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eBay Drop-offs

This article takes a look at the competing independents and franchise eBay dropoffs. With a couple of employees, Rodriguez estimated that his little store needs to make $12,000 to $13,000 a month just to break even. Helping him out is the fact that he is selling a lot of his own merchandise, tools and imported electronics, using the SpeedeSale log-on name to eBay. Also, he is an authorized UPS and FedEx shipper. …this is exactly what we mentioned before at Franchise Pundit – this business should be coupled with other offerings that can bring traffic in the door. now onto mortality rates… The mortality rate in general is high, as the trading assistants struggle to pay rent on a storefront while trying to find the right balance: what business should they go after, what should they refuse and how much should they charge? One of Sarasota’s first drop-off stores, 1StopAuctions, has closed its doors. Its Web site, which still shows up high on search engines, is up for sale on the Net. Its owners did not return a call for comment. In South Florida, where more auction drop-off stores have existed for a longer time, Rodriguez guesstimates that the failure rate is 80 percent or more. “Of the 20 stores that used to be around two three years ago, only five are still in business,” he said. An 80% failure rate is higher than I would have guessed. But there is NO WAY a town can sustain more than a couple of eBay drop-offs, let alone 20+. All those involved in the drop-off game now realize that to succeed, they must do more than sit in their shops and wait for valuable objects to arrive. “The reason we are on Main Street is to go after business-to-business deals,” said …

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The Hooters of Coffee

Move over Dunn Bros, Beaners, It’s A Grind, and Saxby’s Coffee, there’s a new theme in town. If it works to sell chicken wings, will it work for coffee? Sexpresso coffee shops are, for obvious reasons, gaining much free PR and repeat business due to the employee fashion, or lack there of. The coffee menu is reworded with suggestive coffee drinks served by girls in bikinis and provocative outfits, with one coffee house theming days – Tube Top Tuesdays, Wet T-Shirt Wednesdays and Fantasy Fridays…you get the point. For those who would prefer to supplement their green & tan decor with bikinis, Cowgirls Espresso (pictured at the right) has decided to begin offering franchises.Is it good for business? Ms Araujo and others say it has given an unmistakable boost to their businesses. Their staff may only receive minimum wage, but the tips can be terrific.”Our customers may be half-asleep when they get here, but we do what it takes to wake them up,” said Ms Araujo. “They always say: ‘Thanks for the great cup of coffee and the smile; it made my day’.” I’m not writing about this to imply or promote these gutter strategies, but to highlight that you never know what you’ll have to compete against in the future. While these wild ideas won’t put an ordinary coffee franchise out of business, it will chip away at sales, and sometimes a 10% drop in sales can be catastrophic. Constant improvements and innovation in the menu, systems, preparation, marketing, and operations will keep the impact from trendy and oddball competitors to a minimum by keeping your brand fresh.

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Printing Money?

Excellent article reviewing the major print franchises. Franchise No. Locations Net Loss/Gain Systemwide Sales ($ million) Net Loss/Gain Avg. Per Store Sales ($000) Net Loss/Gain Minuteman 915 +13 $375 +25% $524 +1% Sir Speedy 487 -25 $380 -5% $700 0% Allegra 416 -32* $265 -2.1% $654 +6.7% AlphaGraphics 277 -6 $224 -9.9% $1,002 +2% PIP 276 -21 $127 -1.7% $458 +5.4% Kwik Kopy Printing 220 -21 $309 +5% $510 +11.3 Signal Graphics 37 -2 $15 -0.5% $416 +2.6% LAZERQUICK 34 -2 $19 +7.3% $577 +17.3% Franklin’s 30 -6 $17 -9.7% $715 +25% Ink Well 29 -5 $14 +1.9% $512 +8.9% Triangle 16 0 $13.5 -3.6% $850 -2.9% Kwik Kopy Business Center 16 +5 $3.4 +53.9% $288 +0.7 Copy Club 11 -9 $8 -74.3% $800 +3.3% TransAmerica Printing 10 -1 Not Reported * source: Cary Surburne @ WhatTheyThink.com Our company recently purchase several boxes of envelopes with our logo and it cost us more than $1,400.00. While the quality is good, that’s quite a markup for short-notice printing. How will these companies compete with Internet monsters iPrint and VistaPrint, who can provide equal quality at fractions of the price? I’ve used the online printers with outstanding results. But, I think the local printing industry will do just fine and will eventually innovate as necessary to stay competitive. “Companies in the printing space that seem to be doing the best are those that have embraced technology and leveraged the convergence factor to expand the range of services they are offering, like the FedEx Kinko’s printing/shipping concept. If the franchisee has been making money and the company they are with has been successful in supporting them, making that leap to renewing is an easy one.” Hat tip: Paul Steinberg in the forum

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Golf Club Cleaning

This British franchisor developed a vending style golf club cleaning machine. My initial reaction was that it was terrible concept for myriad of reasons, but I can see it possibly working as long as competitive pricing pressure is nearly nonexistent. It could provide low-end golf courses with a small but riskless alternative revenue stream. The Sonic Golf Club Cleaning Machine cleans a full set of golf clubs in just two minutes. The Sonic can clean both the heads and grips of the club to an original condition. The grips are restored to a tacky finish and the grooves on the clubs face are clean thus improving the amount of ball control.

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Chicken Wings

A franchisee explaining why his wing joint is doing well: “Everybody loves wings,” he said. “I think of the attributes that contributed to our success is the clean environment, good food, 14 different sauces, sports environment and casual atmosphere. I think a while back that what had a lot to do with it was the Atkins Diet. Chicken is very healthy.” And another explanation: He said wing-based eateries have thrived in the U.S. restaurant market because they provide an affordable product and operate at low cost. “Obviously, it has a lot to do with the bottom line,” Wilkerson said. “They’re able to serve at a place with a small dining room and serve carry-out. They keep the menus limited, keep costs way down with little overhead and don’t have lots of waste like some restaurants do.” Said Nicoloff: “It’s easy to inventory. You don’t have to have the equipment or time to train someone. It’s pretty simple to run.” ….”We have a full range of menu items other than chicken,” Tieber said, “but it’s 30 percent of our business.” “I really don’t know how the wings took off,” Weisbrodt said. “It just seemed like one day we were doing some here and there, and now we’re doing them like you wouldn’t believe. Today, we can’t keep enough.” … “I think it’s reasonably priced meal,” he said. “Wings are good. They’re meaty. They can get just about any flavor. They come up with some original flavors. Our customers mix our flavors, and we have almost 60 different flavors right now. You can get in about any flavor. If you don’t like wings, we have many other things like hamburgers, hotdogs, pizza, sirloin steak sandwiches and fish, like walleye and cod.” Smith has also noticed increased competition, especially from the larger …

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Not-so-super Super Suppers

This is one of the better articles I’ve read recently giving readers an “inside look” at the franchising experience – what can go wrong, the competing dynamics and interests in the franchising business model, and financial and legal realities. And that was just the beginning of Ross’s troubles. It seemed like her email account logged a new message almost every day, welcoming another Super Suppers franchisee to her region of the state while she was still struggling to attract new business. With neither the money nor the energy to advertise locally, she again turned to Super Suppers corporate headquarters for help. While I’m sure the new franchises weren’t technically encroaching on her protected territory, it still has significant impact on sales. Even if no more new Texas franchises were sold, she would still see many new locations pop up in the near future. Not to mention the “other guys” — Dream Dinners and Dinners Ready!, among others, were beginning to make multiple appearances around town. Unlike franchises that can thrive in heavily saturated markets (Starbucks, McDonald’s), a meal-assembly center needs a large number of households in any given territory to be successful. According to Bill Byrd, it takes 500-700 households to support a Super Suppers, but he concedes the divvying up of territories is “not an exact science.” Whenever there is a “hot” segment, copycats franchisors are only months behind. Success breeds competition, and the competition can ride your wave and simultaneously learn from your mistakes without experiencing the costs. Potential franchisess must evaluate whether their soon-to-be franchisor will constantly innovate and improve to stay ahead of the competition. For example, a less-experienced franchise owner wouldn’t know that regional and national advertising in a franchise-based business plan is usually rolled out well after a significant number of stores have …

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Buy a franchise to get into the leasing business?

Winmark Corp (formerly Grow Biz), franchisor of the retail stores Play It Again Sports, Once Upon a Child, Plato’s Closet and Music Go Round, has a new franchise concept called Wirth Business Credit. It’s mission is to help small businesses lease equipment. Leasing can have many advantages for a small business owner: preservation of capital and credit for other expenses and investment in growth, simpler bookkeeping and tax reporting, tax advantages, improves financial ratios, etc. Why would someone choose to lease from Wirth Business Credit over any of the other many leasing companies? I don’t know, unless their rates are cheaper and terms are more attractive. However, I doubt whether the tight structural constaints of a franchise is the best means to compete in a business where most sales comes down to price and, to a somewhat lesser extent, customer service. Wirth charges around 9 percent to 14 percent today compared to a bank prime-lending rate of 8.25 percent, Morgan said. Winmark and its franchise owners earn a profit by building fees into the interest rate, much like points that are added to a home mortgage loan….. Wirth President Mark Hooley said the company stands out from rivals because of its local presence, its automated leasing system that provides approvals in four hours or less, and the ability to finance up to 100 percent of equipment value….. Wirth franchise owners pay an average of $60,000 to do business in a certain geographic area, including franchise, computer and marketing fees. In exchange, the company provides the brand, the business model, cash for leases, training, marketing and the collection of overdue leases. I especially agree with the final comment in the article: “Financing can be complicated and challenging,” Faras said. “But my part of the business is really about sales. You …

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Discount Real Estate Broker Franchises

There seems to be a constant flow of articles on discount broker franchises lately. Having recently gone through process of purchasing property using a friend who happens to be an excellent broker, I can recognize the value of paying 5-6% commission for that diamond-in-the-rough selling broker (or using a buyer’s broker who will split their commission with the seller’s broker) who is unconditionally looking out for your interests and not their personal wallet. Without that exteme level of certain dedication and loyalty, I would balk at paying the full commission to a selling broker and I would likely seek the services of a discount broker. As competition from discount brokers increase, more buyers and sellers will be able to command a commission rebate from their broker as well. 1 2 (comments on the article by Redfin, a Seattle and San Francisco real estate services website) 3 4 5 6 (newgroup discussion thread)

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Ink Cartridge Franchises

Being a longtime technology geek, I’m always intrigued (but not often impressed) by technology focused franchises. One segment that has seen fast growth lately has been the ink cartridge refill/replacement business. Trends are important. Many printer manufacturers sell printers below cost in the hopes of profiting from lucrative ink sales. However, generic and private label inks of similar quality to the name brand inks are commonplace. Printer inks, like books or hard drives, have reached a commodity point where most suppliers of the product are of similar quality, so most competition ends up being on price. I would NOT want to be a small retailer where the low-cost seller wins, especially as a franchise where the inherent cost structures prevent you from being the lowest cost seller. Franchisors like Cartridge World, Rapid Refill, Smart Cartridge, and Caboodle Cartridge will argue that market acceptance of off-brand quality inks is rapidly increasing, providing ample room for aggressive franchisees to capture a piece of this growing market share. While it is true that market acceptance is increasing, so are the alternatives. Office Depot, Staples, Office Max, and nearly all retail stores now offer generic or private labeled inks and cartridges at substantially lower prices than their name-brand counterparts (HP, Canon, Lexmark, etc.). Internet retailers have matured to offer simple interfaces to locate the proper ink, with prices lower than franchise retailers with free shipping and no sales tax. Business (and many consumers) usually try to use a single source for all their office supply needs, including ink cartridges. Office supply distributors have adjusted to demand and now carry both generic and name brand inks as well. The competition in this market is plentiful from all angles – big, small, and Internet retailers. Most franchisees will not have the resources to financially sustain …

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Delivery-only Restaurants

A participant in the discussion forum brought up a good point whether a “delivery only” local restaurant business was an especially good business model. Steak-Out was the franchise mentioned, which delivers char-broiled steak and chicken dinners, salads, sandwiches….you get the idea. Why do you get the idea? Because the food is similar to the restaurants we all know – Applebee’s, TGI Friday’s, and Chili’s. The difference is Steak-Out is delivery or pickup only, and the others are sit-down AND are starting to contract out delivery to local entrepreneurs. Having a dinning room exposes your menu to more people. In turn, more people will be familiar with your menu and more likely to think about using you for delivering business lunches or family dinners. The more you are exposed to a product, the more likely your to think of it when the time for the service comes. It’s partly a numbers game, and I’d rather have my customers experience my product in person in my controlled atmosphere then exposing them to my product on a piece of paper, coupon or flyer. I’m not saying delivery only business are a bad idea, I just wouldn’t want to take the risk when my competitors out-of-the-box are going to be exposed to exponentially more customers. That raises my marketing costs. Pizza is the only food that has carved out room for delivery-only stores. Papa John’s is going from delivery only to delivery + sit down. A 75-unit Subway franchisee group in South Florida bought the telephone number 888-SUB-TO-GO. Orders are processed via the store’s POS system and then delivered by Subway employees. Can a delivery-only subshop startup and compete with that? I doubt it, and I wouldn’t want to risk my capital trying. If you are buying a restaurant, you should consider what …

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The Pretzel Business

I have close friends in the pretzel and snack-food business (and worked in the snack food industry for a short time), so I think I can speak from an especially knowledgeable perspective on this. Stores like Auntie Anne’s, We’re Rolling Pretzel Company, Pretzel Time (by Mrs. Fields), and Wetzel’s Pretzels must have some of the highest margins in the QSR business. The dough is literally a few pennies per serving, if that. The seasoning and butter is another few pennies, and your selling the product for almost $2 each. I’m sure the franchisors significantly increase the cost of dough and supplies force margins more inline with the typical mall store. Fresh pretzel businesses need very little square footage, and can often be served from a kiosk. They have the added advantage of smell in a mall, drawing people in with the scent of fresh baked buttery bread (OK, can you tell I love soft pretzels?). Most malls already have at least two pretzel franchises, but some do not. Depending on the rent, storefronts along a busy downtown street can capture enough of the afternoon foot-traffic to possibly turn a profit. Let’s look at some fees charged by franchisors: Pretzel Time: Initial Franchise Fee: $25,000 Ongoing Royalties: 7% of Gross Sales Advertising Fee: 1-3% of Gross Sales Initial Training Fee: No charge for first two individuals Total Estimated Initial Investment: $107,000 – $238,500 Wetzel’s Pretzels: Initial Franchise Fee: $30,000 Ongoing Royalties: 6% of Gross Sales Advertising Fee: 1% of Gross Sales Initial Training Fee: No charge for first two individuals Total Estimated Initial Investment: $102,000 – $211,000 Auntie Anne’s: Initial Franchise Fee: $30,000 Ongoing Royalties: 7% of Gross Sales (paid weekly) Regional Advisory Council Dues: $300/year Audit Fee: All expenses unless if receipts were understated by more than 2% Advertising …

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Quiznos Sales & Profitablity – Summary Report

Quiznos Sales and Profitability.pdf “former owner”, a commenter on this site, left a tip on a document posted at the Toasted Subs Franchisee Association. The document purports to be a summary on Quiznos store profitability. Is it legitimate and accurate? I have no idea, but it’s probably in the ballpark. It’s apparently based on estimates gathered by franchisee sources reporting. Here’s snippet: Quiznos Sales and Profitability – below is a list of sales statistics compiled year-to-date for Quiznos stores as of August 2005. In the Quinzos chain, an average new store (opened in the last 12 months) can break even around $7,000 to $8000, depending on fixed costs. This charts shows the number of stores breaking even or even losing money inthis chain. These sales figures are accurate. The profitabily estimates, are just that…estimates based on franchisee sources reporting. Thanks “former owner”!

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Transfer fee benchmarks

So, you bought a franchise and it’s been successful for a few years and now you want to sell it.  The franchisor reserves some influence and financial discouragement.  The two biggest considerations given to the franchisor are: Right of first refusal – the franchisor can match your highest legitimate offer and buy your franchise Transfer fee – a fee you must pay to the franchisor for the privilege of transferring your licensing rights and obligations to another party Sample Transfer fees: FOOD: Pizza Factory: $12,000 Quizno’s: $5,000 Dominic’s of New York: $1,000 + 6% of sales price Submarina: $1,000 Cheeburger Cheeburger: $12,250 Pizza Patron: $5,000 The Dugout: $5,000 Arby’s: $13,500 Doc Green’s Gourmet Salad: negotiated at time of sale Jerq’zine:  $10,000 Original Hamburger Stand: $250 Sub Station II: $5,000 Steak-Out: $18,750 Fazoli’s: Reaonable attorney, accounting, training and other related costs OTHER: Bartercard: 10% of sales price Herman’s World of Sports: $12,500 Sears Carpet and Upholstery: $3,000 – $6,000 (depends on market size) Stone Mountain Carpet Mill Outlet: $2,500 Screenz:  $5,000 Tax Centers of America: $1,000 Sports Clips: $25,000 Fantastic Sams: $20,000 or 10% of sales price (whichever is greater) Hair Cuttery: $5,000 ($0 if franchisee for 5+ years) Fastframe: 5-10% of purchase price  

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We the People, or We the Screwed?

We the People is a paralegal document preparation service.  People typically use their service for simple legal documents and court filings (name change, non-contested divorce, wills, incorporation).  The company provides customers with forms to fill out with a pen, and the franchisee then sends the form off to a processing center located in the state.  One to seven days later (14 days max), the forms are sent back to the franchisee to give to the customer.  The franchisee may also offer to file the forms with the appropriate court for an additional fee.  The processing center takes a 25% cut of the document charge.   No legal training is required.  Franchisees are basically a sales and marketing arm for the processing centers.  Franchisees are not allowed to alter any document or provide any service not performed exclusively by the processing center.   Franchisees are free to set their prices above the mandatory minimum.  For example, restraining orders will run customers $100, a noncontested divorce run $400. (article listing more services and fees) The company was founded in 1996, purchased by a couple in California, and recently sold to Dollar Financial Corp. (NASDAQ: DLLR) in March, 2005.  Dollar plans to also open the store in conjunction with the Dollar Financial stores (like H&R Blocks). The experience for customers is somewhat odd if you have previous experience speaking with a lawyer.  We the People employees can’t recommend a form, can’t point you in the right direction, and can’t discuss specific facts about your problem.  All the employees can do is generally describe a form and offer a form booklet to fill out.  Recommending a form or solution is considered engaging in the practice of law, and it can subject the franchisee to fines, jail, or liability for damages resulting from the …

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Authors

Ryan Knoll (founder & editor) View all blog posts by Ryan Ryan is an attorney with a practice focused on the areas of franchising, corporate transactions, private investment funds, securities offerings, mergers & acquisitions, employment, intellectual property and licensing.  He also is experienced in preparing financials valuation reports, business plans, acquisition due diligence.  He has a legal, valuation and business development background, and has been a founding member of several ventures, one of which, a tech-startup providing software to newspaper and broadcast companies, received substantial private equity funding in 1999. Ryan earned a Bachelor of Science in Management Information Systems from Miami University, a Juris Doctor from #19 ranked Washington University in St. Louis School of Law, and a Masters of Science in Finance from DePaul University. He has been a finalist in several major entrepreneurship competitions. *email: Contact Ryan * mobile telephone: 312-715-8115 Past Contributors: Joel Libava (franchise consultant) Jim Coen (franchise consultant, Exec Director of NE Franchise Association, and current President/COO of Dunkin’ Donuts Independent Franchise Association) Rob Boulter (Attorney in California)

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Everybody has feet…

Developing a high margin specialty niche in a stagnant industry is usually a formula for success (see Panera Bread’s twist on fast food, Sports Clips and Snip Its on hair cutting, Starbucks on coffee, Applebee’s on chain restaurants). Foot Solutions is a new shoe retailer looking to capitalize customers who require more comfortable foot wear, namely sufferers of diabetes, obesity and arthritis. Concerns Foot Solution’s web site details the anticipated $200,000 investment to open a store. The company expects the franchisee to sink $65,000 in shoe inventory before opening, yikes! Foot Solutions requires you use only their vendors and approved products. And you must use their supply division to order opening orders, construction materials, fixtures and equipment. Of course, you should now be asking yourself, “How much more will I be paying if I was permitted to source the products myself?” Be sure to benchmark the average vendor and supply mark-up by asking the franchisor or franchisees for the actual price sheets. Part of the reason to buy a franchise is the ability to buy into an already strong brand name. It is unlikely that customers are already familiar with the Foot Solutions brand (though it is a descriptive trademark, so intuitively people will generally understand the business’s purpose). There is also the dynamic of how many Foot Solutions can a local market support. Is it one, three, five? Niche franchises are much more susceptible to competition so the protected territory is an important issue. There is a heightened liability risk. Franchisees receive training in foot pathology and physiology along with understanding the feet and related problems and symptoms. What if your sales person recommends a shoe that worsens a customers foot problem, or a customer relies on what they believe is your superior medical advice? Make sure you …

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