenges. They must first and foremost fulfill the traditional corporate leadership role, ensuring their organization deliver on its promise to its customers, behave in a responsible manner and earn profits.  

But they must also play another role that is far less defined in its responsibilities, the franchisor role. This requires them to coordinate the ambitions of their franchisees — people who are franchise leaders in their own right.  

The best franchise executives all exhibit similar key elements to good franchise leadership. They all have a clear vision: This is not just a one sentence mission statement about being the best franchise. It requires a precise mental picture of how the leader wants all aspects of the franchise system to evolve.  

It’s important for effective franchise executives to maintain believability and integrity: sustained success is only possible if the people, especially franchisees, feel they can trust and respect you. The best franchise systems have an intelligent strategy: it’s important to ensure that the franchise organization goals fit with the needs of its customers, franchisees and the market in which it operates.  

Effective franchise leaders build commitment to change: social and economic changes mean that the best franchise systems must be adaptable in the way they do business. Also as a franchise system grows and develops, changes will be needed to maintain adequate levels of support to its franchisees.  

The most effective franchise executives are adept at managing conflict: while people have a natural inclination to cooperate and help each other, they also have their own individual needs, expectations and approaches. This is particularly so in a franchise network where there can be several agendas operating at once.  

The long term success of the best franchise systems depends on effective leadership.

The Human Bean, an Oregon-based specialty coffee drive-thru franchise, recently announced in a company press release “it is expanding with 28 stores now open and area development agreements for another 110 drive-thrus in the U.S.”

The Human Bean claims they are offering an attractive franchise concept that is almost unheard of in the industry: no royalty fees!!!

I’m sure that is sweet music to some ears, but I suggest buyer beware. Sounds too good to be true, doesn’t it? What’s the catch? 

A quick look at the FAQ off the Human Bean Website reveals:

Q: What are the ongoing royalty fees?

A: We do not collect a royalty fee on sales.  We earn revenues from bulk sales of coffee beans, cups, lids and other supplies to our franchisees. 

Sounds like a “Tie-Buying Clause” some say the most dreaded clause in franchising. 

The press release goes on to say: “Not having to pay franchise royalty fees each month means more money in the pockets of the franchisees.” Not necessarily; if the cost of the beans, cups, lids and other supplies are above market prices, then more money may not be left in franchisees pocket.

I’m not passing judgment on the Human Bean, I don’t know all the details, the stores look pretty cool, and I believe in “fair trade” coffee but if it sounds too good to be true it probably is!

Cross Posted at: Let’s Talk Franchising

NexCen Brands announced that it has entered into definitive agreements to acquire two ice cream franchise systems; MaggieMoo’s and Marble Slab, two well known and established brands within the hand-mixed premium ice cream category. NexCen, a brand management company, is acquiring the companies for a combined initial purchase price of $37 million, plus a potential earn-out of up to $2 million upon the MaggiMoo’s acquisition. These two transactions are expected to be completed before the end of the first quarter and will mark the first acquisitions for NexCen in the quick service restaurant (QSR) sector.

Robert D’Loren, NexCen’s president and CEO, noted: “These acquisitions will provide NexCen with two well positioned brands in the hand-mixed premium ice cream franchise category. With 520 existing franchises stores and 225 stores in the pipeline on a combined basis, these two brands will place us solidly as the number one player in quality and the number two player in the number of franchise units in the hand-mixed premium ice cream sector.

“There is a tremendous growth opportunity with these brands through organic growth and franchise licensing opportunities. We intend to grow these brands outside of the
US through our international franchise network currently operating in over 40 countries worldwide,” Mr D’Loren concluded.

The initial purchase price for MaggieMoo’s is $16.1 million. The Marble Slab acquisition is costing NexCen $16 million in cash, and seller notes in aggregate principal amount of $5 million that earn interest at 6% per annum and are payable one year from closing.

Read more about the 2fer Ice Cream Special: Let’s Talk Franchising

Three years ago on Friday, February 13th, Ground Round’s parent company shuttered its nearly 60 corporate restaurants and the chain’s headquarters. The closing stunned customers, creditors, employees and franchisees.

The mass layoffs and hasty restaurant lockups on that Friday afternoon, catching scores of diners in the middle of unfinished meals, were of a scale not seen in the restaurant industry. The announcement came right before the dinner rush on a Friday, when store managers were ordered to tell diners to finish eating and pay their tabs. (Some were sent home with half-eaten meals in takeout containers.) More than 3,000 employees—some of whom had been with the restaurants for over a decade—were let go without severance, and their final paychecks bounced.

A few big competitors immediately considered buying Ground Round’s assets out of bankruptcy, but during the months-long sale process, the franchisees were left to fend for themselves. They considered it crucial that the franchisee-owned restaurants all stay open during that time. Within a few weeks the franchisees elected leaders, hired a law firm, created a buying co-op, renegotiated food contracts—and even introduced a new, low-carb menu.

In fact, after the initial scare, being on their own had a certain revolutionary appeal. With no royalties to pay and no corporate office to answer to, life was pretty good. So a few months later, when bids started coming in, the franchisees got the idea of taking their experiment in self-government to the next logical step: Why not pool their assets and buy the company themselves?

The franchisees formed the Independent Owners Cooperative, LLC (IOC) and acquired a majority of the assets of The Ground Round Inc. The assets acquired included 42 trademarks registered in the United States and Canada, all of the franchise agreements and leases related to franchised locations and franchise receivables.

Read more about “Inmates running the Asylum” on Let’s Talk Franchising

I get calls from prospective franchisees that say to me “Jim, I’m interested in this franchise because I love the product. I think its great” I guess that is as good as any reason to investigate the franchise opportunity but not a good enough reason to invest even on Valentines day.

For franchising to be successful it needs to have a mutually beneficial relationship for all parties involved. This is much easier said than done. Just because they have a good product or service doesn’t mean the franchise will succeed.

If the franchise is set-up in a way that favors one of the parties more than the other than the franchise system is setting itself up to languish or fail.

While there are many examples of successful franchises, buying a franchise business is no guarantee of success. Each year there are failures, both on the part of franchisors and franchisees.

Before you invest in a franchise, important questions need to be carefully and thoughtfully answered:

Are you willing and able to take on the responsibilities of managing your own business? You must be willing to work harder than you have perhaps ever worked before.

Will you enjoy the franchise? Determine your interests and types of business activities you might really enjoy.

Are you willing to completely follow the franchisor’s system? People who are extremely entrepreneurial in the sense that they do not like to conform to a predetermined formula should be very careful about buying a franchise. If you have a tough time following direction than you will have a tough time as a franchisee.

Can you afford the franchise? One of the major causes of business failure is under capitalization. Remember, it is better to start out with more money than you think you will need rather than less. You also need backup to support yourself and your family while you build the business.

Have you carefully studied the legal documents? Franchisors are required to prepare a document called the Uniform Franchise Offering Circular (UFOC). This document will give you pertinent information about the franchise. It should be studied very carefully and discussed with your business advisors, lawyer and accountant.

Does the business model work? The business model has to deliver value to all parties involved. This is one of the key factors in a successful franchise system. If the business model delivers profits to the franchisor, franchisee and value to the consumer, a mutually advantageous relationship is created and a franchise system will grow and grow.

Does the franchise you are considering have a track record of success? You should get to know the principal directors of the company, their business background and how profitable their franchise has been.

Are the franchisees successful? It would be worth your time to contact a number of existing franchisees to discuss their experiences with the franchise. Spend time in the locations and get comfortable with the business.

Do you like the people with whom you will be working? One of the most important elements of a franchise is the ongoing support and contact you will have with the franchisor.

Do you have family support? Managing a franchise is a full time job. It requires great sacrifices of personal and family time.

Buying a franchise business is not a 100% guarantee of success. By carefully evaluating yourself and the franchise business you desire to purchase, the risks are minimized and the chances of success become greater.

[cross-posted at Let's Talk Franchising]