Julie Moran Aletrio from New York’s LowHud.com did a great job in her article on the meal prep trend in New York’s Lower Hudson Valley. Thanks for quoting me in the article. Here are a few highlights:

From a Let’s Dish franchisee:

“This concept is meant to help a busy person, but people found themselves so busy that they didn’t know how to incorporate this into their lives,” Hunerson said.

Closings nationwide:

By the end of last year, there were 1,353 meal-prep stores in the United States, according to the Easy Meal Prep Association.

Although the idea spread quickly, the failures followed with 264 meal-prep stores closing last year and another 200 expected to fail this year.

Industry consultant Bert Vermeulen, who founded the association in 2005, said the idea was too new to support the number of stores that opened.

“This is a concept where the stores got ahead of the market. The majority of the target market is not aware of this concept and why it works,” he said.

New concepts:

Rolling out a new concept requires a deep commitment in marketing from the franchiser, Vermeulen said, something that Let’s Dish and others didn’t provide.

“Many of the franchisers thought it was easier than it was. They sold franchises without thinking through the marketing program they were going to run,” he said.

Vermeulen pointed to Pappa Murphy’s Pizza, which has more than 1,000 stores, as a franchiser that did it right.

“If you remember 10 years ago, there was something militarily called the Powell Doctrine, which meant going in with overwhelming force. Pappa Murphy’s wouldn’t go into a particular metro area unless they went in big so they could establish awareness of their concept. Their concept is pizzas you pick up uncooked that you cook at home. It’s not that different from meal prep, but the rollout was very different,” he said.
….
And those outlets will be very different from the original stores that struggled to find customers. In 2004, 90 percent of meals were assembled by the customer. Vermeulen said more store owners are adopting a “grab-and-go” model where they assemble meals for time-pressed consumers reluctant to spend up to two hours crafting a pack of meals themselves.

He predicts that by 2010, 80 percent of the meal-prep industry’s revenue will come from grab-and-go meals.

• Christmas Franchise
• Will this evolution save the Meal Assembly business?
• Franchisors vicariously liable for their franchisees?
• Pizza Styles
• Making Money as a Franchisee

Source: http://www.stuff.co.nz/4599872a13.html

Keely Clements also says her repeated pleas for support from Subway management were ignored, despite telling them her Northlands Mall store was losing money.

That franchise was closed on Monday, after mall management terminated the lease, because it was owed $164,000 in unpaid rent.

Clements also stands to lose her second store, in Kaiapoi, after Subway served her with papers to terminate her lease on July 1, meaning there was no way for her to on-sell the store and recoup capital.

Clements has been protesting outside Subway stores in Christchurch this week to highlight her situation. Christchurch has 23 stores, one for every 16,000 residents.

Clements worked at Subway before buying a franchise in Kaiapoi in 2005 for $480,000. After the success of that store, a year later she bought a second franchise at Northlands Mall for $410,000.

• Domain Names that include Franchisor’s Name - OK?
• What to learn from this Subway lawsuit
• Subway’s DeLuca loses battle with franchisees
• Independent Franchisee Associations
• Location, Location

Dream Dinners is an example of good idea but unprofitable 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. …. 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.

Many of my law firm’s clients are small franchisors, and frankly most do not have experienced managers or have enough invested capital. The new managers often spend way too much time on franchise sales and not enough resources on marketing programs for their franchisees and brand/product development. The franchise sales process is always longer and more expensive than anticipated, and that focus ends up monopolizing the franchisor’s time and money. These franchise programs have an extremely high management risk, meaning that not only is the franchisor’s management unproven in this specific strategy, but they are underfunded which keeps the focus on franchise unit sales.

I used to be extremely skeptical of consultants, and still am to large extent, but I have come to greatly appreciate the need and effectiveness of professional research and design teams to innovate and set the program up for success. The distinction is night and day between franchisors who utilize professional researchers and designers (McDonald’s is the most obvious example), and those who don’t. I have additional perspective on this in the financial industry because my wife is global director of user centered design for one of the world’s largest banks, and I see how many projects get screwed up when the bank’s business units try to short-cut improvements without leveraging the expert teams.

Meal Assembly Watch has an insightful post on how to fix Dream Dinners - 5 Ways to Save Dream Dinners. Executives of the franchisor with poor strategy and execution beyond selling franchise units seem to be the main problem.

Back to the Forbes article…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 in the picture, eh? I would be tempted to believe Allen and Kuna. But, how could you have seen past their persuasive projections?

1. Looking at the audited financial statements would have revealed a tightening financial situation.
2. If the profits were as high as the owners said, they would be raising money to open company-owned stores.
3. The inexperienced co-founders are still playing a leading role in the company…are they really the best people to be managing a fast-growing organization?
4. …post your ideas on the waring signs in the comments below

• Not-so-super Super Suppers
• Celebrity Competition in Meal Prep & Assembly Franchises
• Delivery-only Restaurants
• Sign a Rama First Franchise to Win U.S. Presidential E Award for Exporting Success
• 10 Costly Mistakes to Avoid When Buying A Franchise

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

• QuikDrop Closes eBay Drop-off Store Franchise
• If students can do it without a franchise…
• Need to buy a license from your state to sell on eBay?
• eBay drop offs
• eBay Drop-offs

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

• Another Entree into the Meal Assembly
• Delivery-only Restaurants
• Secrets to Arby’s $3.5 million/year Store
• The Friday Franchise Five: I’d Wouldn’t Buy These
• Meal Prep Trending Down

http://www.bizjournals.com/memphis/stories/2008/01/28/story4.html

Serve Holdings LLC, the largest franchisee of Captain D’s restaurants in the country with 26, has filed for Chapter 11 bankruptcy to, in part, avoid payment of $245,000 to the franchisor.

[note: post title amended on 2-1-2008 to more accurately identify the zee as filing….hat tip: FuwaFuwaUsagi and Michael Webster in the comments]

• Story of a Bankruptcy: Jiffy Lube franchisee
• McDonald’s chickens out on Boston Market
• Dubious Franchise Salesmen
• Lenny’s adds another 80 franchise restaurants in TX
• When Blogs Attack - Cuppy’s Coffee & Java Jo’z

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

<!– –>

• eBay drop offs
• An insiders view on why eBay Franchise Drop Stores failed
• Need to buy a license from your state to sell on eBay?
• If students can do it without a franchise…
• eBay Drop-offs

I would not let one semi-positive article influence my opinion of Quiznos, but here it is:

A year after some franchise owners sued Quiznos over business practices, the restaurant chain’s chief executive said Monday he expects franchisee profits to increase 60 percent overall in the wake of improvements to the system.

60% increase sounds fantastic, but it is relative from the starting profit level. Going from a $20,000 profit to a $32,000 helps but doesn’t save the day.

Danny Kessels, a Quiznos store owner in Boulder who said he was not invited to the meeting, said he knows of other Quiznos store owners who are struggling.

“Nothing’s really changed, in my opinion,” said Kessels, the head of an Quiznos independent franchise group called the Toasted Subs Franchisee Association. “The whole system is still on shaky ground.”

It looks like the new CEO-turnaround specialist is trying to make changes, but as I have personally learned in business - don’t try to catch a falling knife.

• Quiznos Case Proceeds To Trial
• Quiznos Sales & Profitablity - Summary Report
• What a Quiznos franchisee makes (II)
• Quiznos comments
• Quiznos franchisees file class-action fraud lawsuit

The Mail Box Etc. conversion to UPS Stores continues to generate bad PR for UPS. Mail Box Etc. stores were generating a living for most franchisees, but the UPS Stores emphasize UPS shipping services where the margins are very low.   This was not a ruling on whether UPS misled the franchisees, but just a procedural ruling permitting the case to go to forward with a hearing on the merits.

United Parcel Service Inc. franchisees have won the right to sue the world’s largest package shipping firm as
a group over claims it misled them by saying that converting their Mail Boxes Etc. stores into UPS Stores would be more profitable.

“This is a huge win,” said Howard Spanier, a Malibu, Calif., franchisee who said he converted his store last year, according to a statement Friday. The class action was certified Wednesday by a California appeals court, overturning a trial court ruling rejecting the franchisees’ request.

UPS, based in Sandy Springs, is accused of withholding critical documents about tests of the UPS Store business model it conducted in several U.S. cities. The franchisees claim the conversion was “disastrous” for some of the stores.

• More Trouble for UPS
• QuikDrop Closes eBay Drop-off Store Franchise
• Stone Cold Sales
• Subway’s DeLuca loses battle with franchisees
• An insiders view on why eBay Franchise Drop Stores failed

Download the Quiznos Profit Spreadsheet

Based on the 115 comments, the most popular post on FranchisePundit.com has been What a Quizos Franchisee Makes, posted on April 10, 2005. The purported author of the financial projects also founded the web site QuiznosSucks.com (don’t bother going there, it now defunt and replaced with a domain aggregator’s advertising search engine). More of his experience is posted in this forum thread (pdf) on ToastedSubs.info. Here is the main snippet:

QuiznosSucks
08-10-2005, 11:35 AM
Yeah, Corporate is aware of Quiznossucks.com. Richard Sauls, the fellow who is responsible for the site, is himself a former Quiznos franchisee. Corporate actually sued to force him to kill the site and lost. My own feeling is that Quiznossucks makes them a bit nervous. It was developed on a shoestring and to little fanfare, but now averages in the neighborhood of 30k hits per day. I know that ever franchisor has its share of unhappy franchisees, but the situation with Quizno’s has reached a fever-pitch. From my research, the only
comparable situation I have found is UPS Store franchisees.

Ultimately, the Quizno’s business model doesn’t work. particulars vary from region to region, and depend heavily upon the franchisee’s rent and debt load, but break-even for a Quizno’s store is astronomical for this type of operation. The only thing keeping this house of cards aloft are second and third owners, who buy existing stores based on cash flow, at a fraction of the cost of a new store. I actually had a Q owner in my area approach me to see if i was interested in buying his store. The store was 3 years old, and he was running at break-even for the first year-and-a-half, with sales around 6700 per week. The Q opened a store near him (you have no radius protection with Q. technically speaking, if they wanted to open another store across the street from you, and could find someone fool enough to do it, they’re within their rights), and his sales dropped off 5%, which put him in the red to the tune of about $1100 per week. he offered the store to me at 80k, and i wasn’t interested. I am one of the “lucky” ones, in that I’ve very little debt, and an excellent location. For the time being, my store is making money. Unfortuantely, though, there is a lot of new development around me, and I am waiting for the day when Q decides that I am doing too well and opens stores closer to me. My store is for sale, along with his, and I am hoping i can sell the thing while it is still making money. The short of it is that Q is in the business of selling franchises, and they do this extremely well. Too well, if you ask any current franchisee. In the grand scheme of things, they would prefer that we make money than not, but it doesn’t much matter to them. Corporate makes more money from its supply chain. We’re forced to use their Q-approved vendors, each at a rate consdierably higher than we could find ourselves: accounting firm; CINTAS, a company which takes care of the rugs and towels; Vistar for food, chemicals and paper; Muzak…it goes on and on. The real shame of it is that Q doesn’t have to do business this way. It is ultimately self-defeating, in that no franchisor can alienate its franchisees to the degree Q has alienated us without serious repercussions. Quiznossucks.com is a natural by-product of the contempt with which Q treats its franchisees. If anyone is still interested in acquiring a Quizno’s store after all of my ramblings, and visiting quiznossucks.com, i would suggest that you go to bizbuysell.com, find an existing store in your area and save someone who is losing money, or someone like me, who has a store that is making money…for now. really! I am too young and nice looking for the headaches and stress!

This web site posted his projected monthly expenses based on $40,000/month in sales:

I think quiznossucks may have made a mistake in his numbers and the cash left over at the end of the month is actually a little less than he projected. He projected 9.4% or $45,120 left at the end of the year for the franchisee, but plugging the numbers into a spreadsheet nets 7.15% or $34,320 (perhaps he paid himself a small salary included in labor). Regardless of the $9K discrepency, the debt load and returns are not worth the risk for nearly anyone looking at this deal. I’ve uploaded a spreadsheet for you to play with the numbers for yourself. It makes for a simple planning tool/reality check for any franchise.

Download the Quiznos Profit Spreadsheet

• What a Quiznos franchisee makes (II)
• Quiznos comments
• Quiznos lawsuits (Part 21,412,219)
• What a Quiznos franchisee makes
• Quiznos Sales & Profitablity - Summary Report

Are the number of Franchise Consultants, and Brokers going to continue to grow? Or, as I predict, will this part of the Franchise industry start consolidating?…….

In the last 3 articles I have written about the phenomenon that is taking place..Too many consultant/brokers in the franchise world, and the  plethora of  new ones just entering an already crowded field. Here are links to Parts 1, 2, and  Part 3, just in case you wish to refresh your memory.

Am I writing about this just because I am a franchise consultant? Am I writing about this  because I do not want more competition? Am I writing about this because I just left a Franchise brokerage group that I really am not feeling the love for?
I am writing this to open up a discussion. I want to know how consumers feel about us. I want to know how franchise company execs feel about us. I am also writing this so that some prospective franchise brokers that are being courted by the franchise brokerage groups to buy their franchises that sell franchises to others, can take a breath..and find out before they buy, just what  it is that they are buying.

Janet Sparks, a veteran franchise industry writer, just wrote about one such wonderful franchise company, “The Entrepreneur’s Source” that once again is  is the position of defending itself against a class action lawsuit brought on by former franchisees. Article
They have a large number of franchisees, and at one time in little old Cleveland,Ohio, had 3-4 franchisees at the same time.
{As of this post, I only know of one franchisee in Cleveland who remains in business}
So, if “The Entrepreneur’s Source” as an example, has no problem selling 3 or 4 franchises in a shrinking metropolis like Cleveland, Ohio, multiply that by another 6-7 franchise brokerage groups that are trying to sell franchises of their own franchise brokering franchise, and you have some future headaches.

If you are reading this blog because you are thinking one day of investing in your own franchise as a way to “get where you want to go”, getting some advice and help makes sense. After all,there are over 3,500 different choices out there currently in franchising, and it does get quite confusing.
Here is the $100,000 question.  Would you want to work with:
A. A franchise consultant/ broker who like you, just lost his or her job, and is now a “franchise specialist” after a 2 week training program/
Or
B. A franchise consultant/broker who possibly either owned his or her own business before, or one that came from the franchise industry, and is now in another part of the industry?

If you chose A, are you really going to be comfortable working with someone who is new, and who is really learning about franchising at the same time you are? Are you really going to be comfortable with
their suggestions on how you should invest your $150+  in this new business venture?

If you chose B, at least you have access to a large number of folks who have already worked with this experienced franchise consultant/broker, and can share their personal  experiences with them.
However, working with an experienced  franchise consultant broker won’t guarantee success. Just like in any industry in which consultants get paid for a sale is the model, stuff can happen.

The bottom line is that if you are thinking about getting into franchise ownership, and you don’t want to do it on your own, using the right person can be very productive. Get references.

If you are thinking about buying a franchise brokerage franchise, make sure you know what you may be up against. {An industry that is getting ready to consolidate}

I really enjoy what I do. I get to help others with their dreams of business ownership. I get to do a lot of public speaking. {I was graced with good pipes..Here is a radio interview }
I get to meet some really smart people! All in all, my life is pretty darn good……

• Franchise industry shakeout coming? {Part 3 of 4}
• Franchise Industry Shakeout Coming? {Part 2}
• Franchise Industry Shakeout Coming?
• Discount Real Estate Broker Franchises
• Example of making money in the franchise business

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

• Soup Nazi - a first look at Soupman
• The Original SoupMan and Cold Stone Creamery Franchises Team Up
• Soup Nazi for $30K
• Follow up to the soup franchise idea
• Soup franchises

So, is their really going to be a shakeout in the Franchise industry, as it relates to the overcrowded franchise consultant/brokerage field?
There has to be…….

The numbers will bear this out, I believe. The math:

Number of US Citizens interested in exploring business ownership is S {Smallish}
Number of Franchise/Business opportunities is I {Increasing}
Number of franchise consultants/brokers is RS { Really Scary}

So if S + I is divided by TMC {Too Many Choices}and divided again by FDW {Future Downsized Workers}, then the equation must be recalculated to reflect the Ginormus {Huge} amount of new Franchise consultants/brokers entering the field.
However……..The FR {Failure Rate} must be put into this newer equation as an IN{Infinite Number}.

So, according to my calculations:
1. More people will be downsized, and may start exploring opportunities in the world of franchise ownership.
2. More and more new franchise concepts will be introduced, with franchise companies using different ways to reach out to prospective franchise owners.{Consumers are already being bombarded by thousands of marketing messages every day, so this will only add to the confusion}.
3. With more and more choices in franchising being offered, and the possible number of new franchise consultant/brokers that could be in the market in the next year or two {who will also be adding marketing messages to the already bombarded consumer}, a consolidation in our industry will be inevitable.
{I feel this is starting already}

So what type of consultant/brokers will be the survivors?
{End of Part 3. Part 4 Soon}

Posted by Joel Libava, from his  The Franchise King Blog 

• Franchise Industry Shakeout Coming? {Part 4 of 4}
• Franchise Industry Shakeout Coming? {Part 2}
• Franchise Industry Shakeout Coming?
• 1-800 WATER DAMAGE, a first look
• Part-time Work = Part-time Profit?

My first post about the topic of there being too many franchise consultant/brokers in the industry now, has prompted a pretty good discussion on a blog I contribute to, BlueMauMau.org, a very popular blog that is targeted to current and future franchise owners. More………

There were over 60 back and forth comments about this topic as of Sunday evening {8-5.} I am quite passionate about this subject, so  are some others in the industry….check out this discussion.
{Please come back here when you are done, to continue reading.}

The biggest problem I have with the amount of new “consultants” coming into our industry, is how they are being sold the bill of goods. Jim Coen, a 25 year franchise industry veteran up in New England, and fellow blogger,  gives one example of a franchise that sells franchises, to those that want to sell franchises. {Confusing, huh?}  See Below:

• No Experience Necessary
• Huge Demand and growing demand for our service
• No Cold Calling Required
• Work with the best franchises
• Tremendous Income Potential, earning up to $25,000 for a single transaction
• Complete Training
• Start from your Home
• Work Part time
• Only $19,900 to get started

$19,900 is quite the bargain, with no cold calling! Some franchises that sell franchises to those that want to sell franchises, have $30k-$50k Franchise Fees up front. To those folks that may be reading this, that are thinking about  becoming a “consultant”, what do you think “no cold calling” means?
What this means, in a nutshell, is that these franchises that sell franchises to folks that want to sell franchises will be sending you somewhat qualified “leads.” Well kind of “leads.” More like what I have been calling them for the last 5 years, inquires. A “lead’ is someone who is fairly interested in learning more about what you offer. An inquiry is a tad more of a casual look-see.
{These are my definitions, others will disagree] Don’t care. It is what is is. {IIWIIS}
A typical call to a  “lead” that you may receive most of the time goes like this:

Us- “Hello, This is Joel Libava {or Jim Coen}, and we are responding to an inquiry you made online concerning franchise opportunities.”

 Lead- “Yes, are you from Blimpie’s Subs“?

Us- “Well, actually no, we are franchise consultants/brokers, and we work with a large number of franchise company’s..blah blah blah…..”

Lead- “Well I specifically wanted information on Blimpie’s, do you work with them or not?!!”
Click.Click.Clickarooni.
Well, that was enjoyable. On a positive note, it only takes about 75-100 internet “leads” to find 2-3 folks that really might work with you, and hopefully one that will actually buy a franchise that you represent.

{End of Part 2}  Part 3 Coming Soon Enough

• Franchise Industry Shakeout Coming?
• Franchise Industry Shakeout Coming? {Part 4 of 4}
• Franchise industry shakeout coming? {Part 3 of 4}
• GameStop to Franchise
• Promises of Business Leads

What happens to a segment of an industry that has too many players?

The segment that I am talking about is one that is very close to my heart…..

Our type of business {Franchise Consulting-Brokering}has been around since the late 1980’s.
Until 2001 or so, our local firm has had very few competitors.
However, our part of the vast franchise industry, like a lot of other industries, is gettingrather crowded. There seems to be a plethora of folks who think what we do is easy.

Simple, and easy stuff, what we do. We try to help those wishing to explore business ownership, get into business! There are just gobs of folks that can write a check for $50k-75k, go to a bank for more, and prepare themselves mentally to possibly not make any money for the first year!

So what we have now is a bunch of “franchise brokering groups” that are themselves selling franchises to folks to sell franchises. HUH?
Folks that are paying $75k-$100k for these “home based” franchises are in for some surprises.First of all, the folks that are buying these unproven franchise brokering franchises are usually folks who have never been in the franchise industry! Their familiarity of the franchise industry consists of eating at burger and donut restaurants…
This is not anything personal against some of the folks that are writing the checks to buy into these franchise concepts, but, this is not “easy money“! What is really going on is that franchising is “HOT”, and more and more folks want to learn more. Learning and doing {writing a big fat check!} are two vastly different things. Sure a nice comfy “home based” business sounds good. But in reality, one is not “home.” One is out networking, and figuring out where these “people” are, that want to buy franchises.One is also spending lots of money advertising, and marketing, and advertising to find a couple of “interested parties.”

{End of Part 1} Part 2 coming soon……

• Franchise Industry Shakeout Coming? {Part 4 of 4}
• Franchise industry shakeout coming? {Part 3 of 4}
• Franchise Industry Shakeout Coming? {Part 2}
• Fresh Casual a new category in restaurant franchises
• Fitness Together Sells its 500th Franchise

From a NexCen Press Release:

The combined purchase price for the transaction is $29.4 million, and consists of $22.1 million of cash, and NexCen common stock valued at approximately $7.3 million. These transactions double the number of brands in NexCen’s quick service restaurant (QSR) portfolio, which also includes the premium, hand-mixed ice cream chains MaggieMoo’s(R) and Marble Slab Creamery(R).As of June 30, 2007, Pretzel Time and Pretzelmaker had a combined 376 franchised or licensed units worldwide. Of those, 327 are in the United States, with the remaining 49 international locations located in six countries.

For the trailing twelve months ended June 30, 2007, aggregate unaudited revenues for the Pretzel Time and Pretzelmaker brands were approximately $6.4 million. NexCen estimates that aggregate revenues for the two businesses for the full year 2007 will be approximately $6.7 million. Based upon the partial year of ownership, NexCen expects to recognize approximately $2.7 million of revenue from the businesses for the remainder of 2007. NexCen expects these transactions to be accretive in 2007 and, after integration into NexCen’s operations, to generate combined operating margins of approximately 60%, consistent with NexCen’s expectations for its QSR franchising operations.

First, paying 5x revenue is absurdly high for an established traditional business with low barriers to entry and similar competitors. Most companies would pay 5 times EBITDA (earnings before interest, taxes, depreciation and amortization), and I imagine an organization like Pretzel Time and Pretzelmaker have expenses and obligations or close to the revenue figure. The stock market noticed the same overpriced acquisition along with other trouble at NexCen as the stock price dropped by almost 50% in the past few months:

Not good. NexCen also owns brands The Athlete’s Foot, Bill Blass, MaggieMoo’s, and Marble Slab.

• Two for One Ice Cream Franchise Consolidation
• Chipotle Going Public
• Franchisees: Give Your Stock to the Best Employees
• The Pretzel Business
• Papa John’s franchisees average $705K in annual sales?

UPS Store franchisee files suit against UPS - The Business Journal of Milwaukee:

The suit, which was filed in U.S. District Court in San Francisco, accuses Atlanta-based UPS (NYSE: UPS) of wrongly profiting off of UPS Store and Mail Boxes Etc. franchisees by billing them for differences in shipping rates.

According to the complaint, franchisees weigh and measure customer packages in their stores, and charge customers accordingly. They then ship the package to UPS, where the company re-measures the package and charges the store owners for the difference.

The lawsuit argues that franchisees have no ability to contest the revised measurements and can’t reassess customers for the additional charges. It also claims that UPS uses “inaccurate” methods of measuring the packages.

• Quiznos lawsuits (Part 21,412,219)
• UPS Store Numbers
• UPS Loses a Round in Court
• Online Ordering Systems
• Burger King Franchisee Woes

David Crocker, Sr. Vice President of Marketing and Business Development for iSold It, LLC has posted on Blue MauMau an open letter to iSold it franchisees from Chief Executive Officer Ken Sully.
The iSold It franchise opportunity has been named “Hotter than Hot” and the “Best New Franchise for 2007″ by a leading national magazine.  However, a letter currently circulating the Internet indicates this American Dream may have become an entrepreneurial nightmare.
Mr. Crocker stated, “In the letter, it says that we are considering litigation, reorganization or liquidation.” Regarding a time frame to declare bankruptcy, he commented, “I cannot comment on when any liquidation might occur.” When asked whether the eBay drop off store model works, he said, “The model works for some and doesn’t work for others. There are stores that are profitable.”

AN OPEN LETTER TO OUR FRANCHISEES

As we have previously announced, we are now focusing all our headquarters resources on supporting our current base of franchisees, while limiting the sale of additional stores to new franchisees. We will continue to add new stores with existing franchisees under current development agreements and will also help facilitate transfers of existing stores to new owners. iSold It, now in its fourth year of operation, currently has over 170 franchised stores open. The chain has sold more than $100 million of merchandise on eBay since inception.

As you may know, in December 2003, iSold It joined the fledgling eBay drop-off store category, still in its infancy. The first two iSold It stores, one company owned and one franchised, generated significant interest from customers, the press and franchise candidates. The initial customer response was so strong that, encouraged by their results, that first franchisee quickly went on to purchase additional development areas and opened more stores. As the category rapidly grew and sales volumes were easily tracked (due to the transparent nature of eBay), franchise candidates moved forward to open individual stores, often securing areas large enough to develop multiple stores. After 18 months of operation, the 100th iSold It store was opened, and no stores had closed.

Today, while encouraged by system-wide sales exceeding $4 million per month, the distribution of sales by store has proven to be a bell curve – with top stores exceeding $80 thousand per month and others struggling to attain $10 thousand per month. Compounding the situation, average selling prices and labor hours per item also vary significantly by store, creating a wide range in store contribution margins. This has resulted in a significant number of stores operating below break-even, and has contributed to over 60 stores closing. Tragically, many individuals who believed passionately in the potential for the category have lost sizable investments, including homes and retirement savings. We personally find this unacceptable and, despite continued interest in this category, we do not feel comfortable selling any new franchises until we get the failure rate lower.

Over the past 40 months, in an effort to support the network, we have invested nearly $20 million in infrastructure, systems and marketing — spending most of the $8 million in shareholder contributed capital and $13 million in royalties and franchise fees. During this time, no director or shareholder has ever received any distributions or dividends from iSold It, with an exception for a small distribution to shareholders in early 2005 to cover pass-through tax liability related to 2004 company profitability. The company has not been profitable since 2004 and no further distributions have been made. In addition, with the exception of CEO Ken Sully, members of the Board of Directors and shareholders do not draw any salary from the company.

Going forward, the company faces significant challenges.

First, the company must preserve its remaining cash so it can remain solvent to support its franchisees. This is being addressed through significant reductions in expenses, including difficult decisions regarding headcount reductions and moving the office to a smaller location.

Second, the company is now focusing all resources on supporting the existing franchised stores. This is the rationale for eliminating the franchise development group and exiting the company store. (In separate posts, we will keep you current on the 3.0 conversion.)

The third and most significant challenge is addressing the claims of a group of franchisees who regrettably have each suffered significant financial losses. While we all feel very badly for anyone who lost money, we believe we presented this concept fairly from the beginning and it is unclear if we will be able reach a conclusion without litigation, reorganization or insolvency.

The team at iSold It remains committed to supporting our current franchisees and finding a success path for the network. We recognize the hard work and sacrifices that each one of you has made to help build your business and this company. We remain passionate about the potential for our business and appreciate your continued support going forward.

Ken Sully
President & CEO
iSold It, LLC

• QuikDrop Closes eBay Drop-off Store Franchise
• Same-store sales roundup
• Franchisees say they support Friendly’s
• An insiders view on why eBay Franchise Drop Stores failed
• UPS Store Numbers