How can you electronically pay employees who do not have bank accounts? Payroll companies are offering debit cards filled with the employees cash that can be used to make purchases or withdraw cash from an ATM. It’s a kin to a virtual temporary bank account. Good idea!

It’s payday at a Wendy’s in Wichita, but the teens who flip the burgers aren’t lining up to get their checks from the manager’s office. In fact, they aren’t getting checks at all. Instead, sometime in the next few days they’ll simply visit a bank machine and withdraw part or all of their pay using a debit card.

It looks and works just like a standard debit card, but there’s a twist. Most of the employees using it don’t have bank accounts. The card draws on the payroll account of their employer, Wichita-based LDF Cos.

By offering this option to employees at its 44 franchise restaurants and five beer distributorships in three states, LDF has become one of the first small businesses to adopt the payroll system.

“We have a lot of employees who are young and ‘unbanked,’ and thus can’t get direct deposit,” explains Bill Goodlatte, LDF’s senior vice president of human resources. “This is a way for them to get their pay without paying exorbitant check-cashing fees, while allowing us to move toward a paperless office.”

A decent article on 10 Signs of Great Franchise.

1. Responsiveness during the investigation process
2. Direct operational training
3. Other training
4. Marketing programs
5. Real estate and construction assistance
6. Financing assistance
7. Litigation history
8. Financial strength of the franchise company
9. Financial strength of the unit operations
10. The attitude of the existing franchisees

Note: The author is paid a finder’s fee by franchisors when someone signs a Franchise Agreement.

Dollar Financial is getting about $3.25 million back from the founders of We The People (Ira and Linda Distenfield). Dollar Financial alleges that the sellers of We The People deliberately concealed certain franchise sales breached representations and warranties with respect to a number of undisclosed liabilities and other matters arising from the acquisition.

Readers may remember this not-so-flattering review, “We The People, or We The Screwed?” on FranchisePundit.com last year.

As an aside, the founders of We The People are now a soon-to-be 20 unit franchisee and (equity owner?) broker of the PR Store, which is a fine concept.

Line-of-sight visibility of your store from the road and commuted routes can make the difference.

“You have to be open to doing anything,” says Dan Hamari, co-owner with his wife, Janis, of an EmbroidMe shop in Appleton, Wisc. Hamari just relocated from the back corner to the front end of a local shopping mall. “We moved to get better visibility, and it’s working,” he says. “I’ve already had two new customers come in who saw us while they were tied up in traffic.”

The mall location is ideal in several ways, Hamari says. It draws walk-in customers who don’t expect to find an embroidery shop there. “But everybody knows somebody who is in business, and they spread the word,” he says. The venue also appeals aesthetically to shoppers. “You have to treat your store as a retail establishment in terms of appearance, hours and customer service,” he says. “Shoppers who are exposed to Macy’s and Nordstrom have expectations.”

The larger, 2,000-square-foot space, with 900 square feet dedicated to retail, includes a large window allowing people to look into the workrooms. “We want to show people that we are local, that we do the work here,” Hamari says.

This article briefly discusses government regulations surrounding the renewal of franchise relationships:

The CFA, C.G.S. §§42-133f-g, relates solely to the termination, cancellation or failure to renew a “franchise” relationship, and requires that such action by the “franchisor” be taken only with good cause, normally upon 60 days’ written notice.

Lesser notice may be provided in certain unusual circumstances. Good cause includes, but is not limited to, “the franchisee’s refusal or failure to comply substantially with any material and reasonable obligation of the franchise agreement. … ” C.G.S. §42-133f(a).

A franchisee which is improperly terminated, cancelled or non-renewed may sue for injunctive relief, damages and attorney fees, C.G.S. §42-133g(a). All franchises entered into or renewed after Oct. 1, 1973 must be for a minimum of three years. The parties cannot contract away rights under the CFA by a choice of law provision. R & B Assoc. of Conn. V. Deltona, Business Franchise Guide (CCH) ¶7,525 (D. Conn. 1980).

Nearly all state franchise laws (whether “registration and disclosure” or “relationship” statutes) provide that a franchise exists when:

(a) a franchisee is granted the right to engage in the business of selling or distributing (sometimes also “offering”) goods or services under a marketing plan or system prescribed in substantial part by a franchisor; (b) the operation of the franchisee’s business pursuant to that plan or system is substantially associated with the franchisor’s trademark, service mark, trade name, logo, advertising or other commercial symbol; and (c) the franchisee is required to pay, directly or indirectly, an amount of money to become associated with the franchisor, commonly referred to as a franchise fee.

The Crain’s Chicago publication profiled several pet “waste management” businesses, where the business owner will visit yards and scoop up the pet waste. It’s generally a profitable, flexible services business, and can grow rapidly by word of mouth. The $25,000 franchisee fee and 6-8% in total royalty and fees each year most often do not seem worth the payoff. Spending the $25,000 on smart, targeted advertising is more than enough to build a client base, and spending 10% of sales on advertising ongoing should be more than enough to grow the business each year by twice the investment. If there was a franchise brand that most dog owners recognized, than the franchise fees would be a fair exchange. But that is just not the case.

Here is a glimpse from the article:

To start, the couple spent $20 on two scoopers and $1,500 on an ad in Save on Everything — a coupon book mailed to 150,000 people in Chicago. Within two weeks, they had their first 25 customers. Now they have 120 weekly clients and are expecting to bring in around $80,000 this year.

Another article in the same issues touches on the broader pet services industry.

1) Are You Franchisee Material?
We asked franchisors what they want in franchisees, and 4 qualities rose to the top.

2) 2007 Franchise of the Year? (Entrepreneur Mag)
#1: Subway
#2: Dunkin’ Donuts
#3: Jackson Hewitt Tax Service
#4: 7-Eleven
#5: The UPS Store/Mail Boxes Etc.
#6: Domino’s Pizza
#7: Jiffy Lube
#8: Sonic Drive In Restaurants
#9: McDonald’s
#10: Papa John’s

I’d personally choose in the following order: McDonald’s, 7-Eleven, Papa John’s, Dunkin’ Donuts, Domino’s Pizza.

3) Great comments from a few franchisees and people in the industry. You can listen to the segment with Real Player too.

4) Franchisee rebuffs new product offerings and promotions from Taco Bell.

Some notable actions taken by Dalham since the opening of his franchise in 1990:

• Refused to expand his menu beyond the basic, non-premium offerings such as the “Taco.”
• Used plain white Styrofoam soda cups until the corporation forced him to use branded paper cups during an audit in 1999.
• Furnished dining room with squeeze bottles of hot sauce to avoid purchasing branded sauce packets.
• Failed to update logo – currently displays the red, green, yellow, and purple logo phased out in the 1990s.
• Did not hang promotional posters featuring the talking Chihuahua when the campaign was introduced in 1997.
• During the “Head for the Border” campaign, posted a banner that read “Americans Even Do Tacos Better.”

Due to franchise regulations, Dalham was forced to adopt certain conformities, such as the display of the words “Taco Bell” on his backlit menu and identifying his restaurant as a Taco Bell in the local yellow pages.

Personally, I prefer the Pepperblue Steak Sandwich from Panera Bread. Several chains introduced new beef sandwiches:

But it was the beef sandwiches that debuted in 2006 that seemed the most inventive. In February, Quiznos introduced its Prime Rib and Peppercorn Sub, followed by its Prime Rib Cheesesteak in September. Subway rolled out two premium steak sandwiches of its own, the Blackened Cajun Steak and the Steak and Cheese, in September.

On a related note, here is an article discussing the strategy behind Quiznos’ new salad offerings.

A new Curves franchisee association organized at the most recent Curves annual meeting. The group will represent all 10,000 Curves franchisees.

The association held its first annual meeting in late October during the Curves International annual convention in Las Vegas. At the convention the association’s executive board members elected officers for the organization, and the executive board and officers were presented to the franchisees.

Hospitality Net published an insightful article also applicable to non-hospitality franchisees. Below are excerpts:

1. good Faith Or Bad What Constitutes A “wrongful” Termination Of A Hotel Franchise Agreement?

However, it should also be noted that if a franchisor has legitimate business reasons to justify termination of the franchise such as the failure to pay franchise fees or royalties, the Court may not care that the termination was also motivated by an improper reason and may uphold the termination based upon the legitimate grounds.

2. Does a Hotel Franchise Agreement Contain an Implied Covenant of Good Faith and Fair Dealing and, If So, What Is It?

Generally speaking, it’s the franchisee who attempts to use the implied covenant “creatively” to assert rights which may or may not be expressed in the contract. The franchisor, on the other hand, is likely to claim that the franchisee is using the implied covenant as a “blank check” to create a contractual right which doesn’t exist and to “rewrite” the contract in a manner which is more favorable to the franchisee.

3. After a Notice of Termination is Served, Should the Franchisor Or Franchisee, or Both, Run to Court to Obtain an Injunction?

By striking first, and moving for a preliminary injunction to prevent termination of the franchise, the franchisee may be able to focus the Court’s attention on the franchisee’s strongest argument — that without an injunction, the franchisee will lose its business, forfeit its investment and have its franchise canceled.

…it never ceases to amaze me…this one from India:

Apollo Health and Lifestyle limited Ltd. (AAHL), the wholly owned subsidiary of Apollo Hospitals, has launched boutique maternity centers. To be called the “The Cradle”, these state-of-the-art specialized maternity care centers will cater to the needs of expectant mothers and newborns.

The Cradle is targeted at parents who do not compromise on quality. It will bring to Indian mothers the best birthing facilities all under one roof in line with global trends like private birthing suites for normal deliveries as well as fully equipped OTs, entral foetal monitoring.

On an unrelated note, if you like to take pictures, here is a sports and school photography franchise (no franchise fees – so higher royalties):

Today, Future Stars Sports Photography is one of North America’s premier, franchised sports photography services, providing youth sports organizations with high-quality, innovative photo products and unparalleled service. It is complemented by Pegasus School Images, launched by Bruno in 1999. Recognized for its superior product line and comprehensive school program, Pegasus has become one of the fastest-growing school picture companies in North America.

More biting accusations from 28 Quiznos franchisees in this class action in Wisconsin. Here are some excerpts:

Quiznos Sub forces its franchisees to buy food and supplies from the company or its approved vendors at unfair prices and sets retail prices too low for the stores to make a profit, according to a lawsuit filed by 28 operators of Quiznos franchises in Wisconsin….

The lawsuit, which seeks millions of dollars in damages for lost investments, accuses Quiznos of fraud, violations of federal and state antitrust laws, racketeering, breach of contract and violations of Wisconsin’s fair dealership law, attorney Justin Klein said Tuesday…

“They tell you who you can buy from and who you can’t buy from,” he said. “The prices are unreasonably high. Quiznos gets rebates from approved vendors.”

Is arbitration preferable to litigation? While it is usually less expensive, this case illustrates how things are rarely simple in litigation or arbitration:

BACKGROUND:

MailCoups…provided the 30-page preprinted form contract, which contained an arbitration clause that reserved MailCoups’ right to protect its intellectual property in court and provided for arbitration proceedings to be held in Boston at the American Arbitration Association regional office closest to its headquarters.

DISPUTE:

In September 2000, Nagrampa [franchisee] unilaterally terminated the agreement after two years of operating her MailCoups franchise in Contra Costa County at a loss. She allegedly incurred over $180,000 in personal debt and had to pay more than $400,000 in fees to the franchisor, but did not receive the 41 percent in profits that the company had promised her.

Claiming Nagrampa owed it over $80,000 in fees, MailCoups initiated arbitration proceedings in December 2001, initially designating Los Angeles as the hearing location. After her attorney objected to the proceeding and refused to file a response to the arbitration, the AAA case manager notified the parties that the hearing would take place in Boston in accordance with the arbitration clause’s forum selection provision.

The arbitration clause in a Mailcoup’s Franchise Agreement allowed the franchisor to pursue intellectual property claims in court while restricting all of the franchisee’s issues to arbitration, and designated Boston as the arbitral forum.

CLAIMS:

Among her [Mailcoup’s franchisee] various claims was a cause of action challenging the validity and enforceability of the arbitration clause as violating the California Consumer Remedies Act. The clause was substantially one-sided, unconscionable, oppressive, outside her reasonable expectations and contained within an adhesion contract, the franchisee alleged.

JUDICIAL DECISION:

It was procedurally unconscionable because “Mail Coups had overwhelming bargaining power, drafted the contract, and presented it to Nagrampa on a take-it-or-leave-it basis,” she wrote.

Moreover, the judge noted, Nagrampa was a first-time franchise owner and apparently had no specialized education or training in the direct marketing industry even though she had been a sales manager for some years.

The clause was also substantively unconscionable because the forum selection and provisional remedy provisions exhibited a lack of mutuality.

“The parties’ bargaining positions were unequal, resulting in an oppressive contract of adhesion containing a forum selection clause that places venue in Boston, Massachusetts, only a few miles away from the MailCoups headquarters in Avon, but three thousand miles away from Nagrampa’s home,” Wardlaw said.

The arbitration clause was so permeated by substantive unconscionability that it cannot be cured by severing it from the contract, she concluded.

** Judge Kozinski (occasionally batted around as a possible Supreme Court nominee for President Bush) dissented:

In a separate dissent, Judge Alex Kozinski argued that Nagrampa had waived her right to object to arbitration by dint of her participation in the proceedings, however minimal. He also called the decision a “paternalistic endeavor” that carried “seeds of great irony.”

“By invoking the unconscionability doctrine to protect ‘the little guy’ in this case, the majority has construed California franchise law in a way that will result in fewer opportunities for other ‘little guys’ in the future,” he wrote, explaining that only those who are economically on par with corporations are considered “sophisticated” enough to enter into enforceable arbitration agreements.

“The result is that fewer aspiring business owners—many of whom are minorities and first generation Americans—will find franchisors willing to offer them opportunities like the one MailCoups offered to Nagrampa,” the judge said.

McDonald’s plans to replace more of its kids’ Playlands next year with R Gyms (R = Ronald). R Gyms are mini-fitness areas within the seating area of McDonald’s and feature stationary bikes, monkey bars, obstacle course, and various dancing and jumping activities. There are only 7 in the US right now. I hope this doesn’t turn into a liability magnate for McDonald’s and their franchisees, because it is worthwhile endeavor and will help teach kids to equate fun with exercise.

update Dec 8: McDonald’s Corp. said Friday that same-store sales rose 6.2% in November, as more U.S. customers came in for breakfast and late-night meals.

Franchises (particularly restaurants) are slow in incorporating efficiencies and technology. We’re all aware of the new technology out there (gaming, wireless, Internet, flat-panel TVs, handheld devices), but now think of your typical Subway or Arby’s? High-tech and fresh? I haven’t noticed a change in 10 years!

A few recent examples of streamling that should have caught on much fast are in the high-tech Alternative Payments, Ordering & Entertainment space:

• fast-food accepting credit cards
• offering “fast pass” or other radio transmitter payment options to speed payment (like gas stations).
• Centralized call center for drive thrus,
• touchscreen self-ordering ordering systems for customers (in both fast food/casual and sit-down restaurants (like movie theaters),
• gaming, internet, television and other entertaining activities while you eat,
• wireless handheld ordering systems for waiters/waitresses.
• automated/robotic fountain drink dispensers

Small, but annual high-tech improvements that refreshes the customer experience with convenience and entertainment goes a long way in generating repeat customers and word-of-mouth buzz.

While the menu and customer service must be at least average, the main differentiator in attracting customers is atmosphere and theme. Having a high-tech reputation will create a premium perception and enable the charging of corresponding premium prices.

Herein lies a weakness in most franchise systems – Franchise Agreements do not require the speedy adoption of innovative improvements. Additional capital expenditures in most franchising systems beyond what is required to startup are typically only mandatory when the Agreement is up for renewal in 10+ years. Without uniformity in a product offering, customers will become frustrated and resentful when only 65% of the restaurants stay on the cutting edge.

Advice? Can the franchise you are thinking of buying survive a store with similar quality food but top-notch systems like the ones described above? Look for franchise offerings that quickly adopt, incorporate and promote their focus on high-tech conveniences and entertainment, and expect their franchisees to continue to invest wisely in new innovations. There are not many restaurant franchise offerings out there now that match this criteria, but customers will gravitate to a fresh and familiar high-tech atmosphere.

• Papa Johns down .6% four weeks ending Nov 19
• Applebees down 3% four weeks ending Nov 19
• Wendy’s: October same-store sales at Wendy’s franchised restaurants were 1.8% compared to negative 1.0% in October 2005.
• Cracker Barrel (not franchised): restaurant sales increased 1.4 percent and retail sales 4.4 percent for the first quarter that ended Oct. 27, compared with last year’s first quarter. Revenue was up 4.3 percent to $558 million for the same period.
• Limited’s (not franchised) November same-store sales rose 12%,
  
• Pacific Sunwear’s (not franchised) monthly comps declined 3.8%, and
  
• Bebe Stores (not franchised) had a same-store sales increase of 5.6%.
• Guess? (not franchised)said comparable sales were up 12.1% in November, and
  
• Wet Seal (not franchised) had an increase of 5.5%
• Pier 1 had another drop, with same-store sales falling more than 15%.