O’Charley’s settles with franchisee

A lawsuit between them wasn’t enough to sever the
relationship between O’Charley’s and its first franchisee, a firm in
Michigan that sued to get out of its 15-location development contract
with O’Charley’s.

…..

 

Saalfeld said the development schedule was altered; he wouldn’t say whether Meritage is still obligated to finish building 15 O’Charley’s restaurants. Meritage now has five O’Charley’s, all in Michigan, and more than 40 Wendy’s restaurants.

The original lawsuit claimed O’Charley’s executives had misrepresented sales figures to get the franchisee to sign its 15-location development deal.

A sales shortfall meant a lender never extended credit to Meritage, and the company had to sell some Wendy’s real estate holdings to finance the development of more O’Charley’s restaurants, according to the suit.

 

 

Here is a unique selling idea from Cex, a retail technology franchisors in the UK – Get some of your investment capital back if not satisfied within 12 months. It’s probably difficult to meet the “conditions” for this partial reimbursement and cancellation of the franchise agreement, but at least the idea of giving a franchisee an ability cancel with a small percentage of your money back within 12 months is a step in the right direction. The devil is always in the details, but by the time you get approval on your location, build out and are ready to operate, I would imagine most of your 12 months from signing the franchise agreement are over.

CeX Franchise UK – ‘Satisfaction Guaranteed’
source: The Franchise Magazine

So confident is CeX of its franchise opportunity that, for a limited period, the company is offering a ‘Buy Back Guarantee’ for new franchisees. Subject to conditions, CeX will refund stock, shop build and fit costs and take over the store management and running costs should the franchise not meet the franchisees’ expectations.

In the fast and ever developing world of high-end electronic entertainment, CeX provides a valuable service to technology enthusiasts wishing to stay ahead of the game. The ongoing advancements of mobile phones, MP3 players, digital cameras, computers and games consoles means models are quickly updated and replaced. The CeX business model allows customers to buy-and-sell part-exchange quality second-hand technology and entertainment products at attractive prices and with a 12-month warranty – CeX is the one-stop-shop for gadget lovers.

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

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

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

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

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

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

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

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

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

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

What is the UFOC, and what does it disclose and why?  The following article from 2004 goes through the basics of a UFOC.

Hey, get a clue! Find out why the uniform franchise offering circular has been a franchisee’s best friend for 25 years

General overview of some issues in hotel franchise agreements:

Hotel Franchise Agreements: Opportunities And Pitfalls
The issues mentioned include:

• Franchisee Opportunity
• How Franchise Agreements Differ From Management Agreements
• Negotiating Franchise Agreements
• Fees
• Property Improvement Plans/Restoration
• Termination
• Transfers/Assignments
• Guarantees
• Approval of Management Companies

Michael Webster at his spectacular blog Misleading Advertising Law has an interesting post in his Due Diligence Archives on Arbonne – How Much Money Can You Make?

He walks through the income and statistical analysis of whether this opportunity is worth giving up your current job from a financial perspective. Kudos to Arbonne for providing a seemingly honest earnings claim, despite the chances of earning an acceptable rate per hour being low.

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

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

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

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

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

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

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

Entrepreneur’s Franchise 500’s
Best Franchise Businesses — Franchise 500 Top 10

Entrepreneur managezine’s best of the best.

1. Subway
2. Dunkin’ Donuts
3. Jackson Hewitt Tax Service
4. 7-Eleven (the recently bought out the White Hen chain in Illinois)
5. UPS Store
6. Domino’s
7. Jiffy Lube
8. Sonic Drive In Restaurants
9. McDonald’s
10. Papa John’s Pizza

link to the the remaining 500.

Here are a few I noticed in particular (some for good, some for bad reasons):

384. Nature’s Way Cafe: Healthy foods, salads, wraps, soups, smoothies
325. Cash Plus Inc. : Check cashing & related services
312. Rent-A-Wreck: Auto rentals & leasing
298. Steak n Shake: Steakburgers, fries, milkshakes
273. Nestle Toll House Cafe by Chip: Cookies, baked goods, coffee, ice cream
252. HomeVestors of America Inc. : Home buying, repair & selling system
225. It’s Just Lunch Int’l. LLC: Dating service
212. Pita Pit Inc.: Pita sandwiches
151. Super Suppers: Do-it-yourself home meal preparation
105. Bark Busters Home Dog Training: In-home dog training
87. Qdoba Mexican Grill :Fast-casual Mexican food
75. CiCi’s Pizza : All-you-can-eat pizza buffet
72. Sport Clips: Men’s sports-themed hair salon
58. Jimmy John’s Gourmet Sandwich Shops: Gourmet sandwiches
56. Edible Arrangements: Floral-like designs from sculpted fresh fruit

Franchise 500 Criteria (important):

All companies, regardless of size, are judged by the same criteria: objective, quantifiable measures of a franchise operation. The most important factors include financial strength and stability, growth rate and size of the system. We also consider the number of years in business and length of time franchising, startup costs, litigation, percentage of terminations and whether the company provides financing. Financial data is audited by an independent CPA. We do not measure subjective elements such as franchisee satisfaction or management style, since these are judgments only you can make based on your own needs and experiences. The objective factors are plugged into our exclusive Franchise 500^® formula, with each eligible company receiving a cumulative score. The 500 franchises with the highest cumulative scores become the Franchise 500^®.

Several NYC outlets owned by franchisee of rat-infested Taco Bell closed

A franchisor empowered with the discretion to purge poor performing or non-compliant franchisees is critical to the brand. For example, most everyone by now has heard of the KFC that had rats. The same franchisee with the rats also owned other Yum Brand franchises (they own 350 in total). Yum promptly shut down a few others temporarily, most likely for violations of the franchise agreement. What would the impact have been to innocent franchisees if the franchisee with rats continued to tarnish the brand? The franchisor needs this type of discretion.

Boston’s ”Simply Done” Unpacking Service Now Franchising

The slogan of Simply Done is “Unpacking Made Easy” — and it is made easy for relocating executives, upsizing families, and downsizing seniors — even vacation homebuyers.

Sounds like an interesting niche if you have prior relationships or can secure large contracts. But, emove.com, started by U-haul, is a popular eBay-style web site to find movers and strong guys to help you unload a moving truck, move furniture, etc. emove and Simply Done target different customers, and Simply Done may want to take a page form the emove strategy book and create a similar auction and peer-review web site for high-end unpacking and decorating service.

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

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

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

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

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

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

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

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

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

Cross Posted at Lets Talk Franchising

Play N Trade Sells 200 Video Game Store Franchises in 10 Months

This is an interesting “full-service” approach to gaming. They have a “try before you buy” policy, do game console repairs, in-house tournaments, and sell all the gear a gamer needs. Selling 200 stores in 10 months (1,000 store goal in 3 years) is a dangerously fast – how can a young franchisor adequately service so many franchisees? I’m skeptical.

Update March 2, 2007:

Great comment by a reader:

I think this concept will have legs for another 5 years, but then it will crumble. All the new game consoles and obviously the PC games are played in group mode online. Downloading patches and extended game mods are all the rage, so it only make sense to download the original game too (which PC users often do now). So, Play N Trade will live a short life much like video rental and trading.

Of all business to invest in, why would you choose a product that would obviously be replaced in the near term? I’d prefer a high-end game center because many kids can’t afford the $1,500 – $3,000 for top-of-the-line gaming PCs and video cards.

McDonald’s may add smoothies to menu | Crain’s Chicago Business

Smoothies, iced coffee and other specialty coffees could be added to the menu at U.S. McDonald’s restaurants, a top executive of the world’s largest restaurant chain said Wednesday.

McDonald’s already has scored a hit beverage recently with the addition of premium coffee to its more than 13,700 U.S. restaurants a year ago. Alvarez said coffee unit volume is up 15% as a result.

“McDonald’s is so large that they don’t really need to invent anything at this point,” he said. “For McDonald’s, it’s more important to recognize new things that are working well for competitors and finding a way to incorporate it into their system.”

Dunkin’ Donuts Introduces New Restaurant Design and Menu at Restaurant Re-Opening in Philadelphia, Pennsylvania

As one of the first “New Concept” stores to open nationwide, some of the remodeled highlights of the Philadelphia store include:

• An updated image featuring a new logo that contemporizes the current Dunkin’ Donuts logo, but maintains the core DNA of the brand
• A new warm bakery display and a baker/merchandiser at the front counter offering samples of warm, freshly baked products throughout the day

This new design concept is complemented by a new, innovative menu that moves Dunkin’ Donuts beyond breakfast. Some of the new and exciting all day menu items created by Dunkin’ Brands’ culinary team that customers will enjoy throughout the day include:

• Warm baked goods available throughout the morning and afternoon, including a variety of freshly made muffins, danish, croissants, gourmet cookies, brownies and blondies
• Three varieties of Flatbread Sandwiches — Wedges of toasted lavas bread containing one of three fillings: three cheese, ham and cheese, and turkey, bacon and cheese
• Personal breakfast pizzas, topped with egg and cheese or sausage, egg and cheese

The South Broad Street location is open 24 hours a day, everyday.

StartupJournal | Small Talk

But not all turnover is necessarily due to failure, they say.
Sometimes franchises buy back stores and terminate franchise agreements for
strategic reasons or the franchisee wants out for reasons besides failure.

Mario Herman, an Adamstown, Md., lawyer who represents
franchisees, says franchisers might be tempted to underreport turnover rates.
“They don’t want to put a number that looks too bad,” since turnover is often a
deciding factor to would-be franchisees. He says he’s seen many franchisees fail
because the franchise fees and royalties are too high for the franchises to
sustain profitability or the franchiser isn’t providing enough assistance.