• Gas prices hurting delivery drivers.
• New owner of Shoney’s hopes to fix the brand by improving the food freshness, more upscale menu items, and upgrade the buildings.
  • Quote: Franchisee Glenn Wood rum, who owns 21 Shoney’s in South Carolina, Georgia and Florida, said he sometimes disregarded corporate norms in the past in an attempt to boost his own profits, but now he’s looking forward to more continuity from headquarters. “Any change in the right direction is what we want,” he said.
• You will be seeing a lot more co-branded Noble Roman’s Pizza and Tuscano’s Italian Style Subs.  ….The Area Development agreements entered into thus far provide for the sale of a total of 868 units over multi-year periods as defined in the various individual agreements. The company will continue to market its traditional co-brand business by offering additional development territories. Additionally, the company has also sold 53 traditional co-brand franchises directly to individual franchisees…
  • The company’s traditional co-brand franchise program would be strengthened by several operational enhancements. These enhancements include: more rigorous franchisee selection criteria; a longer, more robust training period for new franchisees; more direct franchisee involvement in the construction and marketing processes; and intensified monitoring and enforcement of operating standards and unit performance. Recognizing that these steps could slow the speed of franchise development within territories covered by existing Area Development agreements, the company intends to offer reasonable accommodations to the exclusive development time frames specified in those agreements so as to align the interests of Area Developers and the company in sustainable growth of the traditional franchise program.
• In Taiwan, franchisee are mostly between 30 and 40 years old.

I unfortunately need to board my 2-year-old beagle while I leave on trip. I shopped around thinking I would find franchise dog hotels everywhere considering I’m in downtown Chicago. I’ve discussed pet franchises like Camp Bow Wow here and here. To my surprise, in Chicago all I found were all privately owned business started by practical entrepreneurs , some being very innovative such as Stay started by dog-lover architect who said, “Why do pet boarding facilities need to be small locations with chain-link cages. He charges between $45 and $75 for one night of dog boarding, and he easily get’s that fee.

Mobile pet grooming seems to be a franchise getting attention lately. I found this Chicago-based entrepreneur that could have purchased a pet service franchise, but decided to build it herself. After a few years she added a mobile pet grooming service to her existing two Chicago pet service (grooming, boarding, walking, training) locations.

She could have paid a $25,000 franchise fee plus 6% royalties and other mandatory marketing fees to a franchisor, which may have been worth it if the business had a strong competitive advantage and high brand recognition with the target market. But, that just wasn’t the case here in Chicago.

The moral of the story is – demand a lot from franchisors. As a franchisee, you are literally making a multi-million dollar bet, while the franchisor is not at much financial risk.  You are taking on the risk that could result in bankruptcy if the franchise business projections don’t pan out or competitors can copy your poorly branded business, so require that as a franchisee you license a business model with a proven and sustainable business model, a business with high barriers to entry and difficult to duplicate business, and can provide a much higher return than your money in the market and your time working for an employer. Just being “new” or “unique” or “better looking” in a new or mature market is NOT enough. See the meal assembly industry for a perfect example of a good idea but bad business with no real protectable competitive advantage.  You should choose your business and build out your projects with the assumption that competitors with a fresher twist or lower prices will move in next door.  In the franchising industry, if a concept makes money, rest assured there will be improved copycats out within a year or two.  Can you still be certain that you’ll earn a sufficient return on your investment?  If not, keep looking for another franchise or start your own business…even if it’s a copycat.

Restaurants seem to have had a good year.

The largest Pizza Hut Franchisee in the U.S., NPC International, Inc., owned 874 Pizza Hut locations during the 3rd quarter of 2007. With $173.3 million in total 3rd quarter sales, the annualized sales per store was about $793k, which translates to a monthly revenue of just over $66k, and daily sales for a 30 day month of about $2,200.

Comparable sales, or sales in stores that have been open at least a year, increased 4.9 percent in the third quarter. That makes five consecutive quarters of comparable sales growth, pushing NPC’s positive comparable sales record to 35 of the last 37 quarters, Schwartz said in the release.

CKE Restaurants reported Wednesday that Hardee’s same-store sales rose 3.6 percent for the four-week period ended Nov. 5, and increased 2.7 percent for the third quarter ended on the same date.

In the U.S., McDonald’s same-store sales rose 5.4 percent in October, boosted by the ongoing popularity of the Monopoly game promotion, the company said.

RETAIL UP:

• Target +4.1%
• Wal-Mart +0.4%
• TJX (TJ Maxx, Marshall’s) +3%

RETAIL DOWN:

• Anne Taylor – 4.2%
• Chico’s -10.6%,
• Bon Ton, Cato -8%,
• Fred’s -0.6%,
• J.C. Penny -1.8%,
• DSW – 3%,
• Cache -3%,
• Pacific Sunwear -.08%
• Sharper Image -8%,
• Gap -8%,
• Nordstrom -2.4%,
• Macy’s -1.5%,
• Kohl’s -1.5%,
• Talbot’s -7.9%
• Shoe Carnival -5%,

A benefit mentioned on this blog before (see similar posts below and this McDonald’s post) of paying fees to a franchisor is their investment in research and development in the product or services offering. Wendy’s seems to be following McDonald’s lead in rolling out its own high-end coffee bistro called Javaccino. While McDonald’s seems to going the standalone route, Wendy’s is looking to carve out space in existing restaurants to offer gourmet coffee.

McDonald’s is the largest supplier of free wireless internet in England. I imagine a similar plan is in the works for the USA.

I’m a fan of free wifi or near free wifi (pay an extra $5 and you can have unlimited internet for the day) if you have the seaing capactiy.  I am a frequent user of free wifi in stores and think it usually makes economic sense. I go to Panera Bread and other local restaurants just for the free wifi.  In fact, many visitors will buy a coffee and snack, then in a few hours buy lunch. The idea that people will sit there all day and not spend any money is rare because people simply cannot sit and not eat for 10 hours, especially when they are in a restaurant. You will always have people who pay you $2 for a coffee and use your wifi for several hours, but most don’t.  The $20-$30 per month spent on wifi will certain pay for itself in higher net sales.

Panera Bread limits free wifi to 30 minutes during lunch times (noon – 2pm).

Franchising your business offers you some intriguing benefits:

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

Before you consider franchising your business:

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

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

Cross Posted at: Let’s Talk Franchising

I recently interviewed John Renner, who is the Business Development Specialist for the Small Business Administration’s Office, in Cleveland. John does great work for the Veteran community, including helping Vets learn about getting into their own businesses, the many programs available, and teaching them how to get contracts for work, when they get into business.

How long have you been at the SBA, and what is your official title?

I am in my 17th year at the SBA’s Cleveland District Office.
My title is Business Development Specialist.

How does that translate to helping veterans in small business, and those wishing to get into a business of their own?

I am a generalist at the SBA, focused on making sure that all existing and prospective small businesses are aware of the variety of programs offered through the SBA. I am also the offices’ Veterans Business Officer, a charge that I take very seriously. In that capacity, I work with many Veterans groups and Veterans who own businesses to insure that they are aware of specific benefits to businesses owned by Veterans and Service-disabled Veteran-Owned small businesses. Each SBA office across the country has a person who is designated as the Veterans Representative.

I understood you won an award for your work with veterans. Can you tell us about it?

I was honored this year to be chosen as the recipient of the Stanley Mageria award. Our Office of Veterans Business Development in Washington presents this award to “recognize a Veterans Business Development Officer who has provided exemplary business assistance and services to veteran, service-disabled veteran small business owners and self-employed members of the Reserve and National Guard.” This award is the most fulfilling recognition I have received in my time with the agency.

In your experience, do veterans make good small business owners? If so, what sets them apart from other small business owners?

There is no doubt in my mind that Veterans make great entrepreneurs. Military experience teaches strong organizational skills, solid decision making processes and focuses on motivational issues. These are the same skills and characteristics that are needed for business success. An article that drives this point home can be found here http://www.inc.com/news/articles/200708/census.html

Would you please describe some of the programs available to help Vets obtain loans for their new businesses?

The SBA has a stable of loan guaranty programs that can address the majority of financing needs of small businesses. This summer we introduced a loan initiative called Patriot Express that is specifically targeted at:

Veterans, service-disabled veterans, active-duty service member’s eligible for the Military’s Transition Assistance Program, Reservists and National Guard members, current spouses of any of the above as well as spouses of active duty service personnel and, the widowed spouse of a service member or veteran who died during service or of a service-connected disability. Additional details of the Patriot Express Loan can be found at http://www.sba.gov/patriotexpress/. Of course, it is important to point out that all of our loans are bank loans with an SBA guaranty and the process always starts with a strong business plan and a relationship with a small business banker. The SBA has resource partners all over the country.

Outside of the financing programs, we also assist small businesses who are interested in selling their products and services to Federal agencies. There is currently a mandated goal that all Federal agencies spend at least 3% of their procurement budgets with service-connected disabled owned small businesses. This creates a huge opportunity.

How is the SBA gearing up for the thousands of vets that will be returning from active duty in Iraq and Afghanistan?

The agency has recently taken a much more aggressive approach to assisting Veterans and the Patriot Express and procurement programs above are the first examples of what the SBA and the entire Federal community is doing to help create and build businesses owned by our Veterans.

{This article was cross posted on Thefranchiseblog4Vets.com}

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

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

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

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

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

Cross Posted at: Let’s Talk Franchising

Entrepreneur Mag has an article on the top franchisee mistakes.

• Lease terms.
• Construction and fixture costs.
• Business equipment
• Inventory and supplies.
• Marketing costs.
• Labor costs.

I vote for construction costs and labor costs as the biggest mistakes – that’s is where most of the surprises and mishaps occur.

There are many popular and unique franchisees outside of the United States. I love reading foreign journals and learning about innovative brands developing overseas. If you are travelling overseas, keep an eye out for business that would work well in the United States. That is what this gentlemen did with a falafel restaurant. I am very skeptical whether this type of restaurant can work even with good branding…I have seen so many of them fail already. Venture, a radically innovative photography and portrait company, is one my favorite United Kingdom concepts…it is supposedly coming to the United States (Boston) soon.

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

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

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

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

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

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

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

Cross Posted at: Let’s Talk Franchising 

Homevestors garnered a positive article in the Washington Post yesterday.

HomeVestor franchisees pay a $49,000 fee upfront and must have net assets of $200,000 in cash or cash equivalents. They also pay the parent company $775 for every house they acquire, plus interest on credit lines the company extends to enable them to buy multiple properties. Some HomeVestor franchisees buy, fix, rent or resell 100 or more houses a year, thanks in part to high volumes of potential sellers — more than 200,000 this year, Hayes said — who are driven to them by the company’s advertising campaigns.

Subprime mortgage delinquencies and foreclosures are swelling those numbers significantly, he said, along with plunging prices in some local areas. Softening markets also are driving down the expected discounts on troubled houses. Whereas in past years, “we might offer 65 percent of a property’s expected value after repair, now in some places we’re looking at 50 percent,” Hayes said.

A $100,000 starter home with a seriously delinquent mortgage and in need of renovation, for instance, might draw an offer of $50,000 to $55,000 cash from a HomeVestor franchisee.

I was with a real estate broker the other day when he received a buy offer for his client’s residence that was 50% below asking. The broker scoffed and refused to take the offer to the seller (which is unethical unless the owner gave instructions not to accept anything below a certain price; I think part of it too was the broker wanted his commission to be higher). Nevertheless, companies like Homevestors provide liquidity to distressed properties. It’s hard to believe that a perfectly good property would drop in value 50% in a few years in popular part of the country (Miami in this article), but at the end of the day the condo’s fair maket value is only what someone else is willing to pay for it.

For those of you interested in the legal aspects of residential real estate, I recommend checking out Chicago attorney Pete Olson’s blog.

From the FTC:

Twenty-six states have business opportunity laws. Most of these laws prohibit sales of business opportunities unless the seller gives potential purchasers a pre-sale disclosure document that has first been filed with a designated state agency.

State business opportunity laws typically cover every imaginable type of business opportunity that might be offered. If a business opportunity seller is not required to provide pre-sale disclosures by the Franchise Rule, these disclosures will almost always be required by the laws of the states listed below.

The disclosures required by state business opportunity laws differ, and usually provide more abbreviated information than the FTC’s Franchise and Business Opportunity Rule requires. However, most of these laws provide important rights and remedies for business opportunity investors, including required security bonds to cover investor losses.

If you are considering purchasing a work-at-home or other business opportunity, and reside in a state with a business opportunity law, we encourage you to find out more about the protection provided by your state statute before you invest.

Alaska, California,Connecticut, Florida, Georgia, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maine, Maryland, Michigan, Minnesota, Nebraska, New Hampshire, North Carolina, Ohio, Oklahoma, South Carolina, South Dakota, Texas, Utah, Virginia, Washington, Wisconsin

Accusations of franchisor misconduct and fraud occurs in every country. Australia, for example, franchise churn is a big issue:

At the centre of these 30-plus claims is what is known as franchise churn. This is where a franchisor sells a site or territory that cannot turn a profit then sits back and waits for the business to fold.

The franchisor reclaims the site for a nominal price and resells it to another franchisee who inevitably fails a year or two down the track.

Each time the franchisee spends up to $450,000 buying what he or she believes is a viable business and ends up paying another agreed amount (usually about $50,000) to the franchisor for marketing fees.

Royalties and annual franchise fees, which range from 5-20 per cent of revenue, are owed on top of this.
Business failures are easily pinned on the franchisee.

…

“All you’ve got to do is follow the money trail. In the robbery stream, the franchisor virtually drives the franchisee to the wall to the point where they throw up their arms, leave behind them assets worth 10 times [what they are sold for in a fire sale] and so it goes on,” Farrell says.

From the Columbus Dispatch:

DavCo Restaurants Inc., a Maryland company that owns 160 Wendy’s restaurants, contends that Wendy’s required franchisees to buy only Coca-Cola products, set a price higher than market value for those products and used the funds for advertising.

Dave Norman, DavCo’s chief financial officer, said his company believes its agreement with Wendy’s allows DavCo to suggest alternate suppliers.

Further, Norman said, Wendy’s didn’t give DavCo a credit against its required contribution to the national advertising campaign. Both constituted breaches of the franchise agreement, he said.

Franchisors will claim that the mandatory vendors are passing on savings to franchisees through volume discounts it can achieve through negotiations. Franchisees will claim that the vendors prices still are inflated partly because of the rebate paid to the franchisor.

There’s a “very significant difference” between the cost of products in Wendy’s contract with Coke and the price an open bidding process would bring, Norman said.

Competition and competitive bids almost always produce lower prices and better service. Franchisees should look for franchisors that are flexible with their vendor requirements, permitting the franchisee to select their own suppliers and vendors so long as the quality is the same as the required vendor. If this is important to you, there MUST be language iinserted into the franchise agreement stating that such supplier substitutions are permitted and permission will not be unreasoably withheld.