Multi-Unit Franchisee Magazine - Issue IV, 2016 by Franchise Update Media

CUSTOMER SERVICE ■ TECHNOLOGY ■ FINANCE

Multi-Unit

MULTI-UNIT FRANCHISEE

Franchisee ISSUE IV 2016

DOMINATORS! Profiles of this year’s D O M I N A T O R S

ALSO:

dominators tell how they got where they are today

■ SUCCESSION PLANNING For family-owned businesses, the time to start is yesterday

■ SOCIAL MEDIA ENGAGEMENT The importance of being earnest is more important than ever before

Robert Schermer, Jr. operates 177 Wendy’s across 8 states

■ ANNUAL MSA RANKINGS Franchising’s largest U.S. markets and the operators who dominate them

ISSUE IV 2016

LAS VEGAS

Sunday, April 23 – Wednesday, April 26

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Multi-Unit

Franchiseecontents I S S UE IV, 2016

D OM I N A T O RS

COVER STORY

2016 Dominators – How They Did It! 10 Four multi-unit franchisees discuss the ups and downs on their path to domination: Rob Chinsky, Dave Goebel, Mara Fortin, and Robert Schermer, Jr. We also pay a return visit to Dunkin’ Donuts dominator Rob Branca. And in our Athlete Profile we spend some time with former NFL quarterback David Garrard as he masters the franchising playbook. BY DEBBIE SELINSKY and KERRY PIPES

LISTS

Ranking Franchising’s Top MSAs 50 The country’s top franchise markets and the operators who rule them

FEATURES

Succession Planning 52 It’s never too early (or too late) to plan for transition in a family business BY HELEN BOND

Social Media 56 Attracting and engaging customers on their platforms of choice BY EDDY GOLDBERG

MULTI-UNIT FRANCHISEE IS S UE IV, III, 2016 2009

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"Denny's is an iconic American brand that delivers on the American dream. When I started with Denny's at 16, I was a food server. Today, I'm one of the largest franchisees in the system. If that's not the American Dream, I don't know what is." Dawn Lafreeda

Denny's Franchisee, Owner/Operator of over 70 restaurants in 6 states

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ÂŠ2016 DFO, LLC 203 East Main Street, Spartanburg, SC 29319. This advertisement is not an offer to sell a franchise. The savings estimate of up to $1 million is based on the potential savings of developing, opening and operating six Denny's restaurants under the New and Emerging Markets incentive program, in comparison to developing, opening and operating six Denny's restaurants without the incentive program. The estimated savings include reduced royalty fees calculated using the $1,550,000 average unit volume of franchised Denny's restaurants nationwide in 2015, as published in Item 19 of Denny's 2016 Franchise Disclosure Document. Of the nationwide franchised outlets whose data was used in arriving at the 2015 franchised restaurant sales figure, 613 franchise units, or 44% of the franchised restaurants, actually attained or surpassed the indicated sales results. Individual restaurant sales performance will vary. There is no assurance that you will do as well or achieve the estimated potential savings. You must accept this risk. See Denny's Franchise Disclosure document for complete program details, including restrictions such as applicable geography and development time frames. Limited time only.

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Departments CHAIRMAN’S NOTE

Adapting to external forces is the key to continuing growth 6 ONLINE

What’s online @ mufranchisee.com 8

Columns CUSTOMER SERVICE

Pokémon GO and Augmented Reality 62 Is AR rewriting the rules of customer attraction and engagement? BY JOHN DIJULIUS

PEOPLE

Hourly Hiring Changes 64

Managing amid new regulations and an unskilled labor crunch BY PETER HARRISON

FINANCE

Benchmarking Rules! 66

Increase your profitability now with these basic yet critical actions BY ROD BRISTOL

INVESTMENT INSIGHTS

Franchisee CHAIRMAN Gary Gardner CEO Therese Thilgen EXECUTIVE VICE PRESIDENT OPERATIONS Sue Logan EXECUTIVE VICE PRESIDENT Diane Phibbs VICE PRESIDENT BUSINESS DEVELOPMENT Barbara Yelmene BUSINESS DEVELOPMENT EXECUTIVES Judy Reichman Jeff Katis EXECUTIVE EDITOR Kerry Pipes MANAGING EDITOR Eddy Goldberg CREATIVE DIRECTOR Peter Tucker DIRECTOR OF TECHNOLOGY Benjamin Foley WEB DEVELOPER Don Rush WEB PRODUCTION ASSISTANT Esther Foley TECHNOLOGY PRODUCTION ASSISTANT Juliana Foley SENIOR SALES, EVENT & OPERATIONS SUPPORT MANAGER Sharon Wilkinson SENIOR PROJECT MANAGER, MEDIA AND BUSINESS DEVELOPMENT Christa Pulling MARKETING ASSISTANT, SPEAKER LIAISON Katy Geller FRANCHISEE LIAISON, SUPPORT COORDINATOR Leticia Pascal CREATIVE MANAGER Kevin Waterman CREATIVE PRODUCTION ASSISTANT Phi Le

It’s a Looking-Glass World 68

VIDEO PRODUCTION MANAGER Wesley Deimling

BY CAROL SCHLEIF

CONTRIBUTING EDITORS Rod Bristol John DiJulius Peter Harrison Darrell Johnson Steve LeFever Carol Schleif Dean Zuccarello Thomas J. Winninger

The U.K’s “Brexit” and its potential effects on your investments EXIT STRATEGIES

Let’s Make a Deal! 70

The do’s and don’ts of successful transactions for buyers and sellers BY DEAN ZUCCARELLO

FRANCHISE MARKET UPDATE

Call to Action 72

Franchisees must act to protect the model— before outsiders do BY DARRELL JOHNSON

Multi-Unit

CONTRIBUTING WRITERS Debbie Selinsky Helen Bond ADVERTISING AND EDITORIAL OFFICES Franchise Update Media 6489 Camden Avenue, Suite 204 San Jose, CA 95120 Telephone: 408-402-5681 Fax: 408-402-5738 SEND ARTICLE INQUIRIES TO: editorial@fumgmail.com MULTI-UNIT FRANCHISEE MAGAZINE IS PUBLISHED FOUR TIMES ANNUALLY. Annual subscription rate is $49.00 (U.S.) FOR SUBSCRIPTIONS EMAIL sharonw@franchiseupdatemedia.com or call 408-997-7795 FOR REPRINT INFORMATION CONTACT FOSTER PRINTING AT 800-382-0808 www.fosterprinting.com

MULTI-UNIT FRANCHISEE IS S UE IV, 2016

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Chairman’sNote

Time To Adapt

he environment franchising operates in is changing, with external threats to the business model coming from more sides than ever. To survive and continue to grow, we must adapt. The usual concerns—financing growth, recruiting and retaining good employees, finding the best sites for our stores—are problems we’re used to, and successful operators are adept at solving them. They’re the “perennials,” coming up year after year. What’s new is what many in franchising see as overregulation by elected officials and appointed governmental agencies—most of whom don’t understand the day-to-day realities of running a business. They mean well, but the unintended consequences of their good intentions are hurting not only franchisees, franchisors, and other small businesses, but often the very people they’re trying to help: our employees. At the recent Multi-Unit Franchising Conference Advisory Board meeting in Washington, D.C., all these concerns and more were on the minds of board members planning the agenda and theme for next spring’s conference. Fittingly, the meeting took place during the IFA’s annual Franchise Action Network (FAN) meeting and lobbying on Capitol Hill. Protecting the franchise business model requires franchisees and franchisors to work together to help Washington, D.C., understand our concerns. At the federal level, the NLRB and the Dept. of Labor have promulgated rulings on joint employment, overtime pay, collective bargaining, and unionization. States also are getting into the act more aggressively and changing the rules of the game, especially in bellwether states like California. Even cities are getting into the act, passing minimum wage and scheduling regulations that apply there, but not in the rest of the state. For franchisees with units in many states, the problem of compliance and vulnerability to lawsuits multiplies. And now, with cities such as Seattle and San Francisco instituting their own rules, managing an expansive franchisee organization is more difficult than ever because of changes in the external environment. What franchisees can manage and control is what goes on inside their four walls and organizations. This is what board members are focusing on: run-

ning a tighter ship and adapting to legal and regulatory changes. Externally, franchisees must be more active in educating our politicians about the benefits of franchising, from our contributions to the local and national economy to our value as a training ground for young people in their first job. The 2017 Multi-Unit Franchising Conference will tackle these issues and more head-on, providing the most up-to-date expertise on how to adapt, survive, and continue expanding in what increasingly feels like a hostile environment. Attendees can learn from one another—not only about the brands we like or how to be the employer of choice in our markets, but also how to plan for the regulatory changes coming down the road. This opportunity to meet and learn from our peers is an important reason I attend the conference each year. And I’m not alone: more than 50 percent of attendees say they come for the networking opportunities. From our fellow franchisees we can learn the best sources of financing to meet our current needs; which brands and markets are hot; real estate conditions in cities we’re considering; and how to attract and retain the best talent for our growing companies in a tight labor market. And build lifetime connections. Last year we introduced a meet-and-greet event for first-time attendees on the evening before the conference. First-timers welcomed by board members and Franchise Update staff said it made a big difference and we plan repeat this next year. Finally, I’m excited to announce that Marcus Lemonis, star of “The Profit,” a CNBC reality show about saving small businesses, will be a keynote speaker. Lemonis, a serial entrepreneur himself, understands the everyday challenges of running a small business, and by the end of the first three seasons had invested $35 million in the small businesses featured on the show. Prepare to be inspired. This year’s conference attendance of 1,566 included 652 franchisees who represented more than 12,000 units and $11 billion in revenues—and the conference continues to grow each year. You’ll be in excellent company. Registration is now open. See you next April in Vegas!

Guillermo Perales CEO/Founder, Sun Holdings 2017 Conference Chair

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CMY

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2017

LAS VEGAS Sunday, April 23 – Wednesday, April 26

✓ CONFERENCES 2017 Multi-Unit Franchising Conference!

It’s never too early to start planning to join your peers at the 17th annual Multi-Unit Franchising Conference, next April at Caesars Palace in Las Vegas. Attendees at the 2016 conference overwhelmingly said it was a useful, worthwhile experience and plan to return next year. Total attendance, which topped 1,300, included more than 550 franchisees who collectively accounted for more than 12,000 operating units, $8.5 billion in annual revenue, and more than 100,000 jobs. This is a unique opportunity to attend the premier multi-unit franchising event, meet and learn from the best in the business, explore new brands, and soak up invaluable expertise at the educational sessions. Need some inspiration or a reminder? Take a peek back at the 2016 conference to see the speakers, review educational sessions, and sign up to keep current on developments for 2017 at www. multiunitfranchisingconference.com

✓FRANCHISE OPPORTUNITIES Looking for your next franchise opportunity?

Have we got the tools for you! Find articles on companies, concepts, industries, trends, and profiles—and search our features. Find franchisors looking for multi-unit franchisees, area reps, and area developers. Search by top opportunities, alphabetically, investment level, industry, state, and more at www.franchising.com

✓RANKINGS Check out our annual rankings of top multi-unit franchisees and their brands and find out “Who’s on first.” For the Multi-Unit 50 rankings visit www.franchising.com/ multiunitfranchisees/mu50.html; and for the Mega 99 rankings visit www.franchising.com/multiunitfranchisees

✓PUBLICATIONS

“Don’t just survive, thrive!”

Franchise Update Media’s 2017 Annual Franchise Development Report, and the best-selling book, Grow to Greatness by top franchise consultant Steve Olson, offer invaluable tips for franchise sales success and unit growth in today’s economy. To order, visit www.franchising.com/ franchisors/afdr.html and www.franchising.com/ franchisors/growtogreatness.html.

✓ONLINE Multi-Unit Community Grows ✓QUICKLINK Check out our community-based website for multi-unit operators. It’s your exclusive look into the world of multi-unit franchising, your one-stop shop to find: • New brand opportunities • Exclusive interviews • Networking opportunities • Operator profiles • Online edition and archives • Financing resources www.franchising.com/multiunitfranchisees

✓NEW ONLINE VIDEOS EmpireBuilders.tv Expands

Great entrepreneurs build great organizations. They possess a knack for making smart business decisions, building great teams, and creating successful companies. But as we’ve learned from years of interviewing successful multi-unit franchisees, they’ve also struggled, doubted, and made more than a few mistakes—yet they’ve soldiered on, persevered, and ultimately come out on top. To provide a deeper sense of their journeys, insights, and personalities, we’re selecting franchisees from our most inspiring print interviews and creating a new series of online videos of these franchisee leaders. We call them Empire Builders.www.franchising. com/empirebuilders

For a one-click link to articles in this magazine and to past issues of Multi-Unit Franchisee magazine, visit www. franchising.com/multiunitfranchisees

ROLE PLAYER

“I like franchising. It’s a beautiful joint venture, where franchisors are responsible for their piece of the pie— the creation of concept, menu, training manuals, building designs—and then hand it to the franchisee and say, ‘Now run with it.’” —Dave Goebel, franchisee of Pie Five Pizza and Goodcents Deli Fresh Subs

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“How Arby’s (Yes Arby’s) Is Crushing It.” -FORTUNE

“Arby’s is stepping up its game…” - USA Today

“An Underdog Chain is Dominating the Industry” - Business Insider

› 8% System SSS growth in 2015* › 23 consecutive quarters of System SSS growth › Differentiated Brand positioning and Meatcraft™ marketing campaign › Newly enhanced, flexible Inspire building designs › Remodel program offering up to 100% financing (Domestically) › Attractive franchise growth incentives (Domestically) › Innovative menu and robust Fast Crafted® product pipeline featuring a blend of quick service and fast casual restaurant services

*Figures for 2015 as reported in our FDD issued March 31, 2016. 1,621 restaurants, or 50.4%, of all U.S. system restaurants attained or exceeded this average SSS growth during 2015. TM & © 2016 Arby’s IP Holder, LLC MN #F-5349. This advertisement is not an offering. An offering can only be made by a prospectus filed first with the Department of Law of the State of New York. Such filing does not constitute approval by the Department of Law.

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D OM I N A T O R S BY KERRY PIPES & EDDY GOLDBERG

Dominating the Field These six multi-unit operators take charge!

hat do two attorneys, a former Applebee’s CEO, and a retired NFL quarterback have in common? They’re four of the six multi-unit franchisees we’ve profiled in this issue. A fifth operates 177 Wendy’s in 8 states, and the other left corporate finance and became Penn Station East Coast Subs’ first Franchisee of the Year. Surely a stellar bunch for our annual Dominators issue! We come across many multi-unit operators but “Dominators,” as we like to call them, are a unique breed, fun to interview, and exciting to write about. Some control their markets by having a large number of units, some by operating the only units of a brand, and many are the top-performing operators in their region. No matter how they do it, they dominate where they operate. Once a year we devote an issue to these hard-working, inspiring franchisees. As usual, they’re an interesting mix, but the results are similar: a combination of grit, determination, and perseverance has led each to success and domination with their chosen brands and markets. Their stories and the paths they’ve followed are insightful and revealing. Here come this year’s “Dominators”! • Rob Chinsky is 49 years old, but has been in franchising since age 23. That’s when a family friend financed his first Penn Station East Coast Subs restaurant. He now has 17 Penn Stations open. Next year, he’ll open his 18th, the maximum the brand allows. In 2002, he became the brand’s first Franchisee of the Year and has served 10 years as president of the Franchise Advisory Committee. • Dave Goebel has worn many hats: franchisor, franchisee, creator of several original concepts, board director, executive coach, philanthropist, husband, and father. Today the former Applebee’s CEO is a Pie Five Pizza franchisee who, with three of his children, operates 10 stores, with 2 more set to open in Q4. He also operates 5 Goodcents Deli Fresh Subs, 6 Y-Leave Cafes, and owns Prime Catered Events.

• Mara Fortin has the distinction of being Nothing Bundt Cake’s first franchisee. The former attorney and mother of two pre-teen girls has expanded to 7 Nothing Bundt Cake bakeries in San Diego County. She’s a strong pro-franchise advocate who has testified before Congress and received the IFA’s FAN of the Year award in 2015. Someday, she says, she might run for Congress or another elected office. Stay tuned! • Robert Schermer, Jr. left a career in corporate finance 18 years ago to join Meritage Hospitality Group. When he arrived, sales were $27 million (today they’re $228 million), and the company operated 22 Wendy’s restaurants in Michigan (today it’s 177 in 8 states)—and the publicly traded company is looking to reach 300 by 2021. Not enough? He also operates four original casual dining concepts in Michigan (6 units total). • Robert Branca is a great example of a dominating franchisee. His organization operates 85 Dunkin’ Donuts and his extended family operates more than 1,200 Dunkin’ locations, primarily in the Northeast. He also has a construction company, a manufacturing plant, and is an investor in NRD Partners, a fund that invests in emerging brands. An attorney, he’s become a strong advocate for franchising and in September was named a 2016 Franchisee of the Year by the IFA. • David Garrard is a former NFL quarterback who spent 9 seasons with the Jacksonville Jaguars, including a victory in the 2007 NFL Wild Card Playoffs. Unlike many pro athletes, he knew there would be life after football and worked closely with his financial adviser to prepare for that day. Today he is a Retro Fitness franchisee with two Florida gyms open and a third on the way. He’s an inspiring example of a star athlete who made the successful transition to the franchise world. Once again we’ve teamed up with FRANdata to bring you the 2016 listing of the DMAs with the most franchised units, and the dominant franchisee organizations in each state and region. Take note, the Dominators are here!

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For more information, contact: 404.705.2051 • requests@moes.com *Figures reflect averages for 194 franchised restaurants that were in operation continuously for 3 or more years and that provided us with complete financial information for the full calendar year of 2015, as published in Item 19 of our April 2016 Franchise Disclosure Document. These averages are based on a 52-week annual period from January 1, 2015 through December 31, 2015. Of these 194 restaurants, 78 restaurants (or 40%) attained or exceeded the average total gross sales and 78 Restaurants (or 40%) attained or exceeded the average EBITDA. A new franchisee’s results may differ from the represented performance. There is no assurance that you will do as well and you must accept that risk. This offering is made by prospectus only. This information is not intended as an offer to sell a franchise. We will not offer you a franchise until we have complied with disclosure and registration requirements in your jurisdiction. Contact Moe’s Franchisor LLC, 5620 Glenridge Drive NE, Atlanta, Georgia 30342, to request a copy of our FDD. RESIDENTS OF NEW YORK: This advertisement is not an offering. An offering can only be made by a prospectus filed first with the Department of Law of the State of New York. Such filing does not constitute approval by the New York Department of Law. RESIDENTS OF MINNESOTA: MN Franchise Registration Number: F-5795.” ©2016 Moe’s Franchisor LLC

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D OM I N A T O R S BY DEBBIE SELINSKY

Taking It to the Limit A

Rob Chinsky works hard and plays hard

fter working his usual 50- to 60-hour week tending to his 17 Indianapolis-area Penn Station East Coast Subs stores, Rob Chinsky and his wife Linda moved both their children into their college dorms, hours away, all in one weekend. This typifies Chinsky’s priorities in life: family first, with his business and 240 close-knit employees coming in second. Chinsky, 49, has been in franchising since he was 23, when a family friend financed his first Penn Station restaurant. At the time, franchisees were allowed to own only one store. Next year he’ll open his 18th, the maximum the brand allows. It was a slow and steady growth path to where he is today. “I worked from home for the first 20 years. It was just me, doing all the training and operating with my wife helping with the books,” he says. “After store 10, it just got to be too much—much of that due to government regulations. So I hired an office manager and accountant. We bought an old house built in the ’40s and re-worked it into office space. It’s five minutes from home.” A St. Louis native whose first job as a teen was working in a cousin’s deli, at 23 Chinsky moved to Cincinnati in 1990 to open his first restaurant. He had become smitten with the restaurant business and delved into the study of hotel and resNAME: Rob Chinsky TITLE: President COMPANY: Chinsky Restaurant

Group NO. OF UNITS: 17 Penn Station

East Coast Subs AGE: 49 FAMILY: Married with two grown

children YEARS IN FRANCHISING: 26 YEARS IN CURRENT POSITION: 26

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D OM I N A T O R S taurant management. After two years of working in a restaurant, he was ready to open his own. “I knew little to nothing about franchising, but I put a business plan together and, with no equity, walked into a bank. You can just imagine the looks I got. It was a nice, short meeting,” he says. Family friend Mickey Schulman, whose daughter had married Penn Station founder and CEO Jeff Osterfeld, was opening a Penn Station restaurant in Cincinnati and his manager “flaked.” He sold Chinsky the store, backing him financially just as a bank would. It was the seventh store in the new system. “Mickey, who eventually became my partner, and his wife Phyllis taught me everything I needed to know—what taxes to pay, when they were due, what forms to use. I knew the restaurant side and what people wanted, but I had no clue on the business side. I had to learn it,” says Chinsky. “I was very fortunate. I was given a great opportunity, but I knew I had to make it work, make it a success. I’m a self-starter, and my dream was to hit $100,000 by age 30. I did that, and my next goal was seven figures, and so on. I got my work ethic from my dad, who never owned his own business. My ambition came from seeing how hard he worked for someone else.” In 1993, Chinsky sold his Cincinnati stores and moved to Indianapolis at Os-

“If you help enough people get what they want, you will get what you want.” terfeld’s request to take over the corporate store there. He soon became owner of that store and area rep for the region. When he was ready to open a second store, Schulman again co-signed. When Penn Station decided to do multi-unit agreements, Chinsky and Schulman partnered on a 12-unit deal. In 2010, he bought out his partner and mentor. In 2002, when Penn Station began its Franchisee of the Year awards, the first went to Chinsky. In addition, he’s served 10 years as president of the brand’s Franchise Advisory Committee, and earlier this year spent time in Washington, D.C., meeting with senators and representatives about franchising and small-business issues. “I’ve become more interested in politics as I see how it affects our businesses,” he says. He and his restaurants are also active in the community. He served on the board of directors for the Indiana Restaurant & Lodging Association, and he continues to partner on promotions with the Indianapolis Colts.

After he opens his 18th store in 2017, Chinsky plans to focus on improving all the stores and continuing to grow sales. While he still enjoys getting into the kitchen and working alongside his employees every chance he gets, he doesn’t have to do that any more unless he wants to. “I’d like to travel more with my family, and that may be possible because I have two great operations directors, both of whom have been with me for about 20 years,” he says. “I also have multiple GMs who have been with me for 10 to 15 years, so we have a great team. We work hard and play hard.” His most beloved and stalwart partner is his wife Linda. “She’s a great partner,” he says.“I was in business before I met her and she actually moved with me, gave up her company-car job, and moved in with me without a ring. I feel blessed to have her.” Chinsky remains committed to Penn Station. “From day one, when I got involved, I was sold on the overall simplicity of the menu. It’s all about freshness—everything is made daily fresh on the grill. I’m a true believer in the food. That’s why I tell people I’m training and developing to make it the way it’s supposed to be made—follow the ops manual,” he says. “It comes down to customer service. If customers have a memorable experience, the food will be memorable.”

PERSONAL First job: I worked in a Jewish deli a cousin owned. Formative influences/events: My mentor is my old business partner, Mickey Schulman. Without him I wouldn’t have been able to do this because he backed me and believed in me to get started. Key accomplishments: From a personal standpoint, marrying the right person and having two kids. From a business perspective, owning my own business. Biggest current challenge: Staffing. Next big goal: To travel more and open our next store.

What’s your passion in business? I like watching other people grow. I have such longevity with many of my managers that I’ve been able to watch them and their families grow up. My passion is helping them build their careers. How do you balance life and work? I don’t think I had the balance at the beginning, especially with my first 10 stores. As I built my support system, one of our big management beliefs became to take care of each other and put families first. We learned to find that balance together.

First turning point in your career: My mom suggested we look at Penn Station when they started franchising.

Guilty pleasure: Food.

Best business decision: After 10 years in the business, I started building a support system in 2000 by hiring my first operations director and a part-time accountant.

Favorite movie: “The Shawshank Redemption.”

Hardest lesson learned: Life is short and you have to enjoy it. Work week: Changes weekly, but averages 50 to 60 hours per week—and I still love it. You love it or you hate it with restaurants. It’s not for everyone. Exercise/workout: I play hockey twice a week and go to the gym twice a week.

Best advice you ever got: If you help enough people get what they want, you will get what you want.

Favorite book: Anything by Zig Ziglar. What do most people not know about you? Not much. I’m a pretty open book. Pet peeve: People without a good work ethic. What did you want to be when you grew up? A police officer. Last vacation: I spent time in Central Oregon last summer with my family. Person I’d most like to have lunch with: My wife.

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f o z t Lo opportunity! h t w o r g 404-705-2051 2014, 2016

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D OM I N A T O R S “I can still throw the apron on and get in and run the line, and my employees know that I can go in and help.” MANAGEMENT Business philosophy: Work hard, play hard. When you’re working, that is what you’re doing. When it’s time not to work and have a personal life, it’s time to play hard as well. Life is short.

talk to the president with a phone call. If you have a question, you can get an answer the same day.

Management method or style: I’m a “do it now” manager, so if I hear something from the grapevine or there is something I need to talk about, I deal with it right away. I don’t beat around the bush.

Have you changed your marketing strategy in response to the economy? How? We’re placing more focus on Millennials.

Greatest challenge: Staffing and helping general managers find crew and their management teams. How do others describe you? As having high expectations, but fair. One thing I’m looking to do better: See the glass half full and not half empty. As an owner, I tend to go in and see what’s wrong first and not what’s right. How do you give your team room to innovate and experiment? They have to be able to make their own mistakes because sometimes you learn by making mistakes. I want them to learn on my dime. It’s okay to make mistakes as long as we learn from them. How close are you to operations? Very close. I can still throw the apron on and get in and run the line, and my employees know that I can go in and help. I wish I could do it more, but when I do we have a good time. I came from the operations side and doing dishes in a restaurant and working my way up, so operations is probably my forte. What are the two most important things you rely on from your franchisor? Good data (how we’re doing compared with the rest of the stores because I don’t want to be average) and a good support system. I can

What I need from vendors: Great service and great quality.

How is social media affecting your business? We’re focusing on social media more in the last year than we ever have. Penn Station launched an app this year and we’re doing a lot more advertising on social media. How do you hire and fire? I hire my general managers and they hire everyone else. For hiring a general manager, we do a very thorough process. When we have to fire, I make sure we have the proper documentation. Before firing, we try to salvage the employees. How do you train and retain? Penn Station has a thorough training program. We do an orientation every week and I personally go to the orientation so every employee meets me. Since all 17 of our stores are centrally located, we do one orientation. It shows a commitment from the employees to take the time to go to a different location early in the morning. To retain, we give proper raises and take care of our people. How do you deal with problem employees? Sometimes you know quickly whether they’ll make it or not. For someone we think we can work with, we sit down and try to work through problems. Every employee is different. I tell people if they don’t enjoy going to work more times than not, they should find something else. Ultimately, I want them to be happy. Fastest way into my doghouse: Being lazy and not being honest.

BOTTOM LINE Annual revenue: Approximately $12 million. 2016 goals: Hiring the right people and growing sales. Growth meter: How do you measure your growth? Customer counts. Vision meter: Where do you want to be in 5 years? 10 years? I want to travel more and work a little less, but I don’t plan on retiring anytime soon. How is the economy in your region affecting you, your employees, your customers? It hasn’t affected us as much from a customer standpoint, but wages are rising and we are trying to accommodate that, so it affects our labor costs. Our whole industry is facing a major challenge finding employees.

What are you doing to take care of your employees? We create an ownership mentality with our general managers by giving them a percentage of the profits, paid monthly. We try to do things outside the store level, too. I often give advice on a personal as well as a business level. How are you handling rising employee costs (payroll, minimum wage, healthcare, etc.)? I’ve learned to stop fighting it. You can only make up so much of it by raising food costs, so there is a point where it affects the bottom line. We still streamline and do the best we can.

How do you forecast for your business? I do an annual forecast and update it every month.

How do you reward/recognize top-performing employees? Penn Station has a performance evaluation system where an area representative comes into the store and does an evaluation. We take that very seriously. Our general managers get recognized by how well they do in that evaluation compared with their peers. The top-performing general managers from that performance evaluation can earn a bonus of up to $10,000 or $12,000.

What are the best sources for capital expansion? My goal is to self-fund. At this point, I have a line of credit if I need it.

What kind of exit strategy do you have in place? At 49, I’m getting closer to that, but currently I do not have an exit strategy. It’s in process.

Are you experiencing economic growth in your market? Yes. How do changes in the economy affect the way you do business? We just continue to do what we do the best we can.

Experience with private equity, local banks, national banks, other institutions? I have a line of credit and maintain a good relationship with my banker.

MULTI-UNIT FRANCHISEE IS S UE IV, 2016

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© 2016 7‑Eleven Inc. All rights reserved. This is not an offer to sell a franchise. An offer can only be made in applicable states with authorized documentation. 7‑Eleven Inc.; P.O. Box 711, Dallas, TX 75221‑0711

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9/13/16 9:48 AM

D OM I N A T O R S BY DEBBIE SELINSKY

Gimme (Pie) Five!

Former Applebee’s CEO embraces emerging brand

ave Goebel has crammed several lifetimes into his 66 years. Goebel, who nimbly quotes Jesus, “The Wizard of Oz,” and The Seven Habits of Highly Effective People, hasn’t just dabbled—he’s immersed himself in each: franchisor (Applebee’s CEO); franchisee (Boston Market, Pie Five Pizza, Goodcents Deli Fresh Subs); creator of several original concepts; board director (Jack in the Box, QuickChek); executive coach (Merryck & Co.); philanthropist (Children’s Mercy Hospital); and husband, father of six, and grandfather of eight. Today, after a couple of failures at retirement in his adopted home of Kansas City, Mo., Goebel is tackling his latest

career move as a Pie Five Pizza multi-unit franchisee, alongside three of his children, with his usual energy and verve. “Becoming a franchisee for Pie Five was actually the idea of two of my sons, Kerry and Kevin. Kerry, whose brother calls him ‘brainiac,’ had done masterful spreadsheets and boiled our next venture down to fast casual pizza. The guys said, ‘Dad, it keeps coming back to the fact that Americans are eating sandwiches, burgers, and pizza, and that’s probably not going to change.’ So we went to Dallas and saw 142 pizzas coming out while employees engaged with customers on the line. It reminded me of the early days of Boston Market. We loved the concept because it

NAME: Dave Goebel TITLE: President COMPANY: Santoku Restaurant

Group

NO. OF UNITS: 10 Pie Five (2 set for completion in Q4), 5 Goodcents Deli Fresh Subs, and 6 Y-Leave Cafe; owner, Prime Catering Events AGE: 66 FAMILY: Married 42 years to Jan;

six children, three daughters, three sons (one daughter and two sons in business with me)

YEARS IN FRANCHISING: 14 YEARS IN CURRENT POSITION: 8

MULTI-UNIT FRANCHISEE IS S UE IV, 2016

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D OM I N A T O R S “I like franchising. It’s a beautiful joint venture, where franchisors are responsible for their piece of the pie and then hand it to the franchisee and say, ‘Now run with it.’ ” gives us the ability to customize pizza for each guest’s needs,” says Goebel. He also likes the focus of the young franchise. “They’re all about consumer, R&D, food innovation, and marketing— in other words, all about everything other than operations,” he says. With Kerry on finance/operations, Kevin on construction/real estate, daughter Lyssa Krumholtz on marketing, and Dad at the helm, the family business is flourishing. All 10 contracted Pie Fives will be completed by year-end, and they’ll be going back to Rave Restaurant Group for more, opening at least 18 to 20 more restaurants in the Kansas City area. This time around, Goebel wants to keep the company’s restaurants close to home, making it easier to manage and grow the business and still have plenty of family time. In fact, this is his fourth concept in Kansas City. He also operates Goodcents Deli Fresh Subs, Y-Leave Cafe, and he owns Prime Catered Events. “After developing Boston Market in

seven states in a seven-year period, I realized that I no longer want to be in a situation where I have to walk into a restaurant and ask someone their name,” he says. “I said to the kids, rather than expanding into non-contiguous states, let’s just look for a new concept close to home where we can really make a difference the way we want to.” As he works with his children on his latest challenge, Goebel still maintains many of the same business philosophies he had years ago. “My first venture into franchising came in 1993 when I became the second or third franchisee for Boston Market,” he recalls. “I always knew I was not a creator. I am an executor and operator. In my early life, I’d owned three concepts in downtown Cincinnati, so I knew the pain that comes with the creation of menus and writing training manuals, and what color should the booths be—just shoot me! Let me show customers how good it can all be,” he says today. “I like franchising. It’s a beautiful joint

venture, where franchisors are responsible for their piece of the pie—the creation of concept, menu, training manuals, building designs—and then hand it to the franchisee and say, ‘Now run with it.’” Having been on both sides of the house— including a seven-year run at Applebee’s from 2000–2007 that culminated in his role as CEO—Goebel can clearly see the challenges of both franchisor and franchisee. His degree in sociology and psychology from Notre Dame and his postgraduate studies in personnel administration at Ohio State University also have served him well. After leaving Cincinnati for Kansas City, Mo., he hung out his shingle as Summit Management, Inc., a consulting group specializing in executive development and strategic planning. Today, Goebel feeds his love for coaching and counseling by working with his children and other young employees and by partnering with Merryck as a CEO coach. “That’s the most fulfilling part of my life right now. I love coaching CEOs and

PERSONAL First job: Working in my father’s butcher shop at age 14.

of blocking time for my wife and kids.

Formative influences/events: Growing up with four brothers and playing sports in high school. The Notre Dame experience. My wife’s cancer battle (she won). My son’s brain tumor and his courage. The birth of all six children and all eight grandchildren. The rise and fall as a franchisee of Boston Market. The death of my father. Being CEO of a publicly traded company with all the thrills and challenges. My work at Children’s Mercy Hospital and my work mentoring CEOs with Merryck & Co.

Exercise/workout: A 3½- to 4-mile walk each morning and a reasonable number of push-ups and curls.

Key accomplishments: Raising six great kids with my wife, developing several handfuls of great leaders, and doing a pretty good job of living my personal mission statement. Biggest current challenge: My current challenges are balancing growth with capital requirements, managing a business with a lot more “satellites from outer space” than I ever remember, and keeping the mind young and the body active. Next big goal: Setting my entire family up for the future and becoming the best Pie Five franchisee. First turning point in my career: Resigning from Steak and Ale. Best business decision: Becoming a Pie Five franchisee with my family. Hardest lesson learned: No matter how much you can be invested and believe in people, occasionally they will really disappoint you. Work week: All week. I’m like a physician on call. But I do a beautiful job

Best advice you ever got: “Love one another.” (Jesus) What’s your passion in business? Creating solid careers for my teams and developing, developing, developing talent. How do you balance life and work? By living my portfolio life and trying to never short-change my wife, my family, and my friends. Guilty pleasure: Caymus Special Selection (wine). Favorite book: The Seven Habits of Highly Effective People by Stephen R. Covey. Favorite movie: “The Wizard of Oz” because of the lessons it teaches us. What do most people not know about you? That when I’m alone or with my wife in nature, I’m in heaven. Pet peeve: Lack of integrity. What did you want to be when you grew up? A guidance counselor or dean of students. Last vacation: Eight days at our lake home with my wife and dog. Person I’d most like to have lunch with: Two people: Jesus Christ and Herb Kelleher.

MULTI-UNIT FRANCHISEE IS S UE IV, 2016

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Visit owncheckersfranchise.com/update or Call 888-913-9135 © 2016 Checkers Drive-In Restaurants, Inc. 4300 W. Cypress St., Suite 600, Tampa, FL 33607. 1. Per Item 19 in Checkers & Rally’s 2016 Franchise Disclosure Document. Same-store sales results are measured by combining 2016 FDD and 2015 FDD data. 2. Per Yahoo!.com Fast Food French Fries Taste Test Winner Gets an Asterisk article 3.Per Franchise Business Review 2015 Top Multi-Unit Franchises Report. Written substantiation will be provided on request. This advertisement is not intended as an offer to sell, or the solicitation of an offer to buy, a franchise. It is for information purposes only. The franchisor, Checkers Drive-In Restaurants, Inc. is located at 4300 West Cypress Street, Suite 600, Tampa, Florida 33607, and is registered as fi le number F-4351 in the state of Minnesota. In New York, an offering can only be made by a prospectus fi led first with the Department of Law, and such filing does not constitute approval by that Department. 20160773

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D OM I N A T O R S “I liked the idea of influencing younger people, making a difference in their lives. And lo and behold, that’s what a restaurant is, coaching them from sink to CEO.” having them understand the benefit and beauty of balance,” he says. Goebel says his particular interests are attracting, recruiting, and developing talent and orchestrating successful growth strategies in fast-paced organizations. Earlier in his life, he’d planned a career as a guidance counselor in a university setting. “I liked the idea of influencing younger people, making a difference in their lives. And lo and behold, that’s what a restaurant is, coaching them from sink to CEO,” he says. Goebel is happy to share his wisdom and experiences with would-be franchisees. “My best advice is to do really good homework, due diligence where you talk to other franchisees and ask to speak with the franchisor leadership team. It’s also important to understand trends in the restaurant industry and to try and keep your personal likes and dislikes out of it,” he says. He also encourages multi-unit franchisees and CEOs alike to “decide who your leadership team is going to be. Have clarity around your role, around who’s involved and the whole notion of building a sound foundation around people,” he adds. “Often in our business, or any business, people say, ‘That doesn’t look too difficult.’ But it’s important to understand that unless

MANAGEMENT Business philosophy: Always lead and manage for the future.

BOTTOM LINE Annual revenue: $18 million. 2016 goals: 20 percent EBITDA. How do you measure your growth? Controlled growth with solid returns.

How do others describe you? Warm, intuitive, empathic, and anal.

Where do you want to be in 5 years? 10 years? In 5 years, I’d like to have 5 concepts in Kansas City with 35 operations. In 10 years, 6 concepts in Kansas City with 50 operations.

One thing I’m looking to do better: Figure out how to begin retirement.

Are you experiencing economic growth in your market? Yes, moderate.

How I give my team room to experiment and innovate: Train ’em up and let go. Challenge all the ideas by clarifying and confirming: “Help me understand.”

How do you forecast for your business? Start with a target of 5 percent comp growth and adjust up or down for concept relevance, specific trade area conditions, and price elasticity.

How close are you to operations? Arm’s length.

What are the best sources for capital expansion? Cash flow from operations, and working with local/regional banks as true partners concerned about our success and simultaneously holding our feet to the fire.

Management style or method: Care. Listen. Love. Develop. Execute.

What are the two most important things you rely on from your franchisor? Keeping the concept current and relevant, and balancing “tough love” with standing in the franchisee’s shoes. What I need from vendors: Quality product, A+ service, market insight. Have you changed your marketing strategy in response to the economy? Not really, but certainly in response to the social media momentum. How do you hire and fire? Hire with really solid due diligence, the gut and the heart. Fire after thorough communication, be crisp, and do it professionally and with grace. Leave the person whole. How do you train and retain? Constantly, thoroughly, and very specifically. How do you deal with problem employees? Eyeball to eyeball, swiftly. Fastest way into my doghouse: Be disloyal to the absent or gossip.

you have industry experience, it takes a long time to get there.” His third suggestion is find a local banker to partner with. “We have a banker we truly consider our partner. I want him and his officers to hold our feet to the fire, so that we’re smart about controlled growth and capital.” Having learned the importance of balance in life, Goebel practices what he preaches. He has been married to wife Jan for 42 years. They have raised six children together: three girls followed by triplet boys. He coached baseball for 19 years and makes a daily workout a priority. The Goebel family, which now includes eight grandchildren, also feels strongly about giving back. They have a longstanding commitment of donating 5 percent of sales each Monday to Children’s Mercy Hospital, a Kansas City hospital that treats children regardless of ability to pay. Having been successful in life and business, Goebel says there is one thing he’d like to get better at: “Retiring!”

What are you doing to take care of your employees? Sounds simple, but genuinely caring about them and their families, recognizing good performance, giving lots of feedback and constantly developing for promotion opportunities. How are you handling rising employee costs? Not graciously. Margin pressure is tougher than it’s ever been. We’re very, very carefully looking for pricing opportunity and constantly working on hiring noticeably better people and productivity opportunities. How do you recognize top-performing employees? Employee recognition programs, unexpected perks, personal visits, and bonuses. What kind of exit strategy do you have in place? I will be able to articulate that more clearly when my family’s and partner’s career goals are solidified. They are the reason I am doing this today. Well, also because I love this crazy business.

MULTI-UNIT FRANCHISEE IS S UE IV, 2016

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This total includes studios with signed Franchise Agreements and studios that have been committed to be developed under signed Development Agreements as of September 9, 2016. Please see the Club Pilates Franchise Disclosure Document (FDD) with issuance date of April 20, 2016 for more details. Your results may also vary because you are establishing and operating a start-up business. This information is not intended as an offer to sell, or a solicitation of an offer to buy a Club Pilates Franchise. An offer to buy a Club Pilates Franchise is made by the franchise disclosure document only and is only available to qualified candidates issued by Shaun Grove at Club Pilates, 3185 Pullman Street, Costa Mesa, CA 92626, (949) 346-9794. Certain states and foreign countries have laws governing the offer and sale of franchises. If you are a resident of one of these states or foreign countries, Club Pilates will not offer you a franchise unless and until it has complied with all legal requirements in that jurisdiction. Please consult with your franchise seller/broker for an updated list of jurisdictions where franchises can be sold. 2016 ©Club Pilates Franchise, LLC. All rights reserved.

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9/19/16 4:45 PM

D OM I N A T O R S BY DEBBIE SELINSKY

Baked in Success M

Mara Fortin for the defense—of franchising!

ara Fortin wears many hats as a Nothing Bundt Cakes franchisee: taste-testing in one of her seven San Diego–area stores, meeting with local business owners, advocating before Congress on issues of concern to franchisees and small-business owners, and mentoring young women. A single mother with two pre-teen daughters, Fortin graduated from law school at 26 and moved to Las Vegas, where she defended doctors and nurses in malpractice cases. After 8 years, she left her legal practice and, armed with her undergraduate degree in business, relocated to San Diego to become the first franchisee of Nothing Bundt Cakes. Today she is the brand’s largest individual owner in a region and her stores recently won “Best Dessert” honors from the San Diego Union-Tribune. She’s also become a vocal advocate for franchising. In 2015, the IFA recognized her work in this area with its second annual Franchise Action Network “FAN of the Year” award, acknowledging her “consistent voice in speaking to the media and lawmakers about the recent NLRB joint employer ruling” and her work to “protect, promote, and enhance” franchising. Despite the public recognition of her energy and dedication, getting to where she is today has not been easy, she says, dealing with stress generated by working so many hours, spending too much time

away from her daughters, and tackling the learning curve that comes with franchising. “I was the first franchisee for our brand, have served as chair of the Franchise Advisory Council, and have received the Outstanding Franchisee (Circle of Honor) award, but sometimes I still feel the need to prove myself,” she says. “I tell other women who want to start in franchising not to doubt themselves. There’s no reason

they can’t do what they want to do. I tell them to have confidence—and when the naysayers come along, listen to the words they say and pull the nuggets of wisdom out, but don’t let yourself be surrounded by negative energy.” Fortin also advises female franchisees to seek out female executives as mentors. “I mentor quite a few young women as well as my team members. I’m watching

NAME: Mara Fortin TITLE: Founder, president, owner COMPANY: MV Kakery, K&K

Kakery

NO. OF UNITS: 7 Nothing Bundt

Cakes

AGE: 43 FAMILY: Daughters Kendall, 12

and Karyn, 10

YEARS IN FRANCHISING: 10 YEARS IN CURRENT POSITION: 10

MULTI-UNIT FRANCHISEE IS S UE IV, 2016

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D OM I N A T O R S “We’ve built a culture that’s not just about teamwork, but like a family environment.” PERSONAL First job: Babysitter.

Exercise/workout: Daily at the gym. It’s my stress reliever.

Formative influences/events: I grew up in a family of four girls. My father was a traveling pastor and we moved frequently, staying in a state for only a brief time. We moved to San Diego when I was eight.

Best advice you ever got: Trust your gut and surround yourself with people you want to be like.

Key accomplishments: Graduating from law school (undergraduate degree in business administration from Ambassador University in Texas, and law degree from University of Arizona); the birth of my daughters; becoming the first franchisee to open a Nothing Bundt Cakes bakery; being recognized as a female leader in my local market by several chambers and other organizations; and receiving the IFA’s FAN of the Year award in 2015.

How do you balance life and work? I don’t (laughing). I force myself to step away, and traveling helps with that.

Biggest current challenge: Trying to navigate and grow my business given our current regulatory environment and doing business in the “country” of California. Next big goal: To fight for the interests of small-business owners, possibly through an elected position. First turning point in your career: Moving to Las Vegas and becoming an attorney opened up many doors for me. Best business decision: To take a risk and grow beyond two units of my current brand.

What’s your passion in business? Fighting for the rights of small-business owners.

Guilty pleasure: French fries. Favorite book: To Kill a Mockingbird by Harper Lee. Favorite movie: “The Shawshank Redemption.” What do most people not know about you? It was surprising for my team as they got to know me that I have a sense of humor and like to laugh a lot, especially when under stress. We often just take breaks and find a humorous topic to focus on for a few minutes. Pet peeve: Passive-aggressive behavior. I’d rather have someone say it straight to my face than behind my back. What did you want to be when you grew up? An attorney.

Hardest lesson learned: Not everyone will do the right thing, and words often don’t follow with the promised action.

Last vacation: For the first time in 10 years, I traveled quite a bit this summer.

Work week: Flexibly crazy; typically Monday through Friday with quite a bit of travel.

Person I’d most like to have lunch with: Retired Supreme Court Justice Sandra Day O’Connor.

MANAGEMENT Business philosophy: If you are honest and treat others fairly, you can lead with a certain freedom, knowing you are making the correct decisions, even when you have to make tough ones. Management method or style: I ask a lot of questions to get others to come up with the answers they already have inside them. Greatest challenge: Managing growth and dealing with regulatory compliance, all while continuing to run a top-notch company. How do others describe you? Tough, stern, intimidating at times, but fair and respectful. One thing I’m looking to do better: Be more organized! How I give my team room to innovate and experiment: It’s okay to speak up and disagree professionally, and it’s okay to make mistakes. It’s how we recover from those mistakes and take ownership of them that matters. How close are you to operations? I oversee all departments and speak with my leadership team daily.

Have you changed your marketing strategy in response to the economy? How? With our growth and saturation in San Diego, we’ve been able to move away from deal-based offers to more exposure and community involvement. How is social media affecting your business? The more popular our bundt cakes become, the more searches are done, and blogs are popping up. It’s exciting to watch the momentum we are gaining on all social media outlets. How do you hire and fire? We use a company called Hireology. We also have a fully developed HR department, and all decisions are run by them before a hire is made or a termination is performed. How do you train and retain? We have developed a detailed onboarding program to introduce and go through the initial training. We retain by engaging our team members and trying to understand what they need in the workplace. We try to go above and beyond to be a fair and desirable employer.

What are the two most important things you rely on from your franchisor? Maintaining a top-notch product line and expanding in a smart manner with the right unit owners.

How do you deal with problem employees? We have learned over the years that immediately addressing the situation is critical. We have been successful in rehabilitating some who have gone on to be very successful with us. If that is not possible, we move them out of the company quickly so that the problem doesn’t metastasize.

What I need from vendors: Reliability and consistency. I agree to pay my bills on time so you need to get my product/service to me on time as well.

Fastest way into my doghouse: Be disrespectful to me or to any of my staff.

MULTI-UNIT FRANCHISEE IS S UE IV, 2016

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This advertisement is not an offer for a franchise. Such an offer can only be made by the franchisor through its Franchise Disclosure Document. ©Lift Brands, Inc. 2411 Galpin Court, Suite 110, Chanhassen, MN 55317.

D OM I N A T O R S the young ladies grow and become leaders. Someday they will own their own companies and I couldn’t be more proud to have had some type of influence on that path,” she says. As a mentor, she shares what she’s learned as an entrepreneur and business owner. For example, she says, “Being smart and capable is a plus in business, but it’s even better when one empowers and trains others who are equally capable.” And, “The best days of a business leader come when one actually practices the highly touted commitment to serve the company and its team members.” Her strong beliefs about the virtues and values of being a small-business owner and franchisee led her in September 2015 to testify before the House Committee on Education and the Workforce about her concerns with the NLRB’s redefinition of joint employer. She also led a press conference of small-business owners who spoke to members of Congress on Capitol Hill on issues facing their businesses during

the annual FAN meeting in Washington, D.C. Today she remains focused on advocacy—and on perfecting her bakeries and continuing to grow her company. “I love our product—it’s like Starbucks for cake. They make coffee, which is easy to make at home. But because they do it well and consistently and have a presence, people want to go there for the experience,” she says. “It’s the same with our bundt cakes. We do one product and we do it well over and over again. That’s why we’re able to be successful even in healthconscious San Diego.” Knowing her demographic and the role the cakes (many topped with thick cream-cheese icing) play in people’s lives has been integral to Fortin’s success. “I love talking to people and hearing how much the cakes have meant to them,” she says. “They tell me how our cakes have been used to brighten people’s days, to say thank-you, or to celebrate wedding or baby showers. I also clued in early to how important the cakes are as a community

relations tool and a way to give back.” She regularly donates proceeds to Rady Children’s Hospital in San Diego and to Susan G. Komen for the Cure. Also key in her company’s success has been the creation of the right company culture, says Fortin, daughter of a clergyman and one of four sisters. “We’ve built a culture that’s not just about teamwork, but like a family environment. I recently interviewed someone for a job who was clearly overqualified. I asked him why he wanted to work here and he said, ‘Because my wife works here and I know how great the company culture is.’ That’s important to people. They like us and feel comfortable and know that we have their best interests at heart.” When Fortin looks ahead, she sees a time when she might run for Congress or another elective office. But whether it’s baking cakes or passing laws, for Fortin it’s still all about people. “I’m not in the cake business,” she says. “I’m in the people business.”

BOTTOM LINE Annual revenue: $8-plus million. 2016 goals: For each bakery to exceed $1 million in sales; three already are. Growth meter: How do you measure your growth? We compare sales year over year, of course, and also more specific measurable points to see if we are trending in the right direction, such as percentage of retail sales, addons, average ticket, etc. Vision meter: Where do you want to be in 5 years? 10 years? Definitely, 5 years from now, I’ll be staying with my brand and growing. I love to grow, whether by owning my own units or partnering and building bakeries in different parts of the country. I also enjoy advising and coaching. In 10 years, I could see myself shifting to politics and advocacy, speaking on behalf of small-business owners, which seems to be a natural fit for me. How is the economy in your region affecting you, your employees, your customers? California is a very tough state and the costs of doing business continue to rise. We are trying not to raise prices, but it is difficult to maintain the quality we need and post strong financials. With the steady minimum wage increases, we are becoming more selective in our hiring, among other initiatives to attempt to control costs. Are you experiencing economic growth in your market? Absolutely. I am fortunate enough to be part of a successful, sought-after brand, and the growth overall has been remarkable. How do changes in the economy affect the way you do business? More than the economy per se, which hasn’t greatly affected us yet, we have adapted over the years to more regulations in California, which in turn affect the economy. We have a fully developed HR department, even though we are relatively small. We are very mindful of labor costs and we work on our efficiencies constantly, maybe more so than someone in another state.

How do you forecast for your business? We take historical sales data, growth trends, upcoming offers, seasonality, and we set weekly, monthly, quarterly, and yearly benchmarks. What are the best sources for capital expansion? I like to keep my cash flowing through my business. If I can get a low-interest loan, that’s how I’ve done it. Experience with private equity, local banks, national banks, other institutions? Why/why not? I work with a local bank out of Las Vegas that has a relationship with Nothing Bundt Cakes. We have also had luck with SBA loans, which are tough administratively, but the rates are relatively low. What are you doing to take care of your employees? We work on this constantly. We offered healthcare well before Obamacare was on the horizon, in order to keep our talent. We try our best to fit a person’s skill level with the correct position, and we’re willing to move them around with extra training so they can master new positions. We offer an expansive bonus program, a retail bonus program, and a referral fee program. If an A team member brings in another A team member, they get $200. If anyone on the team scores 100 percent on mystery shops or any type of review, they get $100. How are you handling rising employee costs (payroll, minimum wage, healthcare, etc.)? We do a combination of biting the bullet and incentivizing our team with bonus programs to manage labor dollars, and we are jumping ahead of the minimum wage trend so that we aren’t constantly reactive. We are far more aware of the costs of a $13 to $15 per hour employee with insurance and paid sick leave benefits. We expect them to perform and, if they do not, we move them out of the company. How do you reward/recognize top-performing employees? See above. What kind of exit strategy do you have in place? NA.

MULTI-UNIT FRANCHISEE IS S UE IV, 2016

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9/26/16 10:53 AM

D OM I N A T O R S BY DEBBIE SELINSKY

The Sky’s the Limit Wendy’s operator dominates with 177 stores

obert Schermer, Jr., CEO of Meritage Hospitality Group in Grand Rapids, Mich., hails from the school of life that says, “Go big or go home.” Eighteen years ago, when he left his career in corporate finance to join Meritage, company sales were $27 million; in 2015, sales were $228 million. In 1998, the company operated 22 Wendy’s restaurants in Michigan; today it operates 177 in 8 states and the company is now publicly traded—and looking to hit 300 by 2021. Meritage also has four original casual dining concepts, all in Michigan (6 units total), and employs 6,200. “We always intended to grow the company to the size it is today. Where the stores come from and how they arrive, we have no clue, but we’re always out there working relationships and markets in different areas,” says Schermer. “Our job has always been site identification, building the stores, and operating the restaurants. That’s what franchisees should do, and that’s our philosophy.” Schermer describes the relationship between Meritage and Wendy’s as “basically symbiotic,” and says he relies on the franchisor for unique products and innovative marketing. “Wendy’s has never been more exciting than it is today—the products are back on. When Dave Thomas died in NAME: Robert Schermer, Jr. TITLE: CEO COMPANY: Meritage Hospitality

Group

NO. OF UNITS: 177 Wendy’s, and 4 independent casual dining concepts (Twisted Rooster, Crooked Goose, Freighters Eatery & Taproom, Wheelhouse) AGE: 57 FAMILY: Wife Kim and two boys YEARS IN FRANCHISING: 18 YEARS IN CURRENT POSITION: 18

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D OM I N A T O R S 2002, Wendy’s went through a 10-year quiet period as a brand, a period of soulsearching. Then Emil Brolik came along [as CEO] and gave it a shot in the arm with facilities, marketing, and product upgrades. He handed it off to Todd Penegor, whose father is a Wendy’s franchisee in the Upper Peninsula of western Michigan, so he’s been around the brand his whole life.” What’s happening in 2016 with Wendy’s “speaks more to where the brand has always strived to position itself—highest quality in QSR, particularly the hamburger,” says Schermer. “Now, we’re into chicken products and the salad line, all healthy, high quality, fresh.” And, as a fitness buff, he regularly enjoys the salad offerings. When Schermer began by acquiring 22 Wendy’s restaurants in western Michigan, it made sense. There were about 79 McDonald’s in the same market, and he saw the growth opportunity. First, he renovated the 22 restaurants and then started building new ones. For five years Meritage built a new Wendy’s every eight weeks in western Michigan. The company now operates Wendy’s in Michigan, North and South Carolina, Ohio, Oklahoma, Georgia, Florida, and Virginia. To those who caution against growing too rapidly, Schermer points to what he’s seeing today. “Going back 18 years, it took 12 months between identifying the site,

dealing with entitlements, building the restaurant, and serving the first burger. Today, because of regulatory creep, that can take 24 to 36 months. Our market had development opportunities, so we got into the flow of opening new restaurants. We built a deep pipeline of real estate because of the time required today compared to 18 years ago.” Schermer says it’s an interesting period for franchising. “A lot of franchisors are pursuing asset-light models. They want high-margin cash flow, royalty and rental income—and from their perspective, it makes sense,” he says. “On the flip side, guys like us, multi-unit franchisees, are building a base for more sophisticated operations, and we’re investing in our operations while they do products and marketing.” The ongoing shift to larger, more sophisticated multi-unit operators, he says, makes it more important than ever for franchisees to hold up their end of the franchise model. “This means having an HR department (at Meritage, we have an organizational development department, which encompasses more than HR), a real estate department, in-house legal for real estate, an IT department offering 24/7 services, POS in all restaurants, as well as operating and accounting platforms. These are things that smaller franchisees

may not have or be able to afford.” Schermer says he’s also seeing more people coming out of major brands such as Wendy’s, McDonald’s, and Burger King and getting into the franchisee side. “They’ve seen things at a higher level with more sophistication and they understand the moving parts involved.” Also, he says, the first generation of Wendy’s franchisees is approaching retirement age. “They’re either keeping their restaurants in the family, giving them to the next generation, or selling them and making sure their people are taken care of.” Business and regulatory trends aside, it all comes down to retaining what he calls “Dave Thomas values,” says Schermer. “I remember meeting him years ago and he wore his heart on his sleeve. There was nothing fake about him. We are in the people business and put a lot of resources into and emphasis on people. We say we have two types of people: those who serve guests and those who serve those who serve guests. We live by those values.” It’s no accident that Meritage’s corporate office is called the Restaurant Service Center. Though he’ll be focused on growing Wendy’s through 2021, Schermer enjoys the best of both worlds with what he calls his “recreational sidebar”: the four original casual dining brands he keeps close to home in Michigan.

PERSONAL First job: Corporate finance in the securities industry. Formative influences/events: A true turning point in my career was when I joined the company nearly 20 years ago. The transition from corporate finance to full-time franchisee was a challenge. However, my previous work experience gave me the competitive edge to succeed in this environment. Key accomplishments: I see our continued growth as a key accomplishment. When I joined the company in 1998, our sales were $27 million and last year they reached $228 million. That is a 744 percent growth rate. Next big goal: 300 restaurants by 2021. Best business decision: Always hire people smarter than myself. Hardest lesson learned: Staying focused on long-term goals and not deviating from the set plan. Work week: Whatever’s required! The restaurant industry never shuts down. Exercise/workout: Health and fitness are very important to me. I work out each morning at 4:30 a.m. Best advice you ever got: To have a successful company, you must drive value for all stakeholders involved. I try to make every decision with that in mind. What’s your passion in business? Creating opportunities for people. I’ve always said the sky is the limit.

How do you balance life and work? When you love what you do it’s rarely considered work. Guilty pleasure: Who can resist a Dave’s Single with a large fry and a Frosty? Favorite book: Scaling Up by Verne Harnish. The perspectives and resources shared in the book have helped Meritage drive and manage our exponential growth. Favorite movie: Honestly, I am a very active person and can rarely sit through an entire movie. What do most people not know about you? I love sailing and spending time on the water. Pet peeve: Governmental regulations and red tape. What did you want to be when you grew up? An investment banker. Last vacation: Earlier this year, I spent a relaxing week with friends and family in Florida. Person I’d most like to have lunch with: Dave Thomas, founder of Wendy’s. I met him years ago when I just started in the franchise business, and his passion for this company was extraordinary. Although the Wendy’s brand continues to grow and develop, Dave’s values are still at the heart of all we do.

MULTI-UNIT FRANCHISEE IS S UE IV, 2016

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D OM I N A T O R S “We are experiencing immense same store sales growth and are thrilled to be a part of the Wendy’s brand reinvention.” MANAGEMENT Business philosophy: We are in a service-based industry and that should be paramount. At Meritage, you either serve our guests or serve those who serve our guests. Management method or style: I empower my people to drive business decisions through a blend of leadership and management. Greatest challenge: With all the moving pieces in a growing company, it can be challenging to keep yourself and your team focused on the big picture without getting bogged down with day-to-day issues and operations. It’s not just about what we do, it’s about why we do it. How do others describe you? “Go big or go home” applies to all aspects of my life. I set the company bar very high. One thing I’m looking to do better: I’m very driven, so I could work on patience and listening. How do you give your team room to innovate and experiment? One of the greatest values we have at Meritage is to “Run It Like You Own It.” I empower my people to improve our business through strategic decisions. How close are you to operations? About 20 feet—our COO is in the next office! In all seriousness, we call our corporate office the Restaurant Service Center, and we pride ourselves on what we call “collective genius.” What are the two most important things you rely on from your franchisor? The Wendy’s Company provides us with several invaluable resources. The biggest two that transform our business would be the uniqueness of our products and innovative marketing.

What I need from vendors: Consistency and delivery. Have you changed your marketing strategy in response to the economy? How? Wendy’s has taken a new look at the value consumer through the use of their “high-low” advertising strategy: pairing Premium Combos with the ever-successful 4 for $4 Meal. Guests have really responded, and we have seen a significant growth across the country in sales and transactions. How is social media affecting your business? Social media is constantly at your fingertips and is at the heart of Wendy’s marketing strategy. Brandon Rhoten [VP, head of advertising, media, and digital] and the digital team at Wendy’s have drastically increased Wendy’s digital and social footprint, reaching the Millennial consumer right where they are—chatting with friends on their mobile devices. How do you hire and fire? We use our company’s core values to drive decision-making around recruiting talent, developing talent, and managing performance, even when it includes separation. How do you train and retain? We outline clear goals and expectations for our teammates that we hold them accountable to. Our continued growth offers opportunities for successful teammates to continue to grow their careers with us. How do you deal with problem employees? We never take problems at face value; we get to the root cause. We partner with managers to develop leadership capabilities so they are better equipped to successfully coach their teammates to overcome issues. Fastest way into my doghouse: Over-promising and under-delivering.

BOTTOM LINE Annual revenue: $228.1 million. 2016 goals: $241 million. How do you forecast for your business? Our COO and I have extensive finance and accounting backgrounds, so we are diligent about our growth measurements and projections. Our team of financial analysts uses restaurant data pulled from our back-office software and combine that with estimated external market factors to develop our projections. We use these on a daily basis when making strategic business decisions. Vision meter: Where do you want to be in 5 years? 10 years? Our current plan is to reach 300 restaurants by 2021. With that, we hope to make a lot of advances on the people side of our business as well. How is the economy in your regions affecting you, your employees, your customers, and the way you do business? Each region’s economy is unique to that area, so each market we operate in is different. That said, we do our best to tackle whatever challenge is thrown our way. Are you experiencing economic growth in your market? We are experiencing immense same store sales growth nationwide and are thrilled to be a part of the Wendy’s brand reinvention. Our guests are loving that we are “Deliciously Different.” What are the best sources for capital expansion? Wendy’s has

a national franchise lender program, which provides us with a great list of private investors. Experience with private equity, local banks, national banks, other institutions? Why/why not? As a growing, publicly traded company, we work frequently with national banks and institutions. However, in a sense, each restaurant operates as its own business, where deposits and transactions must be made at the local level. It ends up being a balance for us. What are you doing to take care of your employees? About a year ago, we instituted a new organizational development team at our Restaurant Service Center. This team helps us drive strategic business decisions with a “people first” approach. They focus on recruitment, retention, employee relations, benefits, compensation, training, and development. How are you handling rising employee costs (payroll, minimum wage, healthcare, etc.)? We work as a team to arrive at decisions that are both strategic and cost-effective. How do you reward/recognize top-performing employees? We offer a competitive base pay and benefits package and a performance-based bonus structure. What kind of exit strategy do you have in place? Meritage is unique in that it is a publicly traded company and therefore, we plan for perpetuity.

MULTI-UNIT FRANCHISEE IS S UE IV, 2016

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ob Branca and his extended family of in-laws, siblings, children, and cousins own and operate more than 1,200 Dunkin’ Donuts locations throughout New England and a few expansion markets. This mega franchisee, licensed to practice law, was the family business lawyer before becoming a franchisee, and has relied on that experience to benefit the businesses

of his family and fellow franchisees. He and his partners also operate a real estate development and construction company and a manufacturing business. Branca is also a private equity investor, has served as chair of several industry organizations, and plays an active role in his brand. In September, Branca was named a 2016 Franchisee of the Year by the IFA for his “outstanding achievements and

NAME: Robert Branca, Jr. TITLE: President and general

counsel for Branded Realty Company and Branded Management Group NO. OF UNITS: 85 Dunkin’ Donuts AGE: 53 FAMILY: Wife Lisa and 3 daughters YEARS IN FRANCHISING: 29 YEARS IN CURRENT POSITION: 15

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D OM I N A T O R S Reconnect

accomplishments.” The announcement was made during the Franchise Action Network annual meeting in Washington, D.C. When we profiled him in 2011, Branca and his partners in the immediate family empire were operating 70 Dunkin’ locations and 5 Baskin-Robbins stores, while the extended family was operating

a “mere” 700 units. Today, Branca and his team operate 85 Dunkin’ stores with two more scheduled to open before year-end. During the past 5 years, he’s become increasingly involved in advocating for and defending his family’s stores, the Dunkin’ brand, and the franchise business model from external threats. In that role, he has served as chair of the Dunkin’ Donuts

Franchise Owners PAC, vice chair of the Coalition of Franchisee Associations (CFA), chair of the 2015 Multi-Unit Franchising Conference (MUFC), an active member of the IFA, and currently is the franchisee chair of the Dunkin’ Donuts Government Affairs Committee and an elected leader on the Dunkin’ Brand Advisory Council. Perhaps his biggest achievement during

PERSONAL First job: Attorney. Formative influences/events: The Dunkin’ Donuts franchise owners that I represented as an attorney. I learned so much from their example that is critical to our success today. My father was a very successful serial entrepreneur who was astute enough that he was able to retire at an age only a few years older than I am now, and my father-in-law was a wildly successful founding franchisee in the Dunkin’ Donuts system. I am very fortunate to have them as guides on this journey. Key accomplishments: Participating in passage of California’s amended franchise law to protect and enhance franchise owner equity. We have started a new manufacturing business and become partners in various private equity vehicles, including NRD Partners, formed by my friend and current IFA Chair Aziz Hashim. I have also invested in businesses with other Multi-Unit Franchising Conference board members who have become my friends. We have expanded our real estate development company fairly substantially and added more than 20 Dunkin’ units since last being profiled here. Biggest current challenge: Franchisee chair of the Dunkin’ Donuts Government Affairs Committee. We routinely encounter important people who lack even a basic notion of the franchise business model, and some who know it but openly seek to destroy it. Next big goal: Establishing legislation nationally and locally to moderate the rapid escalation in labor costs and needless litigation. First turning point in your career: Becoming a partner in a law firm. Best business decision: Leaving a law partnership to become a Dunkin’ Donuts franchise owner. Hardest lesson learned: As an attorney, your inventory is naturally limited

to 24 hours in a day. Growth is extraordinarily difficult in that industry. I suppose this is why legal fees have skyrocketed for very good attorneys. Work week: It varies, but can involve long days followed by permit hearings on new projects, or spending time in the pool with the kids. I see a lot of airports some weeks. Exercise/workout: High-intensity interval training mixed with weight training. Best advice you ever got: Become a franchise owner. What’s your passion in business? Finding new, diversified, but synergistic avenues for our businesses to grow. Meeting new people with new ideas. How do you balance life and work? Having children is a natural balancing agent in our family, but we all tend to naturally outwork our competition. Guilty pleasure: Having a full gym right in my home. Favorite book: The next one. Favorite movie: “Good Will Hunting” right now. I recently re-watched it and enjoyed the Dunkin’ product placements (which were unpaid!). What do most people not know about you? I am a very early riser. Pet peeve: Government overreach by people with no experience or bad intentions for my family’s livelihood. What did you want to be when you grew up? I’m still growing up! Last vacation: São Miguel, Azores, Portugal. Person I’d most like to have lunch with: Our next U.S. president, whoever that turns out to be. He or she will be faced with enormous challenges. People in power need to understand franchising’s issues. The industry is too important to the country for them not to know more.

MULTI-UNIT FRANCHISEE IS S UE IV, 2016

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D OM I N A T O R S Reconnect Branca was named a 2016 Franchisee of the Year by the IFA for his “outstanding achievements and accomplishments.” this period came just last year, when he was part of a successful effort in California to pass Assembly Bill 525, a significant pro-franchisee law. “It took four years and a great group of franchise business owners, representatives from the CFA and IFA, lawyers, and consultants, but we were able to amend California’s franchise law and the result was a more level and certain playing field for franchisees and franchisors at common friction points,” he says. Franchisees in the state now have protections that allow them to monetize the equity they have invested in their brands in terminations, sales, and transfers. The successful initiative was, Branca says, an example of dedicated franchise forces working together to create better solutions for all parties. “There were outside groups trying hard to insert their hostile interests into our bill after we painstakingly negotiated it,

but we, franchisors and franchisees, stuck together and received a unanimous vote to pass the California legislature.” Outside his Dunkin’ interests, Branca is involved in numerous investment deals and partnerships, including his investment in NRD Partners, the franchise investment group formed and led by his friend Aziz Hashim, whom he followed as chair of the MUFC. “The opportunity is to play a role in the growth of other organizations by providing funds, direction, and leadership,” he says. And there’s more. Branca says he and his brothers-in-law “accidentally” got into the manufacturing business. “We entered into stainless steel manufacturing when a vendor company near us went out of business. My partner who runs our construction company, Matt Doyle, was just trying to save costs but turned it into a thriving enterprise with some great team members,” he says. By

MANAGEMENT Business philosophy: Always be learning. Show up. Say yes. Network relentlessly. Management method or style: Be consistent. Give praise. Make connections. You will need them. Connect others when they need it; they won’t forget it. Greatest challenge: Uninformed, misinformed, and even some malevolent government regulators. How do others describe you? Impatient. One thing I’m looking to do better: Hire more great, talented people. How I give my team room to innovate and experiment: We allow them to own certain community relations and guest loyalty-building initiatives in their own neighborhoods. For example, we routinely sponsor large, popular ethnic, civic, or church-based festivals, parades, fundraisers, and tournaments. We encourage our team members who are members of those communities to be the public face of our brand and take leadership positions in those events. That elevates their personal status in those communities and involves them in community-building, giving back, and helping those in need, which is often its own reward. It instills a sense of pride to be part of the team and helping others. How close are you to operations? Not as close as I had been in the past, given our growing non–Dunkin’ Donuts businesses. I also spend a lot of time interacting with our franchisor’s management team on various initiatives and committees. What are the two most important things you rely on from your franchisor? Product innovation and gatekeeping on encroachment. Perhaps more than those two are protecting our highly collaborative franchisee-franchisor relationship. What I need from vendors: A recognition that we have probably already

made some investigation into what they are pitching, and that we may need a pretty big reason to stop doing business with an existing vendor that has served us well. Have you changed your marketing strategy in response to the economy? How? Yes. We have engaged in deeper research and entered the CPG (grocery) business. Two of my family partners, Greg Califano and Flavio Raposo, also got some specialized marketing and motivational training and have actually lit our managers and crew on fire to increase top-line sales in this really tough climate. They are rock stars. How is social media affecting your business? It is a huge opportunity and has done very well for Dunkin’ Donuts. It allows us to send deeper, longer messages, as we did with the Gronk/Big Papi iced coffee campaign. That engaged consumers in a way that no one really has before. Their YouTube serial videos and songs last year were the second most-viewed on the planet in their debut week—and won two CLIO awards for our brand’s ad team. They were brilliant. How do you hire and fire? Right now hiring is difficult because there is a disappearing workforce. We sometimes can’t fire. How do you train and retain? Patiently. Dunkin’ Brands offers us tools we use to supplement the experienced personal touch of our long-term team members. How do you deal with problem employees? Ideally very quickly, but the tight labor market makes it difficult to do that. A growing problem is the new regulation that intentionally pits employees against their employers and encourages discord and litigation. We constantly manage our relationships to strengthen them from outside interference. Fastest way into my doghouse: Waste my time. It is a non-renewable resource.

MULTI-UNIT FRANCHISEE IS S UE IV, 2016

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D OM I N A T O R S Reconnect not taking any salary out of the company for themselves, the plant is back in the black—and manufacturing parts they can purchase and use in the family’s Dunkin’ locations and other businesses. Last year the business decided to sell some Dunkin’ locations in Florida, including their five Baskin-Robbins locations. Although they had been successful in the Sunshine State, their expansion model relies on business partners living and working in the markets they operate. “In this case it was my sister-in-law and her husband. They decided they were ready to have children and wanted to raise them in New England, surrounded by family,”

he says. Together, they decided to sell and realized a healthy profit. “We were able to avoid a large breakup fee on our loan deal by trading a LIBOR-based swap, so it ended up being a solid win for our business and for our family.” Branca, never content to sit still, is always searching for the next strategic move and remains open to all opportunities and possibilities. While much of the next 5 years remains unknown, Branca plans to keep fighting for the future of franchising and the investments of those in it as they face a continuing barrage of governmental overreach and regulation at the local, state, and federal levels.

BOTTOM LINE Annual revenue: NA. Growth meter: How do you measure your growth? EBITDA and transaction count in our Dunkin’ business. Vision meter: Where do you want to be in 5 years? 10 years? Ideally, having added dozens of profitable units and new Class A properties full of successful tenants. Realistically, surviving the regulatory environment and litigation onslaught enabled by it, and taking market share from the smaller competitors and chains that will not be able to weather this storm. How is the economy in your regions affecting you, your employees, your customers? Prices are rising because of intrusive regulations piling on to all aspects of our economy. Real estate taxes and rents are rising, labor is tight, and service is suffering. The tensions between employees and employers fostered by the new regulations and outside actors has put stresses on our team at all levels. These things are decidedly not helping entry-level workers. Quite the opposite is happening. We have been able to cut costs by vertically integrating many things that other people pay for, like legal work, general contracting, HR, and repairs. We are often our own landlord, which helps. Others don’t have those resources available to them, and we see businesses closing or scaling back in every market where we operate. The big will get bigger, which is exactly the opposite of what these outside forces say they want. Are you experiencing economic growth in your market? We are innovating new products and seeking new specialized sales training to successfully drive transactions, but our population base in the Northeastern U.S. is not growing and costs are. Our Midwestern market is growing nicely. How do changes in the economy affect the way you do business? We manage our labor hours relentlessly, and we innovate products with a top screen on taking labor hours out of the business. If we can automate something, we will do it. Efficiency has always been important in business, but today it can be the difference between a business dying or living to fight another day. We also invest more in businesses that are not employee-intensive. How do you forecast for your business? We look at previous sales, the competitive set, pending legislation, the credit environment, and our ability to increase transactions with existing capacity. We try to expand capacity and efficiency with any remodels we do. What are the best sources for capital expansion? Retained earnings. We try to acquire and develop property with our own capital and then

seek low-cost financing later to recapitalize. The deals are easier and less costly that way. Experience with private equity, local banks, national banks, other institutions? Why/why not? We are involved with all of this. We are lenders/investors in the private equity space and borrowers with regional, national, and international banks. We continually negotiate terms with our lenders and compare them. We have been blessed with some really good relationships in that space. While you can say that our lenders are literally invested in our success in a legal sense, it also feels that they are personally as well. What are you doing to take care of your employees? We try to model our benefits programs to meet their needs. In one example, we provide up to three weeks of paid leave (in addition to required paid sick leave). This allows certain employees to travel to “the old country” for an extended period without losing income, and we in turn get their kids who are on school break to work with us. The household gains extra income, our people get to go back to see family and experience the births, weddings, and other important family life events, and we get trusted people who are trained from their previous school vacations, knowing that they have a waiting job. If we can achieve these win-win scenarios, that is the best situation, especially with such high youth unemployment. How are you handling rising employee costs (payroll, minimum wage, healthcare, etc.)? We have pushed to grow top-line sales and reduce labor and other costs. Retaining good employees is a critical focus. We have also aggressively renegotiated leases where we don’t own the property and renegotiated interest rates with lenders. The current low interest rate, fuel, and commodity cost environment has helped, as have some modest price increases and reduction of labor hours. We have automated some really expensive labor procedures. How do you reward/recognize top-performing employees? We use traditional bonuses, but we also have helped key performers by leveraging our construction company to do things like remodel their homes or provide atcost services. What kind of exit strategy do you have in place? More growth! Seriously, though, we have all done robust estate planning in the hope that we can pass our businesses on to the next generation. Our real estate strategy and lobbying on things like the death tax is a big part of that.

MULTI-UNIT FRANCHISEE IS S UE IV, 2016

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AT H L E T E S I N F R A N C H I S I N G BY KERRY PIPES

It’s All Working Out Former NFL QB calls the shots at his Retro Fitness gyms Pittsburgh, Jan. 5, 2008, Heinz Field— With the Steelers ahead 29–28 and 1:56 to go in the 4th quarter of the 2007 NFL Wild Card Playoffs, Jacksonville Jaguars quarterback David Garrard, facing 4th and 2 on the Pittsburgh 43-yard line, took off for a 32-yard gain that set up the Jaguars’ game-winning field goal. Final score: 31–29, Jaguars.

oday, at 38, Garrard still works out every day, but he’s not just pumping iron in his post-NFL career—he’s pumping profits from his two Retro Fitness gyms. “I had always known there would be life after football and worked closely with my financial adviser to prepare for that day,” he says. Garrard spent nine seasons with the Jaguars before getting released just before the 2011 season. He signed with the Miami Dolphins and later with the New York Jets, but in 2013 nagging injuries NAME: David Garrard TITLE: Owner COMPANY: Retro Fitness NO. OF UNITS: 3 Retro Fitness (2 open, 1 under development) AGE: 38 FAMILY: Wife Mary Garrard, three

kids (Justin 8, Makena 4, Sydney 3), 1 Yorkie and 1 cat YEARS IN FRANCHISING: Just over 2 YEARS IN CURRENT POSITION: 2

MULTI-UNIT FRANCHISEE IS S UE IV, 2016

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AT H L E T E S I N F R A N C H I S I N G

PERSONAL First job: Burger King. Formative influences/events: My dad owned his own construction company and was a big influence. Key accomplishments: NFL playoff win versus the Steelers in 2007 and becoming a business owner.

What’s your passion in business? To grow Jacksonville out into a major enterprise. My passion also lies in the fitness industry. It was the perfect transition for me. I’ve always been in the fitness industry and I figured opening a gym is a better way to give back to the community than a restaurant or fastfood place.

Biggest current challenge: Marketing has been a big challenge. One of my locations is kind of out of the market and not close to other Retro Fitness gyms. Not everyone knows about Retro Fitness, so I’ve been marketing like crazy. It costs a lot of money just to market so people know who you are, as opposed to people knowing who you are and coming in to sign up.

How do you balance life and work? Family always comes first. Don’t bring work home, keep it separate.

Next big goal: Getting more Retro Fitness gyms open.

Favorite movie: “The BeastMaster.”

First turning point in your career: I’m still on the uphill slope and haven’t really had my turning point as a franchisee yet.

What do most people not know about you? I have a green thumb. I love planting flowers.

Best business decision: Having a business-savvy wife. She handles a lot of the administrative work, while I’m more about morale, concepts, ideas, etc.

Pet peeve: Not looking someone in the eyes when talking.

Guilty pleasure: Any and all food, especially Thai and ice cream. Favorite book: To Kill a Mockingbird by Harper Lee.

Hardest lesson learned: Opening two gyms at the same time.

What did you want to be when you grew up? A football player in the NFL.

Work week: Five days a week. I’m supporting my staff at both clubs.

Last vacation: Disney World.

Exercise/workout: I usually get a workout in before I start the work day.

Person I’d most like to have lunch with: My mom. She passed away from breast cancer when I was 16.

Best advice you ever got: Never be anxious for anything. forced him to hang up his cleats. Operating his own business was always his post-football goal, he says, “But it had to be the right opportunity.” When his adviser brought him the Retro Fitness option, he immediately liked what he saw. The fitness segment is hot—and though it’s highly competitive, Garrard was sold on Retro Fitness and signed on. He’s opened two locations in the Jacksonville area with a third coming soon.

Garrard and his wife Mary live in Jacksonville and are active in the daily operations of the gyms. They are also busy raising three children. Beyond the financial motivation, operating gyms made sense because, he says, “I work out every day anyway.” Working out and helping others attain their health and fitness goals has become a passion for Garrard, who says opening his own gyms was a natural progression

both personally and professionally. The Retro Fitness model allows the Garrards a flexibility that’s important to them as parents. “It’s given me the chance to be home more and see my children growing up,” he says. That’s very different from life on the road in the NFL. Garrard is careful to point out that although there are some similarities to leading a football team and leading a business, he didn’t come into franchis-

MANAGEMENT Business philosophy: You get out what you put in. Management method or style: Positivity. Greatest challenge: Having two gyms so early in my business career. Having to juggle two different franchises is hard. You want to spend enough time at both and give each of them 100 percent, and it’s tricky to balance them. How do others describe you? An easygoing, nice guy. One thing I’m looking to do better: Know the numbers. How I give my team room to innovate and experiment: Meet once a week and ask if anything new is on their minds. How close are you to operations? Another area I want to get better at. What are the two most important things you rely on from your franchisor? Everything. What I need from vendors: To continue to be innovators and come out with new items. The fitness industry depends on that—people want something new that challenges them in a new way. Also, when something goes wrong, I need my vendor to respond quickly and efficiently.

Have you changed your marketing strategy in response to the economy? How? It’s always changing and becoming more social media based. How is social media affecting your business? Greatly. We learn more about social media every day because it is so huge, especially in Jacksonville, where we’re seeing a lot of change from print to digital. Everyone has a device in their hands. You need to target to them right, and you do this by using social media. How do you hire and fire? My general manager handles HR-related issues. How do you train and retain? My GM handles this as well. How do you deal with problem employees? My GM handles this. He was recommended to me by Retro corporate and does a great job. Everyone has a smile on their face when I’m in the gym, so I really count on my GM to keep me in the loop about what is really going on. Fastest way into my doghouse: Missing work or being late repeatedly.

MULTI-UNIT FRANCHISEE IS S UE IV, 2016

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AT H L E T E S I N F R A N C H I S I N G

ATHLETICS What skills/experience from sports have carried over to operating a business? Being confident in all situations. Which do you find more competitive, sports or business? Business is much harder. ing knowing all he needs to about running the business. “I listened early and carefully to what people were teaching me about the business world. I was not hard-headed,” he says. Retro Fitness founder and CEO Eric Casaburi, he says, did a great job explaining how the business should be run every day and the importance of following through. “Franchising uses a game plan that, when followed, results in a business model that works,” says Garrard, who plans to remain an active franchise

owner. “I’m looking at potential future sites, talking to and negotiating with landlords, and promoting my existing locations,” he says. “I’m always going to have a hand in it.” Looking ahead downfield, he says, “We want to leave our kids a business that’s profitable. People are becoming more and more fitness-oriented, so the industry is going to continue taking off as more people appreciate the benefits of exercising and living a healthy lifestyle.”

Why did you choose franchising as an investment option? They already had the game plan, I just follow it. How did you transition from sports to franchising? I had a business partner who helped. What was your greatest achievement in sports, and what has been your biggest accomplishment as a franchisee? Winning the starting job with Jacksonville, and getting my gyms open.

BOTTOM LINE Annual revenue: More than $1 million.

ent seasons within the industry, so it’s somewhat easy to prepare for them.

2016 goals: We want our first gym to break even. In 2017, I want both of our gyms to break even. Growth meter: How do you measure your growth? Through attrition.

What are the best sources for capital expansion? The best way to get capital is to have your gym making money. Nobody wants to put capital into something not making money. If you have good relationships with banks, seek capital through them.

Vision meter: Where do you want to be in 5 years? 10 years? In 5 years, I want to have 4 Retro Fitness clubs open. In 10 years, I want to have 9.

Experience with private equity, local banks, national banks, other institutions? Why/why not? If you’re making money, this is not a problem.

How is the economy in your region affecting you, your employees, your customers? It’s fine. The economy is pretty good. People are able to spend. Our members are actually spending twice the amount of their membership. We do have a few people that are delinquent, but not many.

What are you doing to take care of your employees? I offer incentives whenever I can.

Are you experiencing economic growth in your market? There’s great opportunity in our market. The economic growth is standard. How do changes in the economy affect the way you do business? We try to go with the market and adjust accordingly. How do you forecast for your business? The gym business has differ-

How are you handling rising employee costs (payroll, minimum wage, healthcare, etc.)? It’s tough, we do what we can. How do you reward/recognize top-performing employees? Employee of the month along with an incentive, such as a gift card. What kind of exit strategy do you have in place? Building up the company enough to receive an offer we can’t refuse.

MULTI-UNIT FRANCHISEE IS S UE IV, 2016

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TERRITORIES AVAILABLE To learn more go to franchising.hungryhowies.com or call us today at (248) 414-3300. *Results measure company-wide same store sales figures for each calendar year 2010 through 2015. Excludes store sales from units in the State of Florida, units which are not obligated to and do not report sales to Hungry Howie’s, and units which opened and/or closed during each calendar year period from 2010 through 2015. † Average Unit Volumes reflect average annual gross sales of 319 Hungry Howie’s units opened for the entire 52-week period from December 28, 2014 through December 27, 2015 (the Measuring Period). The 319 units includes all franchised and affiliate-owned units but excludes units in the State of Florida, units which opened and/or closed during Measuring Period, and units which are not obligated to and do not report sales to Hungry Howie’s. Of these 319 units, 131 (41.07%) had higher gross sales during the Measuring Period. Food, paper and direct labor cost information is obtained from income statements submitted to Hungry Howie’s. Figures reflect average cost information of 243 Hungry Howie’s units opened during the Measuring Period. The 243 Hungry Howie’s units includes all franchised and affiliated-owned units, but excludes units in the state of Florida, units which opened and/or closed during the Measuring Period, units which are not obligated to and do not report sales to Hungry Howie’s and units which either did not submit income statements or submitted any incomplete or improperly prepared income statements as of March 26, 2016. Labor costs do not include amounts paid to managers and/or owners. The 243 Hungry Howie’s units had an average food cost of 24.87%; an average paper cost of 3.44%; and an average labor cost of 17.75%. The sum of such costs averages is 46.06%. Of the 243 Hungry Howie’s units, 128 (52.67%) had lower food costs; 131 (53.91%) had lower paper costs during the Measuring Period; and 108 (44.44%) had lower labor costs during the Measuring Period. Some Hungry Howie’s Units have earned this amount. Your individual results may differ. There is no assurance that you’ll earn as much. This advertisement is not an offer of a franchise. Franchises are offered and sold only through an FDD. Please see our FDD for more details. State of New York: This advertisement is not an offering. An offering can only be made by a Franchise Disclosure Document filed with the Department of Law of the State of New York. Such filing does not constitute approval by the Department of Law of the State of New York. Minnesota state registration number F-2873. HUNGRY HOWIE’S PIZZA & SUBS INC., 30300 STEPHENSON HIGHWAY, SUITE 200, MADISON HEIGHTS, MI 48071, 248-414-3300.

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FRANCHISED UNITS

LOS ANGELES, CA CHICAGO, IL ATLANTA, GA WASHINGTON, DC-MD-VA-WV HOUSTON, TX DALLAS, TX BOSTON, MA-NH PHILADELPHIA, PA-NJ NEW YORK, NY PHOENIX-MESA, AZ MINNEAPOLIS-SAINT PAUL, MN-WI DETROIT, MI SAN DIEGO, CA TAMPA-ST PETERSBURG-CLEARWATER, FL SAN FRANCISCO-OAKLAND-SAN JOSE, CA SEATTLE-BELLEVUE-EVERETT, WA ST LOUIS, MO-IL DENVER, CO WASHINGTON-BALTIMORE, DC-MD-VA-WV CHARLOTTE-GASTONIA-ROCK HILL, NC-SC ORLANDO, FL OAKLAND, CA DALLAS-FORT WORTH, TX PORTLAND-SALEM, OR-WA INDIANAPOLIS, IN NORFOLK-VIRGINIA BEACH-NEWPORT NEWS, VA-NC NASSAU-SUFFOLK, NY SACRAMENTO, CA LAS VEGAS, NV-AZ KANSAS CITY, MO-KS SAN ANTONIO, TX RALEIGH-DURHAM-CHAPEL HILL, NC PITTSBURGH, PA AUSTIN-SAN MARCOS, TX NASHVILLE, TN COLUMBUS, OH CLEVELAND-AKRON, OH MILWAUKEE-RACINE, WI CINCINNATI, OH-KY-IN FORT LAUDERDALE, FL NEWARK, NJ MIAMI, FL JACKSONVILLE, FL HARTFORD, CT SALT LAKE CITY-OGDEN, UT RICHMOND-PETERSBURG, VA OKLAHOMA CITY, OK GREENSBORO-WINSTON-SALEM-HIGH POINT, NC WEST PALM BEACH-BOCA RATON, FL GREENVILLE-SPARTANBURG-ANDERSON, SC SAN FRANCISCO, CA LOUISVILLE, KY-IN BERGEN-PASSAIC, NJ MEMPHIS, TN-AR-MS MIDDLESEX-SOMERSET-HUNTERDON, NJ NEW ORLEANS, LA MONMOUTH-OCEAN, NJ KNOXVILLE, TN GRAND RAPIDS-MUSKEGON-HOLLAND, MI BIRMINGHAM, AL

LARGEST FRANCHISEES BY STATE 18,769 10,587 7,606 7,417 6,554 6,297 6,069 5,609 5,438 5,226 5,188 4,948 4,153 3,945 3,621 3,585 3,574 3,521 3,494 3,259 3,228 3,001 2,984 2,952 2,950 2,855 2,852 2,809 2,782 2,702 2,676 2,618 2,579 2,556 2,479 2,373 2,353 2,320 2,255 2,206 2,184 2,102 2,078 1,989 1,978 1,900 1,817 1,758 1,744 1,702 1,612 1,606 1,535 1,515 1,495 1,490 1,457 1,427 1,421 1,389

STATE/TERRITORY

LARGEST FRANCHISEE

ALABAMA ALASKA ARIZONA ARKANSAS CALIFORNIA COLORADO CONNECTICUT DELAWARE DIST. OF COLUMBIA FLORIDA GEORGIA HAWAII IDAHO ILLINOIS INDIANA IOWA KANSAS KENTUCKY LOUISIANA MAINE MARYLAND MASSACHUSETTS MICHIGAN MINNESOTA MISSISSIPPI MISSOURI MONTANA NEBRASKA NEVADA NEW HAMPSHIRE NEW JERSEY NEW MEXICO NEW YORK NORTH CAROLINA NORTH DAKOTA OHIO OKLAHOMA OREGON

NPC INTERNATIONAL INC SUBWAY DEVELOPMENT OF ALASKA DESERT DE ORO FOODS INC K-MAC ENTERPRISES INC SOUTHERN CALIFORNIA PIZZA HARMAN MANAGEMENT CORP NORTHEAST FOODS LLC WENDOVER INC QBC LLC HESS CORP NPC INTERNATIONAL INC KAZI MANAGEMENT NPC INTERNATIONAL INC HEARTLAND FOOD CORP FLYNN RESTAURANT GROUP LLC NPC INTERNATIONAL INC ROTTINGHAUS LLC FOURTEEN FOODS LLC STRATEGIC RESTAURANTS ACQUISITION CO LLC MARK CAFUA DAVCO RESTAURANTS INC HK ENTERPRISES DORTCH ENTERPRISES LLC BORDER FOODS INC NPC INTERNATIONAL INC NPC INTERNATIONAL INC HIGH PLAINS PIZZA INC HEARTLAND FOOD CORP SUBWAY DEVELOPMENT OF LAS VEGAS CONSTANTINE SCRIVANOS BRIAD RESTAURANT GROUP LLC PALO ALTO INC CARROLS GROUP SHERRY POLONSKY MIDWEST SUBWAY DEVELOPMENT, NPC INTERNATIONAL INC THE COVELLI FAMILY LIMITED PARTNERSHIP WING FINANCIAL SERVICES LLC GBMO LLC

UNITS

110 28 74 102 229 55 33 15 16 181 90 42 39 145 104 58 178 59 128 31 104 68 69 73 141 101 22 41 62 40 68 69 133 184 13 106 104 59

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2016 Dominators

LARGEST FRANCHISEES BY STATE, continued STATE/TERRITORY

LARGEST FRANCHISEE

UNITS

PENNSYLVANIA

VALENTI MANAGEMENT LLC

RHODE ISLAND

THE JAN COMPANIES

SOUTH CAROLINA

APPLE GOLD INC

SOUTH DAKOTA

NPC INTERNATIONAL INC

TENNESSEE

NPC INTERNATIONAL INC

TEXAS

SUN HOLDINGS LLC

UTAH

SIZZLING PLATTER INC

VERMONT

ARISTOTLE SOULIOTIS

VIRGINIA

BODDIE-NOELL ENTERPRISES INC

WASHINGTON

OIL EXPRESS INC

WEST VIRGINIA

BFS FOODS INC

WISCONSIN

PH HOSPITALITY GROUP LLC

WYOMING

HIGH PLAINS PIZZA INC

364

173

ew brands. New territories. New risks. New rewards. Multi-unit, multi-brand operators continue growing larger each year—a trend that continues to accelerate as these Dominators expand their portfolios through acquisitions, new units, refranchising offers, and scooping up successful units from retirees. Banking on their good credit, solid infrastructure, and track record, today’s Dominators are creating historically large franchisee organizations, as the rankings from FRANdata demonstrate. And they keep on getting bigger every year. Today’s Dominators are sophisticated, savvy, and experienced at managing organizations with hundreds of units, often spread across several states. They also understand that success is all about unit economics: one customer and one sale at a time. They create jobs by the hundreds and thousands, hiring young employees and providing a career path for them to grow, and they do business with local suppliers—lots of them. And they give back to their communities on a large scale, encouraging their employees to support local organizations and charities. No franchisee gets to the top without years of hard work, sacrifice, perseverance, and an unwavering desire to be the best. Congratulations to this year’s Dominators!

LARGEST FRANCHISEES BY REGION REGION

UNITS EAST 182 158 146 142 107

(CT, ME, MA, NH, RI, VT) CONSTANTINE SCRIVANOS NORTHEAST FOODS LLC MARK CAFUA HK ENTERPRISES CARLOS ANDRADE

239 208 205 195 153

(IA, KS, MO, NE, ND, OK, SD) ROTTINGHAUS LLC NPC INTERNATIONAL INC UNITED STATES BEEF CORP K-MAC ENTERPRISES INC WING FINANCIAL SERVICES LLC

146 112 92 63 50

(AL, AR, FL, GA, KY, IA, MS, NC, SC, TN, TX, VA) NPC INTERNATIONAL INC SUN HOLDINGS LLC MUY BRANDS LLC TARGET CORP ARAMARK

MIDWEST

MOUNTAIN WEST (CO, ID, MT, UT, WY) NPC INTERNATIONAL INC HARMAN MANAGEMENT CORP SIZZLING PLATTER INC UNITED STATES BEEF CORP CLEARSTONE DEVELOPMENT INC

REGION

UNITS SOUTHWEST

114 100 91 85 75

PLAINS

(IL, IN, MI, MN, OH, WI) CARROLS GROUP HEARTLAND FOOD CORP FLYNN RESTAURANT GROUP LLC TARGET CORP BRIDGEMAN FOODS/ERJ DINING INC

UNITS NEW ENGLAND

(DC, DE, MD, NJ, NY, PA, WV) CARROLS GROUP ADF COMPANIES TARGET CORP HMS HOST DAVCO RESTAURANTS INC

REGION

(AZ, NV, NM) B & B CONSULTANTS INC DESERT DE ORO FOODS INC PALO ALTO INC STINE ENTERPRISES INC SUBWAY DEVELOPMENT OF LAS VEGAS

WEST (AK, CA, HI, OR, WA) 345 272 216 133 105

TARGET CORP SOUTHERN CALIFORNIA PIZZA HARMAN MANAGEMENT CORP FLYNN RESTAURANT GROUP LLC CALIFORNIA FOOD MANAGEMENT LLC

255 229 203 156 136

SOUTH 942 480 400 353 337

Source: FRANdata

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BY HELEN BOND

S Succession uccession SUCCEEDING AT

IT’S NEVER TOO EARLY TO PLAN FOR A TRANSITION

or Wanda Sieber, what began as an ordinary phone call became a wake-up call. The person who answered the phone told Sieber that the owner of the business she’d called had died unexpectedly, adding “We don’t even know if we’re going to have jobs tomorrow.” “It was like a lightning bolt through my heart,” recalls Sieber who, with her husband Bill, is a Unishippers multi-unit franchisee with stores in Green Bay, Seattle, and Mobile, Ala. “This was a small business, where people depended upon each other. I immediately thought, ‘What would happen if something happened to us?’ That was when it was time to get serious.” Putting off succession planning is not unusual for multi-unit franchisees, who are preoccupied with running their everyday business—not with when they will hand over the reins, whether through careful planning or an unexpected event. And as more Baby Boomers inch into retirement, the need to plan for succession has never been more acute. “We need to be looking not just at where we are or need to be, but also ahead,” says Sieber. Soon after that phone call, she says, “We took care of all the things everyone tries to avoid.” As the saying goes, denial is not a strategy. “What holds people back and has them leaving so much on the table is the perception of what succession is,” says Kendall Rawls a second-generation member of

the Atlanta-based succession planning firm The Rawls Company. “Most people believe succession planning is about retirement and exit planning. What we believe is that succession is about value. It is not about the things no one really wants to talk about. It is about franchise growth, sustainability, and creating options.” If Rawls had her way, the word “succession” would be tossed from the conversation in favor of “building value.” Beyond ROI and cash flow, potential buyers and successors will consider future earnings, key leadership, management expertise, and family dynamics when valuing the business. Add in the varied (and often arbitrary) requirements of franchisors in approving transfers, and a well-structured succession plan is critical to preserving a franchisee’s hard-won equity. “If there is not a strong plan in place from the franchisee, the franchisor holds all the cards,” says Rawls. Why and when a business owner decides to exit differs for everyone. Problems occur when plans aren’t communicated effectively, particularly within familyowned franchisee firms, says Dean Zuccarello, founder and CEO of The Cypress Group, an investment bank and advisory services firm specializing in restaurant and franchise companies. “In some cases it is like the elephant in the room,” says Zuccarello. “The family hasn’t done enough internal communication, planning, or soul-searching to discuss the right plan for themselves.”

Whether a franchisee seeks security or wealth from a sale, or is forced to step back because of age or health, the goal is to make decision-making as strategic as possible. “We encourage people to go through a disciplined process of evaluating those things,” he says. “So when the time is right they are committed to the process, they know why the time is right for them, and there is no second-guessing or missing an opportunity to act.”

Building for the future For Weed Man subfranchisor and multiunit franchisee Terry Kurth, a secure business future means building a strong bench. A lawn care veteran and Weed Man franchisee since 2001, he is counting on the leadership of his son Andy to build the business into a $15 million to $20 million company in the next decade. Like many children growing up in a family-owned business, Andy had worked for the company when he was younger. He joined Weed Man in 2004, armed with a degree in soil science and turf management from the University of Wisconsin-Madison. When a general manager quit without notice the following year, he stepped into the job and has never looked back. From their home base in Madison, the father-and-son team have built a nearly $7 million business, with satellite offices in three additional Wisconsin cities, along with Northwest Chicago, Austin, and Denver. In 2015, they were named the brand’s Franchisee of the Year.

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SUCCESSION While father Terry maintains controlling interest, a succession plan created with the help of outside counsel mapped out a buy-sell agreement, estate issues, and a strategy that calls for Andy to eventually take over. “By eventually, he means death,” jokes Andy, 35, who purchased shares in the company in 2007. His sister has worked for the business, but Andy is the only one of Terry’s four children to buy into Weed Man as a career. Andy says this has made the succession plan relatively friction-free. Scenarios for family conflict abound. Problems can erupt when parents take a simplistic view of succession. Examples include dividing ownership interests evenly no matter the level of involvement by their children, or putting off choosing a successor (or successors) because multiple children or employees want to lead the company. Founders may also assume their children will carry on the business, only to discover that they want to chart their Andy and Terry Kurth

own course, don’t have the skills, or the franchisor fails to give the green light to the next generation. And sometimes owners simply don’t want to give up control. “I think Dad handled it very well,” says Andy. “He gifted all four of us a small percentage of the company, but for my siblings they are not voting shares. So it is clear they have no say in what happens in the company and are not involved in the company day to day.” Terry Kurth believes the acquisition of shares by Andy and two key management executives provides “sweat equity” to encourage the trio to work harder to build the company. His job now, he says, is to give the younger generation “tons of autonomy.” And when it comes to major issues, he says he is 80 percent retired. “I have never had to use my voting power, but my job is to at least season them, because in almost 40 years of business, you have seen a lot of things,” he says. “It has been cool to see the growth and

opportunities that we are giving people to grow with the company.” Preparing for transition Whether the future of the franchise organization includes family members, a partner, key employees, or all of the above, a strong succession plan considers the predictable, probable, and possible scenarios that could affect the ongoing success of the business, says Rawls. For the Siebers, whose children range in age from 21 to 32, this means planning with a future sale in mind. All six children, including two still in college, have gotten their feet wet working at nearly every job in the family business, but so far there are no plans for second-generation ownership. At 53, Wanda Sieber has no plans to retire soon. Still, she says, the couple constantly tweak and review their succession plan, keeping the lines of communication open with employees who have expressed ownership interest. Two years ago, the couple sold their family home to buy waterfront property on Green Bay that will become their retirement home, complete with a recording studio for Wanda to continue her passion for musical composition. And since turning 62 last year, Bill Sieber has cut his hours in half, spending more time on the house and his love for classical guitar, while testing the retirement waters—a move succession planning specialists applaud, if possible, not only to see how it feels to step back, but also to boost employee and franchisor confidence in any upcoming leadership changes. “It is a good way to check and see how much of the business knowledge was actually transferred to employees,” says Wanda. “There is nothing like having the guy who knows everything out of the building half the time. I would highly recommend that to anyone looking at potential retirement.” The human factor Hatching a strategic succession strategy is vital to developing strong leadership and ensuring the future of a multi-unit franchise business. For family-owned companies, planning for illness, death, or retirement can wreak havoc on family relationships and create business and financial headaches. This is avoidable, but not easy without careful advance planning and an eye toward personalities. “Finding a way to create boundaries

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SUCCESSION Wanda and Bill Sieber

between people you care about, so business can be business and family can be family, is difficult,” Rawls acknowledges. In many cases, she says, “It is a tightrope walk.” No matter what your strategy, it is vital not to overlook the human element, advises Philip J. Toffel, Jr., CEO and managing partner at Sage Hill Advisory & Management in Saratoga Springs, N.Y. For Toffel, a successful plan to transfer ownership requires involving all the potential players. In the case of family-owned structures, the process typically involves the owner patriarch and/or matriarch, family members inside and outside of the business, estate and financial considerations, and the franchisor, who must approve the transfer. “The current franchisee has to recognize who will have a voice in the succession plan and who can dismantle it very readily if it is not vetted with them,” he says. And when it comes to planning the future of a family-owned business, it is never too early to start talking. Openness and transparency are critical to address the human, legal, and financial issues that accompany family legacy decisions. Toffel, who has seen families torn apart by a founder’s lack of planning, encourages owners to take the lead with “robust” family meetings aimed at putting everyone on the same page. “One of the first things we do when we get involved is to make sure we have a good blueprint of the family situation early in the planning process, to make sure

that the parents are communicating well with each other and with their children as to what the plan needs to be,” says Toffel. Getting an early start in transition planning enables a founder to identify who will manage and own the business (often not the same person), and to ensure that potential successors meet the franchisor’s requirements—which can be especially tricky when multiple brands and approvals are involved. To avoid a franchisor vetoing a succession plan, Rawls encourages owners to take advantage of every opportunity for incoming leadership to interact with and build their own relationships with the franchisor. “If the active generation holds all the relationships and something happens to them, they may have always planned for the next generation to take over, but if the franchisor has no idea who they are, do they trust them?” she says. The same holds true for financial institutions. Allow the successor to build “credit continuity” to ensure the first or active generation isn’t holding all the personal guarantees and relationships with the banks, she adds. In trusts they trust Toffel says trusts can be used to separate family interests and protect the assets of the business. “Another fly in the ointment, if they don’t do it well, is distributing shares without developing trusts for the process,” he says. “What if the marriage of one of the children doesn’t go well and

the divorced family member has shares in the business and the business is in the middle of the divorce action?” Every franchisee organization has a different knowledge level and different attitude toward trust ownership, says Toffel. However, he says, used properly this succession tool can be a win-win strategy to provide continuity for everyone involved. “If a business continues and you know it is being run by the next generation, and if the franchisor approves this form of planning, it forces the franchisee to tend to proper mentoring of the next generation to take the lead in the business,” says Toffel. No matter the route, establishing a succession plan early and visiting it often ensures that business owners, family members, and key company leaders are not blindsided with problems, says Rawls. Succession, she says, is a process, not a project.

CULTURAL CONTINUITY Strategic succession planning is the topic of almost daily conversation between industry veterans Michael Simon, managing partner of Titan Restaurant Group, and his 67-year-old partner Jack Whiting, who holds a 20 percent stake in the company. Simon, 55, owns 80 percent of the company, which operates 42 Donatos Pizza stores, purchased in 2010 from the family-owned brand. His responsibility for the future of his 1,000 employees is always on his mind. Simon’s background includes more than 30 years in corporate operations for companies such as Tim Hortons and Pizza Hut. In his experience assisting franchises with succession planning, he has found the key to success is in maintaining a continuity of culture and performance. “You need to find an individual with the same kind of integrity, vision, and performance management. The big question is whether to go internal or external for the successor. The tricky part is to determine which will add more value, which is a risk for an external person you have not worked with before,” says Simon. “For me, the safe play is to bring someone in who protects everybody that has made this thing work.”

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150+ LOCATIONS

With Enough Coffee ANYTHING IS POSSIBLE!

NATIONWIDE

SIGNED 40+ OPENINGS FRANCHISE PROJECTED IN 2016

AGREEMENTS

15 STATES

WITH SIGNED FRANCHISE AGREEMENTS

CONSECUTIVE YEARS OF DOUBLE-DIGIT

SAME-STORE SALES GROWTH*

2012 2013 2014 2015

11.9% 10.9% 12.6% 14.9%

*As reported in item 19 of the Franchise Disclosure Document dated May 13, 2016. Please review item 19 for further details. This is not an offer to sell a franchise, which may occur only in applicable states and through a Franchise Disclosure Document or Prospectus. Your results may differ from the represented performance. There is no assurance that you will do as well and you must accept that risk.

OWNASCOOTERS.COM 877.494.7004 magazine_1/2_page_temp.indd 1

9/12/16 2:32 PM

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BY EDDY GOLDBERG

Gone Social

How three brands are engaging customers online

wenty years ago business discov- fans. Examples include alerting them to ered the Internet and the world events, offers, and promotions in their wide web, “changing everything.” area or store. Ten years ago Twitter and FaceReaching and engaging with the brand’s book arrived, changing everything again. consumers, she says, means “staying foToday we’re still adjusting… to social me- cused on where your audience is and not dia, 24-hour feedback, and “customeriza- chasing the shiny new object.” And while tion” (customers driving how companies Facebook is the primary platform for online develop products and services). customer engagement, “We’re not ignor(For an entertaining and informative ing other channels,” says Matheson. “We take on how we arrived where we are know where our guests are and employ today, look up “The Complete History the same strategy we use on Facebook in of Social Media” from Avalaunch Media those other channels.” and “The History of Social Networking” “Engagement” is a much-used word on Digital Trends.) these days. For Matheson it involves havThe challenge for businesses not only ing conversations with people online, just is keeping up with the most popular plat- as one would with a friend. Her hope is forms and channels to find and engage that entering online conversations and with their customers, but to stay current discreetly sharing brand news and postwith continual change—within the plat- ing other content will generate likes and forms they’ve chosen and with new ones encourage photo postings, offline conthat continue to appear, versations, and refergaining and waning in rals—and, of course, that popularity by the month. those connections will We spoke with three generate increased foot brands, Buffalo Wings traffic into stores, boost & Rings, Moe’s Southonline ordering, and west Grill, and Meineke result in bigger tickets. Car Care Centers to see She says it’s more how they are using social about participating in, media and digital techrather than driving, onnology for customer enline conversations. Degagement and as a local termining the balance marketing tool for their of “push” and “pull” is a franchisees. fine line to walk, a conAt Buffalo Wings & stantly moving target. It Rings (BW&R), FaceDiane Matheson also differs by platform book is the primary social (see table on page 60). channel for connecting with customers. And in terms of what to add to the conThe reason? Simple. “Because so many versation, she says her “pillars” are to be of our consumers are on it,” says Mar- entertaining, engaging, educational, inketing Director Diane Matheson. That formational, and promotional. Start by identifying your target audiconsumer, she says, is 30 to 55 years old and probably not jumping on the latest ence online. “Go out and find where the consumers are online and what types of technology bandwagon. For BW&R, which is approaching 70 content they engage in,” she says. Facerestaurants, the benefits of using Face- book, says Matheson, is not about you book include building brand awareness and your brand, but getting your brand and engaging with customers in real time, into the conversation your customers and she says, including personalizing and fans are already having. Don’t interrupt customizing communications to online the conversation with overly promotional

content or what you want customers to be interested in. Rather, she says, follow this 80/20 rule: it’s 80 percent about the conversation with fun, engaging content, and 20 percent about the brand. When it comes to online participation, “Pick one thing and do it really well,” she says, and model that approach to go “all in” on other platforms you select. She suggests listening to the online conversations your customers are having, creating content buckets for each platform, and establishing content calendars six to

Data & Segmentation “Understanding the guest is core to any brand and marketing program,” says BW&R’s Matheson. She gathers data on the brand’s core consumers from review sites, social media pages, secret shopper scores, demographics and psychographics, and more. One goal is to sort those customers into different, discernible segments based on factors such as trip occasions, why they chose the brand, why not, how they feel about the category, health trends, etc. This helps her determine “who we’re going after, why, where, how we talk to them, and what we need to say,” she says. Segments can be based on many variables and help to determine different, customized approaches, from online engagement to new product development. “We use segmentation and consumer research for everything—new flavor profiles, what consumers are expecting, and what will weaken or strengthen brand health scores,” she says. “When you understand your consumer and your brand at the core it makes every decision easier.” This also helps the team at corporate with decisions such as whether participation in a new social media site is worthwhile, where to advertise, and in crafting a media plan.

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nine months out. The brand’s Club ’84 is a loyalty program, not a points program, but it does offer benefits and keeps customers connected to the company. “It’s an opportunity for us to keep our guests informed about the brand,” says Matheson, through offers on birthdays and anniversaries, as well as through previews of LTOs and menus, VIP parties, special offers, and “insider” information that makes them feel special, and closer to the brand. Club members also have participated in consumer research such as menu development and providing feedback on food presentation, taste profiles, and other potential changes. Welcome to Moe’s! Moe’s Southwest Grill currently has more than 650 franchised locations in the U.S., spread across 39 states. This summer, Moe’s launched a new loyalty program called Rockin’ Rewards. The goal was to create a single, unified app and loyalty program, making it easier for customers to earn and redeem points, order online, receive promotions and special offers, refer friends, engage online with the brand, and participate in surveys and provide feedback, says Alan Magee, Moe’s director of brand marketing. The brand connects with customers on more than half a dozen platforms, including Vine, Instagram, Snapchat, Facebook, Twitter, YouTube, and Google+. “That’s where our customers are,” say Magee. Each channel or platform requires a different communication strategy with different messages and purposes, he says. The new app is part of Moe’s strategy to engage brand fans on a deeper level, says Magee. “It’s not only the basics of loyalty and redeeming points, but how can we add to their experience,” whether in-store or online. One new in-store experience being rolled out this quarter is adding an augmented reality feature to the new app. Inside the restaurants, Moe’s customers will be able to log in to the app, hold their phone up to original wall art called Rockscapes, press a button, and watch the poster “come alive” with movement

and music, says Magee. The six musically themed Rockscape posters commemorate a different memorable moment in rock history—and were made using real food items. At first only one piece of art will come digitally alive, with the rest staged in next year. While the Pokémon Go craze prepared the general public for augmented reality, Moe’s started planning this about a year ago. “Pokémon came along and amplified AR, but we already were pretty well down the road,” says Magee. Welcome to AR! Franchisees and LSM Before launching the new app, Moe’s engaged a committee of franchisees early in the process. Moe’s also tested it with franchisees in selected markets and tweaked it before rolling it out nationwide. In general, he says, franchisees responded positively. Corporate worked with franchisees to show them how to use the app and involve their crews to engage with local fans and show them how to earn and redeem points. At the store level, Alan Magee franchisees can offer promotions through the app, another way to get them involved in local store marketing. After a customer downloads the app, they can choose their favorite store and receive local offers, such as double points all week, or come in at a certain time of day and get 50 percent off an entrée. BW&R also is focusing on boosting local store marketing efforts. At their annual conference, a panel presented local marketing activities that are working for its franchisees. The brand also is starting a monthly blog that showcases franchisees using local store marketing effectively, as well as an “LSM toolbox” to educate operators about other programs implemented by franchisees, showing them not only the strategy, but how to execute it in their own stores. Larger, multi-unit franchisees, says Matheson, can afford to hire their own resources and marketing teams. Both brands have implemented a centralized, national strategy for their websites and social media channels, with room for franchisees to customize for their local

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markets. “When I started here, I had heart palpitations when I saw that everyone had their own page. My first reaction was to shut them down and have a national page,” she says. Since then, “I’ve come to understand the importance of franchisees

Getting Franchisees To Play A common problem for brands is convincing franchisees to participate in local marketing efforts and campaigns. Is their time worth it? Can they follow through and do it consistently over time? Respond to negative online reviews, or even positive ones? Keep their local website or Facebook page current? BW&R works hard to solve these problems through training intended to help its operators understand the importance of maintaining a strong digital presence. A session on social media at its annual conference walked attendees through the benefits and reasons to be active on Facebook—from brand building to how it will boost sales by driving customers into their stores, as well as where Facebook is going so they can keep up. There’s also basic training on the 80/20 rule (see main article), how to take photos for posting online, how to respond to comments, and making sure franchisees have assigned someone to do local store marketing. Looking ahead, she says national messages will be pushed out to local pages. “Today we let them opt in and determine local content,” says Matheson. In addition, she says, “We are starting to deploy some field marketing associates to partner with stores and help them.” Some franchisees get LSM and digital, especially multi-unit owners, she says, and they’re very successful at it. However, she adds, “It’s always a work in progress.” In the hustle and bustle of everyday firefighting, “They forget LSM is something they have to keep doing. It’s never-ending. We want to move the ‘goods’ to ‘great.’” One way to make this easier, she adds, is to build this question into the vetting process (if it’s not already there) with new candidates: Do they have the ability to do LSM?

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Gone Social having their own page.” “Franchisees still have the flexibility to do local things,” says Matheson. However, she adds, only with guidance and ongoing education from corporate, including providing them with content, and proving the effectiveness of the national page using metrics. On Facebook those KPIs include the total number of fans, fans reached each week, overall engagement, and engagement per post. Corporate also has a lot to teach fran-

chisees about how to most effectively engage their fans online. “It takes a lot of time and energy and effort to understand the guest. We do that at the franchisor level,” she says. For example, franchisees were not following the 80/20 rule discussed above, and instead were making the conversation too much about themselves—not the conversation the guests were having. As a result, she says, 80 percent of online content will come from the national team, leaving the re-

Driven: The Meineke Rewards Program BY SUMMER NUNN The Meineke Rewards program has been very successful for us. Meineke Rewards truly sets us apart from the competition because it matches every dollar spent with rewards points. The benefit to customers is the ability to redeem points for normal services like oil changes, tires, and brakes. Since its launch one year ago, more than 378,000 customers have enrolled in the program. Beyond enrollment, we track the average spend of rewards customers vs. non-rewards customers, along with the number of redemptions for free services, to gauge success of the program.

Summer Nunn

The management of the Meineke Rewards program is a collective effort between internal teams and business partners. Meineke’s internal marketing team oversees the full program and directs business partners and agencies accordingly. Clutch, a customer marketing and engagement firm, has been our main partner. They helped launch the program and assisted in the overall revitalization of our customer retention and marketing efforts.

How did we engage the franchisees on this? Encouraging franchisee buy-in is fairly

simple. In addition to education including webinars, emails, and print materials in each center, we’re transparent about the benefit of the program and share it in the language they speak: customer return rate, average spend, overall center profitability. It’s hard to argue with a program that encourages customers to return more, spend more, and that adds money to your bottom line! With that, we’ve been able to get buy-in from 30 percent of our centers. Our goal is 50 percent by the end of the year. Customer demand also dictates franchisee buy-in—the more customers ask about the program, the more our franchisees are encouraged to participate.

How are we managing/balancing centralized control with local flexibility in our digital marketing efforts? One of the benefits of being a part of the Driven Brands family

of automotive companies is access to Driven Brands’ digital marketing team. This means we’re able to execute national and local initiatives in a nimble way. Because all advertising efforts are data-driven, if there’s an opportunity to shift efforts for the betterment of a market, we can do so at any given time. It’s a balancing act we’ve worked hard to perfect. We’re almost there!

Which social media platforms are we finding most effective for our customers and target customers? Facebook and Twitter remain our go-to social media engage-

ment tools. Both make it easy to reach and engage with customers while leveraging advertising capabilities that aren’t too intrusive. However, we believe in the power of a strong digital presence and engage on Instagram and LinkedIn as well. We want to make it easy for customers to find and engage with us, regardless of where and how they do it. Summer Nunn is vice president of marketing for Meineke Car Care Centers.

mainder for the franchisees to customize for their local market. Matheson says her 80/20 rule offers the best of both worlds to both franchisees and corporate. “We can do a better job to engage their audience.” Built-in advantage At Moe’s, about 80 percent of its social media outreach is done through dedicated in-house resources. Each platform or channel has different messages and purposes, he says, which requires a different communication strategy. Corporate manages a lot of the messaging, as well as responses to customer questions or comments—“no matter what your question is,” says Magee. “The beauty of having those resources in-house is that we can have a consistent message and brand voice.” At Moe’s, field marketing teams work closely with franchisees to establish and maintain brand consistency across its websites and social media channels. “It’s more efficient to have this as a centralized resource,” says Magee. Search Moe’s and there is one national website, but it’s local pages when customers are in or near a store. This also allows rapid changes, for instance when a hurricane races up the East Coast, or there’s a community event nearby. “We want fans and guests to have that continuity and consistency,” says Magee. Moe’s has an additional advantage by being part of Focus Brands (which itself is owned by Roark Capital). Focus has six franchise brands under its umbrella (Moe’s, Auntie Anne’s, Carvel, Cinnabon, Schlotzsky’s, and Seattle’s Best Coffee). Focus has created “centers of excellence”— pooled resources to support the individual brands with public relations, social, and creative—and built a new campus to support these cross-brand initiatives. At BW&R, a much smaller enterprise, social media is outsourced to Empower MediaMarketing, a local agency in Cincinnati that assists in crafting their content. “It takes a lot of time and effort to develop it ourselves,” says Matheson. Instead, she’s outsourced several functions, which she monitors and oversees. “I like using agencies. It’s much more efficient and effective.” She uses Fishbowl to help with data analytics and employs Directions Research, a local company, for additional consumer research and analysis. Another advantage to using third parties, she says, is that each agency works with clients

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Gone Social across many different industry segments, and can provide her with a broader perspective, beyond her brand and outside of franchising. Even a brand with plenty of internal resources relies on outside expertise. To develop and deploy its new app, says Magee, Moe’s worked with two different outside agencies, creating a cross-functional team consisting of its internal creative and tech

staff with the two agencies. Social media is another important way Moe’s engages with its fans through events such as the brand’s annual Free Queso Day, sneak peeks into its kitchen, and having fans post their food photos. It also allows store operators to strengthen their ties with the local community through fundraisers with schools, churches, and local charities. Much of it is about hav-

ing fun, a big part of the brand’s identity. Magee says engaging with customers is about tying all of the brand’s different online initiatives together to touch the consumer in as many different ways and through as many different channels as possible. With so many moving parts, this is easier said than done, but these three brands are moving steadily in the right direction.

Social Media: Choosing the Best Platform BY TAMMY CANCELA

hoosing the best social media platform or channel to reach your target audience can be challenging, as both the technologies and your customers continue to evolve. This list of the top five, ranked by unique monthly visitors, along with their strengths and weaknesses in relation to your goals, provides some guidance in sorting out your options and choosing where to focus your digital resources. Helpful hints • To avoid conflicting brand messages, franchisees are well served with centralized social media management. • Franchisees may benefit from hiring a consultant to manage social media across several platforms and units. This service

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is often more cost-effective than handling it in-house because the sites change their rules frequently, which requires an expert. Also, missteps in handling customer issues at one location or unit can affect all units. • All franchisees owe a duty to the franchisor to ensure that posts are brand compliant and supportive. This is good for all franchises and the brand overall. • Remember that your employees see your social media content, too. It can be a great way to shine a light on exemplary employees. Their friends and family will reward you with Likes! Tammy Cancela, a marketing consultant, can be reached at 972898-8413 or tcancela@sbcglobal.net.

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General market targeting (25+) Longer posts possible (text, photos, links, video) Videos in news feeds get excellent viewability Multi-unit franchises can promote the entire brand or each location easily Social ads - excellent targeting, ad types, data

Facebook changes its rules/format constantly, with little or no warning Videos are not catalogued If managing multiple accounts/units, FB makes it hard to sort out charges

General market targeting (12+) Owned by Google – it is generally thought that Google favors strong YouTube channels/videos in assigning website page ranks for linked content Video-centric – videos can be catalogued for long-term access Social ads – excellent targeting, ad types, data

Competition for video views is very strong Launching video on other sites and cataloguing on YouTube is an effective strategy

Twitter

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Targeting business audiences Brands can manage groups, post long-form posts, alert candidates to job openings, promote their company culture, etc. Articles posted on LinkedIn can be referenced to create back links to company website – improves SEO scores Supports franchise sales and business development

Recent criticism for being too commercial Few effective ad types available Long-form copy development can be expensive Group curation can be expensive and time-consuming

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Best for franchises that are visual in nature (e.g., painting Excellent photography and appealing layouts are a must – parties, game truck parties) targets are attracted by visuals *Source: eBizMBA, August 2016

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CustomerService BY JOHN D I J U L I U S

Are You Ready for a New Reality? Is Pokémon GO a new way to attract customers into your stores?

okémon GO, the hot new augmented reality (AR) game is not just another fad or trending game on the market—it is a cultural phenomenon. While gamers see it as just another way to play games, many businesses are reaping huge benefits by paying to have Pokémon located inside their business. A pizzeria in Queens, N.Y., claims they are getting new customers all day trying to capture Pokémon. This is a game changer, and the possibilities are endless. What if Starbucks put a Pokémon in every cafe? What if retail stores added them? Businesses must quickly learn, understand, and get used to AR. If a small pizzeria can figure out how this gives them a competitive advantage, the behemoth brands will figure out how they can improve the customer experience by integrating AR. Smart businesses will evolve AR to drive more customers through their doors. Customers could be alerted on how to take advantage of limited double bonus points similar to how people capture Pokémon. I have said for years that on-site, in-store shopping should offer GPS tracking to what you are looking for. This can be anything from trying to find specific products in a grocery store to an attraction at Disney. Open door policy

I know what some of you are thinking: “I don’t want a bunch of people walking into my business with no intention of purchasing anything.” That mentality drives me crazy. Once I was in my favorite store, Apple, spending a great deal of time and money. As I was on my spending spree, I needed a bathroom. I asked the Apple associate where the nearest public restroom was, and she responded, “You can use the one at the smoothie place next door.” So I ran next door and did so. As I was leaving I saw that they had smoothies and wraps, it

was lunchtime, and I was pretty hungry. After I wrapped up my Apple purchase I went right back to the smoothie place and ordered my lunch and a smoothie. As I was eating, I asked if the owner or operator was available. When he came out to my table, I thanked him for allowing people to use his restroom. His face changed to agitated. He said, “Did Apple tell you that you could use our restroom? Our restrooms are only for our paying customers.” I said, “But I didn’t even know your business existed until I ran in here to use the bathroom, and as a result I purchased my lunch here.” He responded, “Well, we’ve been here for nine years.” Now I was sorry I purchased anything from this location, even though both the smoothie and wrap were pretty good. This operator didn’t get it. The entire reason you pay such high rent to be next to an Apple store is for increased awareness and foot traffic. The only thing better than foot traffic outside your store is foot traffic inside your store. I would take it one step further and give free smoothies to the Apple associates who tell their customers to use my restrooms. Drive traffic in my doors, please! Businesses must stop being worried about being taken advantage of and instead take advantage of opportunities to increase their brand awareness and demonstrate their friendliness. Free Coke for all!

In 2003, Jeff and Bill Smith opened Easy Money, a payday and check cashing financial institution based in Birmingham, Ala. Payday loan centers typically charge high interest rates to customers who may have fallen on hard times, need cash fast, and are limited in their options. The Smith brothers did something totally unconventional almost from the start: they put a Coke dispenser in the waiting area in each location so customers could enjoy a free soda as they waited. This became

popular with customers and the neighborhood. Asked why they offered free Coke, Jeff said, “We wanted to get our name out there in the community. We wanted a way to connect with local people. We became known as the place that gives away free drinks.” They also told customers who had paid off their loans to stop by, say hello, and have a free Coke. People started coming in for a Coke— sometimes only for a Coke—which made managers concerned they were being taken advantage of. “I would have managers calling me all the time saying that people were asking if they could have more than one. And I would tell the managers to tell them to take as many as they wanted,” Jeff said. “A manager would call and say a woman pulled up to the store and her kids ran in and grabbed some Cokes and ran out. I would say ‘That is totally okay. More and more people are becoming aware of us, and we are training them to come in. Don’t worry about how many Cokes people are taking.’ Most people are skeptical about walking into a payday loan center. This humanized Easy Money to the neighborhood.” Not everyone in the neighborhood liked it. The local gas stations and C-stores started to complain that Easy Money was taking a bite out of their Coke business. Easy Money gave away so much Coke— about 2 million drinks per year—that the Smiths were earning trips reserved only for Coke’s top customers. This became a $400,000 expense on their P&L. Even I was blown away by this. I asked Jeff if he ever thought about stopping the free Cokes and adding $400,000 to the bottom line. He said, “No way. I can’t measure the goodwill and foot traffic we get, as well as being an integral part of the community.” How did this work out? Easy Money’s revenues grew on average between 80 and 100 percent every year. They went from 4 employees and 2 locations to more than 250 employees and 21 locations before selling the company. John R. DiJulius III, author of The Customer Service Revolution, is president of The DiJulius Group, a customer service consulting firm that works with companies including Starbucks, Chickfil-A, Ritz-Carlton, Nestle, PwC, Lexus, and many more. Call him at 216-839-1430 or email info@thedijuliusgroup.com.

MULTI-UNIT FRANCHISEE IS S UE IV, 2016

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People BY PETER HARRISON

Hourly Hiring Shifts Supply, technology, and legislation – oh my!

et’s begin with three facts: 1) 78.2 million Americans are hourly workers; 2) hourly workers represent 58.5 percent of all jobs in the U.S.; and 3) 80 percent of all hires made in the U.S. each year are for hourly jobs. Given these facts, it’s clear that hourly workers are the backbone of the U.S. economy. And now, more than ever, the hourly job market is in the spotlight. Recent legislation and economic trends are driving people to rethink work as we know it. For multi-unit franchisees, it’s vital to understand how these factors are affecting your units, managers, and hourly workers. Decreased supply, increased demand. In July, the U.S. Bureau of Labor Statistics reported an unemployment rate of 4.9 percent, the lowest in 8 years. Economic recovery is driving an increase in the demand for hourly work, resulting in more available job openings. TDn2K, a firm focused on the hourly sector, reported job growth of 4.6 percent from 2014 to 2015 in the restaurant industry; and at Snagajob, we saw a 26 percent increase in the number of job postings on our platform year-over-year. Yet there is not enough supply to meet this growing need. In fact, the labor participation rate continues to decrease, with a small uptick in July 2016 at 62.8 percent. With the candidate pool shrinking, employers must compete with one another even more than before to recruit, hire, and retain quality workers. Legislative landscape. The Pew Research Center recently reported that 84 percent of registered voters say the state of the economy will be very important to them when deciding who to vote for in the upcoming presidential election. Several hot topics that fall under the economy umbrella and that directly affect the hourly job industry are gaining traction in the media and on Capitol Hill. Here are just a few examples. • Fight for $15 is an international movement to raise the U.S. minimum wage from $7.25 to $15 per hour. Led by workers in more than 300 cities on 6 different continents, Fight for $15 seeks to

accomplish one goal: to reward hard work with higher pay so that hourly employees can pay their bills and put food on their tables without struggling to get by. While it’s no surprise that workers are in favor of this, it is surprising to see a growing number of employers supporting minimum wage legislation; in fact, Snagajob found in a recent survey that 91 percent support raising the minimum wage. • Shift scheduling. According to our research, 88 percent of hourly workers are willing to work multiple jobs for different employers each week to get needed hours. Campaigns such as San Francisco’s Retail Workers Bill of Rights and California’s Fair Scheduling Act encourage more predictable and dependable schedules for hourly workers by ensuring that employers give at least two weeks’ notice on schedule changes. Not only does this provide workers with ample time to make other arrangements for factors such as child care, it also helps make their jobs more reliable. All of this activity has pushed the need for better tools to manage multiple shifts into the forefront. • The new overtime work regulation, scheduled to take effect on December 1, increases the overtime pay threshold to $47,476 a year. The Dept. of Labor predicts this will increase wages by $12 billion over 10 years, while the National Retail Federation predicts this change will cost retail and restaurant business approximately $745 million to comply with the new rules. There is a chance employers will hire a greater number of hourly workers for fewer hours each to maintain existing levels of production without additional costs. This is similar to what the economy saw in 2010 when the Affordable Care Act (ACA) launched. • ACA. In continuation from the above statement, the Congressional Budget Office (CBO) states that the ACA’s largest impact on labor markets will occur after 2016, the first year the law is in full effect. The CBO predicts that labor supply and productivity will potentially suffer as a result of the ACA.

Reaching Millennials

Last year, Millennials became the largest portion of the U.S. workforce and are expected to make up 75 percent of the labor pool by 2025. Millennials and Gen Zs are tech-savvy digital natives driving workforce trends for today and tomorrow. Most have never submitted a paper job application; in fact, 90 percent of Millennials use a smartphone to find and apply for jobs. This demographic shift disrupts how today’s workers are finding and applying for jobs. More than 80 percent of job seekers say they don’t complete job applications because they are too lengthy and time-consuming. Yet Snagajob sees a 98 percent completion rate when applications are mobile-friendly. Last year, we saw nearly 50 million job applications, half of them from mobile devices, submitted through our online platform. Employers must meet job seekers where they are: on mobile devices. So what?

With a low unemployment rate and steadily declining labor participation rate, this is a job seeker’s market. The situation is further complicated by the legislative landscape, which will require employers to use new tools to stay compliant and organized. This leaves hourly employers with the need to understand how to hire and retain top talent. Above all, employers must use technology to reinvent the entire hiring and talent management process. If the hourly job industry embraces the possibilities of technology—and more specifically mobile—employers can better manage the full lifecycle of an employee, from finding and screening to onboarding, training, and scheduling. The more employers can do this, the more workers they will attract and the more engaged those workers will be. That’s good not just for productivity and morale, but also for your bottom line. Peter Harrison is CEO of Snagajob where he leverages technology to reimagine the future of work through instant and quality connections between workers and employers. Last year, the company had a direct hand in hiring more than 3 million people.

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Finance BY ROD BRISTOL

Increase Your Profitability Benchmarking is a critical yardstick in improving performance

nit-level economics (ULE) is the latest fancy phrase for the fundamental concept of franchisee profitability. The oldschool franchise concept of caring only about a monthly sales report and a royalty check and, if the franchisee was not profitable, reselling the territory in 18 months, is dead. It was killed primarily by new private equity firms that won’t touch a franchise network if they can’t demonstrate that the franchisees at the unit level are actually making money. There are three necessary components to driving up ULE in any franchise network. First, you have to improve the financial acumen of the franchisees by educating them, helping them understand that their profit-and-loss statement and balance sheet actually provide “management intelligence,” not just financial data. The second component is benchmarking, which I elaborate on below. The final component is the “performance group” model, which holds individual franchisees accountable to each other to drive up their own profitability and cash flow. It’s not enough to know how well your business is doing now. Hopefully, you are meeting the minimum acceptable standards for financial reporting today: an income statement and balance sheet delivered to you on the 15th day following the close of business of the previous month, every month. Also hopefully, you actually take a look at the information that’s presented to you and know if you’re making money, losing money, have positive or negative cash flow, and have a clear understanding of your risk level as you operate your company. However, this is not enough! How well could you do?

This is where a benchmark study becomes very valuable to individual franchisees and to the network as a whole. A benchmark study is a financial “snapshot” of a franchise network that allows individual franchisees to compare their operations with others of similar size and type. A benchmark study report helps franchisees

answer important questions. • How much more money could I make if I managed my cost of goods as efficiently as my peers do? • How does my operating profit compare with others of my same size and longevity in the network? • What specific action plans can I put in place to get my numbers in line with the profit leaders? • How do my cash flow and liquidity levels compare with those of others? • How much more cash would I have if I managed my receivables as well as my peers do? • Am I making the most efficient use of my assets and equipment? Benchmark studies contain performance ratios that focus on the financial relationships in a business, rather than just on absolute numbers, such as annual sales. In almost every benchmark study we produce, the annual sales leaders are not necessarily the most profitable businesses. In our benchmark study model, we provide two reports back to the network. The first is the Group Report, which lays out the entire network’s profitability, measuring the typical operator against the top 25 percent. This gives the entire network a clear picture of where the opportunities are in a number of different financial management areas. The second report is what we call the confidential Company Consulting Report. This report lays out the specific financial information of an individual operator against the typical operator and top 25 percent—and provides specific direction as to where the owner needs to focus their management attention to drive up their financial performance to match the top 25 percent. Case in point!

We recently completed the first benchmark study for a small emerging franchise network. This is a “man in a van” concept with a fairly simple business model, using rolling stock as their primary asset. The report presented a “typical” participant

measured against the “high profit” operators, and the results were stunning. Using round numbers: • The high-profit leaders were not the highest sales operators. • The high-profit leaders, however, had a 6% differential in gross margin over the typical operator. • The high-profit leaders had an almost 3% differential in operating expenses over the typical franchisee. • Finally, and most important, the typical operator had an owner’s discretionary profit of 12%, compared with 22% for the high-profit operators. What made the difference?

Paying attention to labor costs, monitoring employee hours, double-checking quotes to make sure jobs are priced properly and employees are not offering unauthorized discounts, making sure that your jobs are scheduled properly for maximum efficiency of labor and expenses—all these, and more, add up to the difference between a typical operator and a high-profit franchisee. The benchmark study clearly provides the direction and focus that enables a franchisee to go from being just average to highly profitable. And, let’s be honest, who do you think is happier: the franchisee making $60,000 a year, or the one making $150,000 a year (owning the same kind of business)? Benchmarking is one of the tools that enables franchise networks to achieve those results. Contact me to see a sample of both studies. Rod Bristol is executive vice president at Profit Mastery. For over 30 years, franchisors and franchisees have improved their financial performance and unit profitability by following the Profit Mastery process: financial training, benchmarking, and accountability/ bankability modeling. Learn more at www. profitmastery.net, 800-488-3520 x13 or email bristol@brs-seattle.com.

MULTI-UNIT FRANCHISEE IS S UE IV, 2016

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InvestmentInsights BY CAROL M. SCHLEIF

Through the Looking-Glass Brexit’s impact on investing is still to be determined “If I had a world of my own, everything would be nonsense. Nothing would be what it is, because everything would be what it isn’t. And contrary wise, what is, it wouldn’t be. And what it wouldn’t be, it would. You see?” —Alice in Wonderland

n the wake of a vote to exit the European Union, U.K. citizens made it clear that “status quo” was no longer acceptable. While the vote caught many off guard, it seems to sync with all the other seemingly incongruous events transpiring around the globe: attempted coups, unexpected twists and turns in a contentious U.S. election cycle; more than one-third of global bond yields in negative territory—even while stock markets hit new highs. Nothing seems as it should. This column outlines potential implications for near- and longer-term psyches, economies, and markets and offers a few pointers investors can consider in what feels like a surreal trip through the “looking-glass.” Brexit background

The Brexit vote and its immediate aftermath taught two core lessons: 1) the potential for market volatility remains high; and 2) it’s vital to have a clear investment philosophy and plan ready to take advantage of that volatility. The vote did not go as most investors expected, leading to substantial market volatility. After the initial shock, most equity segments quickly traced a path to new highs with a surprising breadth of participation and a decided “risk on” bent. Rising stock markets theoretically imply optimism in the economic future. Oddly enough, investors continue to pile into fixed income, which would suggest the expectation of softening global economic prospects and/or global recession. While aggregate S&P 500 earnings were predicted to fall for a fifth consecutive quarter, those results were largely energy-related, and incorporated into investor psyches long ago. Further, investors remain fixated on the potentially stimulating effect of continued global central bank intervention. Investor psyches are still tainted by

2008, but the Brexit vote will not likely usher in another 2008. Central bankers stepped into the markets with more tools; corporations had been contingency planning for weeks; and the global financial system was in much sounder shape with more-liquid positions and cleaner balance sheets. Corporate cash is in the trillions and the U.S. personal savings rate has recently risen to multi-decade highs above 5 percent. These factors augur well for the stability of the global financial system. These underpinnings were all visible during the Brexit volatility.

from emerging Southeast Asia and China, in contrast to 1985 when two-thirds was generated by North America, Europe, and Japan. The unknowns introduced by Brexit could accentuate this pivot toward emerging markets. The biggest issue for investors is that those markets have relatively less developed capital, regulatory, and geopolitical infrastructures. This creates the potential for more volatility in the short run, even though demographics and economic progress may have more growth potential.

Near-term implications

At Abbot Downing, our focus is on managing risk. We work closely with clients to insure that cash flow needs are met from regular sources (dividends, fixed-income holdings, etc.) that typically don’t change, even with market volatility. Our belief in and use of globally diversified portfolios helps cushion in volatile markets and can provide participation in segments that move up even before investor comfort or fundamentals would seem to dictate. In general we are able to take advantage of volatility, such as that created in the days following the Brexit vote, to invest sidelined or new cash and rebalance portfolios to overarching and long-term targets. Our approach is to actively look through the emotion of the moment, to cut back on investments that have become overweight and/or overvalued, and to reinvest in others that may have overly discounted a more dire-than-likely future. As we have witnessed time and again in our multi-decade history, markets will always be subjected to the unexpected. The trick is to be prepared, be nimble, and have a keen focus on a long-term plan—just in case things get “curiouser and curioser”!

The U.S. economy and demographics are in solid shape. We do not expect this vote to lead to a global economic downturn, though things could get messy in the EU and peripheral countries until it’s all sorted out. Just because the vote was to leave doesn’t ensure it will happen automatically—although the timing of David Cameron’s exit and the selection of Theresa May as the U.K.’s new prime minister helped calm markets as it happened much sooner than expected. The interim series of unknowns could keep businesses on edge for the foreseeable future, slowing the pace of business in the U.K. until more clarity emerges. In the two weeks after the vote, the British pound fell 13 percent. It fell from a high level, though, after rising during the two weeks preceding the vote. The significant downward adjustment in the U.K. currency relative to the U.S. dollar and the Euro makes British exports more attractive to external end markets and could boost the U.K.’s tourism business. The flip side for British citizens is that their imports just got more expensive, introducing heightened inflation even as the Bank of England’s toolkit is more restricted. Intermediate to longer-term

While this, of course, is an important event, the economic influence that developed markets in general play on the world stage has lessened substantially in the past 30 years. According to IMF data, two-thirds of global GDP is now generated

Balanced investment approach

Carol M. Schleif, CFA, is regional chief investment officer at Abbott Downing, a Wells Fargo business that provides products and services through Wells Fargo Bank, N.A. and its affiliates and subsidiaries. She welcomes questions and comments at carol.schleif@abbotdowning.com.

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ExitStrategies

BY DEAN ZUCCARELLO

Let’s Make a Deal! The do’s and don’ts of successful transactions

n nearly 30 years since founding The Cypress Group, I have encountered a multitude of client types on both the buy and sell sides. While the unique circumstances of each deal can vary significantly, a number of common threads can make or break a divestiture or acquisition. Here are some “do’s and don’ts” of successfully managing a transaction from both the buyer and seller perspectives.

sellers of large, stable QSR brands on how to evolve their development, marketing, and training infrastructure to adopt a fast casual development agreement. The two businesses are certainly similar, but the infrastructure needs and cash flow planning vary, particularly in the early years. Also important is that all post-sale planning should happen in conjunction with your decision to sell. This way you know up front if you’re trying to sell all

Seller do’s and don’ts

As a seller, do develop a transaction philosophy, and do map your game plan and stick with it. Don’t waffle and fall victim to indecision or a significant change in mindset.

• Decisiveness. When it comes to being a successful seller, decisiveness is key. It is imperative to thoroughly contemplate all the major decisions that may come into play in a sale process. This way, you and your working group have a shared philosophy and action plan to respond to both the known and unknown. Indecision or deviating from a planned course is one of the top reasons transactions fail, as it can lead to reevaluating, renegotiating, and re-trading. As a seller, do develop a transaction philosophy, and do map your game plan and stick with it. Don’t waffle and fall victim to indecision or a significant change in mindset. • Post-sale planning. It is critical to have a post-sale plan in place. The best way to establish your plan is to answer the following question: “Why am I selling right now?” The answers to that question are numerous, but are led by one or two strong desires. Let’s say the answer is you are ready to retire. A retiree’s post-sale plan should focus on wealth and life stability. Have you worked with your advisors and tax counsel to understand valuation, net proceeds, and other sources of funds so you are able to maintain a safe, stable cash flow to live your life comfortably? A multi-brand operator might be selling to focus on a different aspect of their business. Are you divesting one brand to concentrate on another? If so, your postsale plan should address how your operating platform must evolve to sustain an alternate business model. We’ve advised

of your assets or if it makes more sense to retain some. Do understand your post-transaction operational and financial picture as part of the decision process. Don’t go into a sale blindly and unsure of your future plan. •Know your franchisor. If you are a franchisee looking to sell your restaurant assets, it would behoove you to be aware of your franchisor’s growth and acquisition strategy. Is your franchisor currently selling company-owned restaurants, acquiring franchisees, or developing new units themselves? Are they looking to bring new franchisees into the system or expand with existing ones? Even if the answers to these questions are not perfectly known, a thoughtful analysis of your business geographies, operational and financial metrics, and development

rights will help you prepare for the franchisor’s reaction. It is in your best interest to be well versed in your franchisor’s approval guidelines and expansion plans and select a buyer accordingly. Do know your transfer rights, and do be aware of what makes a buyer attractive to your franchisor. Don’t let the franchisor dictate your process, and don’t select a buyer that won’t pass their approval process or provide them leverage to force an alternative that is less than ideal. • Identify and own potential problems. It is almost impossible to operate a multi-unit restaurant business without experiencing some issues over time. Store closures, lease expirations and assignment issues, specific unit performance problems, environmental issues, and more will affect your business at some point. It is understandable to want to mask any struggles your company has experienced, but it is crucial to resist this urge. Any problems concealed initially will surely be transparent during due diligence, which discourages the buyer and hinders the transaction process. A constructive business issue identified late in a transaction is more punitive than if articulated in advance. Do have any business, operating, and legal issues identified, and do have a plan for addressing them before bringing a transaction to market. Don’t ignore problems and think prospective buyers won’t identify or overlook them. Buyer do’s and don’ts

• Decisiveness. As with sellers, it is imperative that buyers operate in a direct and decisive manner. This means establishing your target criteria before you begin looking at acquisition opportunities and sticking to that game plan. When confronted with the sheer breadth of options in the multi-unit restaurant business, it is easy to get distracted. Instead of running yourself ragged looking at every deal in the market, set yourself up for success by knowing exactly what you are seeking. If you find casual dining concepts the most enticing, don’t waste your time and energy examining QSRs. Do decide which factors make a deal most compelling to you, and do center your acquisition strategy around these criteria. Don’t start actively pursuing transactions before you have a strategy in place. • Financing. Most people wouldn’t

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ADVERTISER PAGE go to the supermarket without knowing how they planned on paying. Not everyone applies this logic when they seek restaurant acquisitions. Buyers should establish strong relationships with various financing sources before they even begin looking at buy-side opportunities, so when the right deal comes around they aren’t scrambling to secure the acquisition capital. Further, a bid that details the buyer’s proposed debt/equity structure, with a signed commitment from a capital provider, is substantially more compelling to a seller than a bid lacking these things. Do have financing options in place. Don’t wait for a sell-side advisor to tell you your bid was interesting, but their client chose the buyer with more certainty around funding. •Know the franchisor. Whether you are an existing franchisee or not, it is vital to know the franchisor you will be dealing with. What is their current growth strategy? What kind of franchisee do they prefer? Are they trying to bring new blood into the system or bulk up the operating platforms of existing franchisees? This last question is crucial, especially if you are looking to enter a new brand. Before pursuing a specific opportunity, meet with the franchisor to discuss their approval process and present your operating plan and team. Transactions move far more easily and quickly when a buyer is preapproved and in good standing with the franchisor. Do establish this relationship early. Don’t wait until the bid process is complete to learn that the franchisor doesn’t view you as a viable buyer. • Be aggressive. In today’s market, restaurant acquisitions are highly attractive, making for an exceedingly competitive environment. Buyers must be aggressive. This is especially true when the transaction is the buyer’s initial investment in a brand. Existing franchisees may have built-in advantages (e.g., predicted synergies that allow them to make a higher bid, and/or having strong ties with the franchisor). New entrants be wary: you may have to pay a premium to tip that first deal in your favor. Buyers must always be prepared to move quickly as delays often cause sellers to become discouraged or reexamine the sale. Another way to anger a seller and potentially lose a deal is to delay the purchase process in

an attempt to re-trade at a lower price. If you’re actively looking to buy and you come across the right deal, do pursue it aggressively. Don’t dawdle and miss your opportunity. Do’s and don’ts for all

• Have proper advisors. Whether buyer or seller, engaging experienced, industry-specific investment advisors and transaction-specific legal and tax counsel is paramount to your success. Acquisitions and divestitures alike have many moving pieces that can seem overwhelming without proper counsel. To achieve the utmost success, enlist the help of people who know how to plan, position, and execute transactions to your benefit. The resources required to navigate the intricacies of a multi-unit restaurant transaction are considerable. Do hire professionals with proven insight and transaction expertise in the industry’s inner workings. Don’t rely solely on your everyday business advisors or attorneys. • Be realistic. This is possibly the most important concept in successfully completing a transaction. Both sides must be realistic about their expectations. If a seller is stuck on an unrealistically high purchase price or multiple, finding the right buyer will be a far greater challenge. On the flip side, it isn’t realistic for a buyer to propose a purchase price based on a 2009 transaction multiple. The most realistic thing for both parties is to recognize that every transaction is a constantly moving, two-way street. If you want a deal to be successful, the negotiated terms must be satisfactory to everyone involved. Do view transactions in an objective and realistic manner. Don’t rely on subjective inclinations or conjecture. Dean Zuccarello is CEO and founder of The Cypress Group, a privately owned investment bank and advisory services firm focused exclusively on the multi-unit and franchise business for 25 years. He has more than 35 years of financial and transactional experience in mergers, acquisitions, divestitures, strategic planning, and financing in the restaurant industry. Contact him at 303-680-4141 or dzuccarello@cypressgroup.biz.

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2017 MUFC

IBC

7-Eleven, Inc.

Aaron's, Inc.

American Family Care / Doctors Express Arby's Restaurant Group, Inc.

19 9

Batteries Plus Bulbs

Big O Tires

Blue Coast Burrito

Broken Yolk Cafe

Capriotti's Sandwich Shop

Captain D's

Checkers 21 Club Pilates

Del Taco

Denny's 3 Dunkin' Brands

Earl of Sandwich

Entrepreneur Media, Inc.

Farmer Boys Food Inc

Feed America

Firehouse Subs

FRANdata Corporation

Fuddruckers Inc.

GNC 39 Golden Corral Buffet & Grill

Huddle House, Inc.

Hungry Howie's Pizza

International Franchise Association

Liberty Tax Service

Lift Brands

Marco's Pizza

MassageLuXe 5 McAlister's Deli

Custom Insert

Miami Grill

Midas International Corporation

Moe's Southwest Grill Nekter

11 Back Cover

OXXO Care Cleaners

Perkins Restaurant & Bakery

Rent-A-Center 49 Save-A-Lot Food Stores

Schlotzsky's Bakery & Cafe

Scooter's Coffee & Yogurt

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SPEEDEE OIL CHANGE & TUNE-UP

Steak n' Shake Taco Bueno

33 IFC

The Coffee Bean & Tea Leaf

Tide Dry Cleaners

Wireless Zone ZIPS Dry Cleaners

2 47

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FranchiseMarketUpdate BY DARRELL JOHNSON

Call to Action Franchising must act to fix its own problems

s a farm boy I learned common sense through experience. For instance, overloading a wheelbarrow could reduce back-and-forth trips, but at some point the wheelbarrow became too hard to balance and tipped over, defeating my intended purpose of less work. Today businesses are confronted with a litany of political stances on top of regulatory and legislative actions that are making it hard to keep the business wheelbarrow balanced. While we debate the merits of individual issues, the sheer number is concerning, creating a lot of business uncertainty, and likely setting the stage for an economic downturn. On a basic “American values” level, raising the minimum wage makes excellent sense. We all want people to succeed, and paying them more helps them do so. Raising the exemption minimum regarding overtime regulations has a basic fairness argument in it. Even the joint employer issue has some common-sense elements to it. Unfortunately, lost in all these initiatives of what I’ll generously call “good intentions” is that each change has consequences, because each change has a context. For instance, minimum wage mostly affects workers with no relevant skills or experience. They get training and gain experience on the job, two things not usually recognized in the minimumwage debate. The government is willing to support education loans that put unskilled and inexperienced people in debt, but it does not recognize the value that technical training in a franchise, for instance, provides workers—while they are getting paid. Basic American values also include allowing the engine of economic growth, capitalism, to succeed. The business community can adjust to any one of these changes, but the combination is much more daunting. Then there are the Dept. of Labor decisions that are clearly intended to serve a union constituency, such as ambush elections and persuader advisor activity

reporting. It is very difficult to call these good intentions with such obvious blatant political overtones. France is trying hard to extract itself from the union grip that has depressed decades of business investment. With a weak recovery by any historical measure, we’re confronted with piling all these initiatives into what is now becoming a very heavy economic growth wheelbarrow.

Maybe it’s time for the multi-unit community to offer a collective voice on basic franchise agreement control provisions for the sake of strengthening the business model. The unintended consequence of so many objectives at the same time is business uncertainty. Uncertainty forces all of us business owners into hesitation to take the investment risks that will grow our business and the economy. That becomes very obvious when you look at the capital investment and productivity numbers over the past 10 years. Two questions

With the political landscape defined for the next few years, we are still left with two questions: 1) What caused franchising to be in the target zone for so many actions?; and 2) What can we do about it? To the first question, I believe franchising was less a target than it was a combination of PR mistakes by all of us and a gradual shift in the franchisor/franchisee balance toward franchisors over several decades. If we want to get away from a continuing barrage of government-induced

challenges, we need to solve these two issues, which will take time. The consequence of the PR mistakes are becoming very clear: few people— including legislators and the media, unfortunately—understand how the franchise business model works and therefore promote actions that undermine it. Aziz Hashim, former Multi-Unit Franchising Conference and current IFA chair, drives that point home by noting that the vast majority of the millions of franchisee employees think they work for the brand, not the franchisee entity that pays their salaries. Overcoming that PR challenge will take time, but acknowledging its existence and developing a longer-term PR plan are our shared responsibility, and efforts are beginning. The gradual shift in the franchisor/ franchisee balance has been going on for more than 15 years. As I noted in a previous article, franchise agreements have slowly and consistently been strengthened in favor of franchisors. During this time, FRANdata has reviewed more than 1,000 franchise agreements a year for SBA affiliation eligibility purposes, so we have a pretty good vantage point to observe how contractual agreements have evolved. I am not taking a position about whether this is good or bad, but I will say that it can be argued that one of the unintended consequences of this shift in control has been the dramatic rise in franchise-related state legislative initiatives and federal regulatory actions. Multi-unit operators have an ability to address this shift in balance. Whenever I ask an experienced multi-unit franchisee if they accept the standard franchise agreement terms a franchisor offers them, they invariably say, “Of course not.” Maybe it’s time for the multi-unit community to offer a collective voice on basic franchise agreement control provisions for the sake of strengthening the franchise business model we all benefit from. Darrell Johnson is CEO of FRANdata, an independent research company supplying information and analysis for the franchising sector since 1989. He can be reached at 703-7404700 or djohnson@fran data.com.

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*As disclosed in Item 19 of Nékter Franchise, Inc.’s 2016 Franchise Disclosure Document. The above figure reflects the average for the 7 franchised locations that opened before January 1, 2015 and operated for the full 2015 calendar year. 57% of these franchised locations met or surpassed the average. The results for new locations may differ from the represented performance. There is no assurance that you will sell as much. This is not a franchise offering. An offering is made by Franchise Disclosure Document only.

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