World Franchise magazine by ThinkBig International

YEAR

01 no 01 APRIL 2012

Franchise culture magazine

WORLD NEWS | FRANCHISE EVENTS | FRANCHISE STORIES | FRANCHISE ADVICE

New jobs at Subway | Burger King delivers | Pizza Hut seeks master | YUM! exapands in Africa | Buying a franchise

Howard Schultz

A MAN ON A MISSION

Editorial

World Franchise magazine April 2012

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FRANCHISING IS NOT JUST A BUSINESS. FRANCHISING IS AN opportunity. AND WE CAN HELP.

GOOD BRANDS. GREAT BUSINESS.

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franchise news

10 25.000 new jobs at Subway 14 Papa Johnâ&#x20AC;&#x2122;s expands family 18 McDonaldâ&#x20AC;&#x2122;s extends Olympic sponsorship 22 Ikea profits rise 10% 28 Bakers delight eyes expansion 37 China to boost its franchise market

franchise events

42 Franchise event calendar 2012 44 Franchise expo Paris 46 International Franchise Expo NYC 48 West Coast Franchise Expo

World Franchise magazine April 2012

cover story Schultz: a man on a mission

franchise stories

He rescued the coffee chain. It had record financial results last year. Now the CEO is on a campaign to save USA from its politicians. Hereâ&#x20AC;&#x2122;s how Howard Schultz blends capitalism and activism.

Back in September 2011, two days before Barack Obama delivered his speech to Congress on jobs, he put in a call to Howard Schultz, the chairman and CEO of coffee king Starbucks.

58 British brothers take Illinois 60 Keeping it local in Texas 62 Franchisee explores Smoothie frontiers 64 The postman delivers 66 Changing sides: Walking the Walk 68 Developer Extraordinaire

franchise advice

72 Buying a Franchise or a Business Package 74 Know yourself. Then buy the franchise. 75 10 building blocks to success 76 Would your franchise system pass the stress test? 77 Donâ&#x20AC;&#x2122;t buy without a marketing machine

World Franchise magazine April 2012

News US

25,000 NEW JOBS AT SUBWAY

he Subway restaurant chain, based in Connecticut, projects it will add 25,000 full- and part-time jobs by the end of 2012. The estimate comes after the company announced it expects to open 2,500 new outlets this year. The 2012 forecast is similar to the chain’s 2011

accomplishments, in which it opened more than 2,400 restaurants worldwide and created approximately 24,000 new foodservice jobs. Early in the year, Subway surpassed McDonald’s to become the largest global QSR chain in the world. The jobs projection for 2012 does not include ancil-

lary fields, such as construction, logistics, equipment manufacturing, food processing and maintenance. “Although we have become the world’s largest restaurant chain this past year, it’s more about the opportunities than the numbers,” said Don Fertman, chief development officer. “With each

new Subway restaurant that opens, there is an entrepreneur that wants to own and operate his own small business and provide great food, exceptional customer service and job opportunities in his or her community.” Subway is 100-percent franchised. The brand exists in 98 countries.

VooDoo BBQ expands

Friendly’s closed 37 stores

VooDoo BBQ & Grill, a Louisiana-based barbecue restaurant franchise that grew spectacularly in 2011, intends to continue its expansion in 2012 with a series of new development agreements, grand openings and a new look for the restaurants themselves. “VooDoo BBQ had an exciting year in 2011, and we plan to build on that momentum in the new year,” said CEO Tony Avila. “We’ll be opening our first locations outside Louisiana early in 2012, and we’re optimistic that it will lead to franchise opportunities in exciting new markets. Diners can expect brighter, airier, more open restaurant buildings, too.” VooDoo opened its first location in New Orleans on Mardi Gras Day 2002 and has expanded to reach 53 planned locations in six states. ■

The Friendly’s restaurant chain closed 37 stores in Massachusetts, Connecticut, Rhode Island and elsewhere as it emerged from Chapter 11 bankruptcy reorganization. Friendly Ice Cream Corp. said each store closed employed about 20 people, meaning about 740 jobs were lost. The company closed 10 stores in Massachusetts, nine in Connecticut, and 18 elsewhere on the East Coast after failing to renegotiate lease agreements with landlords whose rents it said did not reflect market conditions. The 76-year-old company known for its ice cream and hamburgers says 380 stores remained open. The Wilbraham, Mass.-based firm filed for bankruptcy protection in October 2011 after closing 63 stores and eliminating about 1,260 jobs. ■

World Franchise magazine April 2012

News US

BK tries home delivery

urger King, the No. 2 burger chain, has quietly begun testing home delivery of its burgers, fries and other sandwiches since fall at four of its restaurants in the greater Washington, D.C., area, with an eye on expanding beyond that. Should home delivery catch on for the burger giants — as it has for the pizza kingpins — it could be an industry changer. But it runs counter to long-held consumer perception that fast-food burgers and fries travel poorly — and don’t warm up well in the microwave. It also would require millions of hungry folks to change their at-home eating habits. “There are some real food-quality issues here,” says Ron Paul, president of research firm Technomic. “But there’s no question that consumer expectation for having things delivered has risen.”

In some markets, Amazon can deliver books the same day they’re ordered. Groceries are increasingly being delivered. And retail giants, including Sears and Target, even offered home delivery of fresh-cut Christmas trees. In an electronic age of instant everything — when millions of consumers expect to get what they want at the click of a button — the logic may seem sound. But what about those soggy fries and limp burgers that folks fear go hand-in-hand with home delivery? Well, Burger King has developed a “proprietary thermal packaging technology,” says Jonathan Fitzpatrick, chief brand and operations officer for Burger King, “which ensures the Whopper is delivered hot and fresh, and the french fries are delivered hot and crispy.” There’s a $2 delivery fee. And depending on the store

(three in Maryland and one in Virginia), minimum orders vary from $8 to $10. The stores try to deliver within 30 minutes of the time a phone or online order is received. Delivery customers must live within a 10-minute drive of the store. All soft-drink orders are in bottles. And breakfast items are not delivered. Delivery times are 11 a.m. to 10 p.m. McDonald’s has two

restaurants in Manhattan that offer delivery only to businesses. But there are no plans to expand the service, spokeswoman Ashlee Yingling says. And Domino’s, whose business is 70% delivery, is watching — with a smile. “We wish them luck,” spokesman Tim McIntyre says. “There is a reason that not all pizza places deliver: It isn’t easy.” ■

World Franchise magazine April 2012

News US

QUIZNOS LAWSUIT SETTLES

hree dozen franchise owners in Allegheny, Beaver, Lawrence and Westmoreland counties have apparently settled their racketeering lawsuit against Denver-based Quiznos. U.S. District Judge Lisa Pupo Lenihan today approved a joint motion to dismiss the case. The motion

doesn`t provide details of the settlement. Lawyers for both sides and a company representative couldn`t be reached for comment. The owners of the local restaurants claimed in a 2008 class-action lawsuit that the company engages in several business practices that generate profits for the

Pet Supplies Plus acquires its largest franchisee Farmington Hills-based Pet Supplies Plus has acquired its largest franchisee for an undisclosed amount. Co-owners Dave McQueen and Andy Monas, who sold their franchise back to Pet Supplies Plus, had managed 12 stores in northeast Pennsylvania, built up over the past 16 years. Those stores together represented not only the largest Pet Supplies Plus franchisee but also one of the best-managed franchise operations in its network, Pet Supplies CEO Dave Bolen said in a release. Pet Supplies Plus, which was acquired by Irving Place Capital in 2010, claims to be the third-largest pet specialty retailer in the U.S., with 258 stores in 22 states. â&#x2013;

World Franchise magazine April 2012

company while driving the local franchises into bankruptcy. In particular, the lawsuit claimed the company issues coupons for free or discounted sandwiches but doesn`t compensate the franchises for the lost revenue, requires franchise owners to buy products they don`t need

and from suppliers who can charge high prices because they have exclusive contracts with Quiznos. The company denied the franchise holders` claims.

News US

Ruby Tuesday looks to boost brand perception R

uby Tuesday Inc. must increase television advertising to drive consumers into the company’s upgraded restaurants and reverse sagging same-store sales, executives said during a conference call with analysts. The Maryville, Tenn.-based operator and franchisor of casual-dining restaurants released results for its fiscal 2012 second quarter, reporting a net loss of $2 million, or 3 cents per share, compared with net income of $4.6 million a year earlier. Ruby Tuesday said samestore sales at company-operated restaurants declined 4.2 percent for the quarter, compared with a 4.2-percent increase in fiscal 2011’s second quarter. That marked the third consecutive period of comparable sales erosion despite chain efforts to upgrade its menu, service and ambience above those of its peers in the competitive grill-and-bar segment. “We continue to focus on taking costs out of our business — and we do an excellent job in this area — so we can invest in television and pay for a salad bar,” Ruby Tuesday chief executive Samuel E. “Sandy” Beall said. “We need to drive awareness and trial to help close the gap between brand [perception and] actual experi-

ence in our test markets.” Importance of trial Driving such trial is critical in light of the positive results from recent product, marketing and service-enhancement tests and ongoing initiatives, Beall said. “People who come in like Ruby Tuesday. People who haven’t come in, think of us as the old Ruby Tuesday [and] we’ve got to change that,” Beall said. TV Talk A variety of television advertising strategies were tested recently in 11 markets, Ruby Tuesday officials said, and in three of those markets sales grew by high single-digit percentage amounts. Guidance revised Beall and members of his executive team also relayed to analysts their confidence in the company’s fledgling conversion program to the Marlin & Ray’s full-service seafood concept and development of the licensed fastcasual Lime Fresh Mexican Grill concept. Balance sheet maneuvering The company has identified at least $15 million to $20 million in savings from its cost savings initiatives to fund additional marketing dollars, Beall said. ■

World Franchise magazine April 2012

News US

PAPA JOHN’S EXPANDS FAMILY LOUISVILLE, Ky.--After another strong year of growth, including opening its 3,000th restaurant in North America, Papa John’s is again offering franchisees an enticing package of incentives to grow within or join the Papa John’s family. Under the company’s 2012 Development Incentive Program announced today, qualifying restaurants opening in the U.S. in 2012 under this best-in-class program can receive: - No franchise fee ($25,000 value); - $50,000 in equipment, including two MiddlebyMarshall ovens, which the franchisee may purchase for $50 after operating for three years; - A royalty waiver for up to 18 months; and - A $3,000 food credit with PJ Food Service, which operates Papa John’s fresh dough and food distribution quality control centers, for

each restaurant that opens at least 30 days prior to the scheduled opening date. “Our brand is poised for continued growth in 2012,” said John Schnatter, Papa John’s Founder, Chairman and CEO. “We are proud to offer this Development Incentive Program to help franchisees grow with us and deliver our ‘Better Ingredients. Better Pizza.’ to an increasing number of consumers throughout the country.” The program is generally available for new U.S. unit development agreements signed by qualifying franchisees through Nov. 18, 2012, for new restaurant openings on or before Dec. 30, 2012. The incentives are subject to the complete rules and eligibility requirements of the program at the time of signing a development agreement. Full program details are available upon

World Franchise magazine April 2012

completion and review of a Franchise Application accessible at www.papajohns.com. Headquartered in Louisville, Kentucky, Papa John’s International, Inc. (NASDAQ: PZZA - News) is the world’s third largest pizza company. For 10 of the past 12 years, consumers have rated Papa John’s No. 1 in customer satisfaction

among all national pizza chains in the American Customer Satisfaction Index (ACSI). Papa John’s is the Official Pizza Sponsor of the National Football League and Super Bowl XLV, XLVI and XLVII. For more information about the company or to order pizza online, visit Papa John’s at www.papajohns.com. ■

Papa John’s is listed at NASDAQ as PZZA

News US

Dunkin’ plans to more than double US restaurants D

unkin’ Brands Group Inc. said it plans to more than double the number of its restaurants in the U.S. over the next 20 years. The company, which currently has nearly 7,000 U.S. restaurants, has garnered investor interest since going public in July through talk of expanding Dunkin’ Donuts westward in the U.S. from its Northeast roots and internationally. The parent of Dunkin’ Donuts and Baskin-Robbins also said its had signed a long-term agreement with its franchisee-owned cooperative National DCP to be its exclusive supplychain provider, a move that is expected to provide cost savings and service improvements.

The agreement is expected to support Dunkin’s domestic expansion plans by providing franchisees in newer markets with the same product costs as those in older ones, with the uniform product costs slated to be phased in beginning this year. Dunkin’ in November reported that it third-quarter profit slumped 61% as expenses from its initial public offering in July and the retirement of debt masked better-than-expected revenue.

Brick ovens heat up franchise sales for restaurant Coal may be blasted by environment-alists as a poor fuel choice, but it’s fueled the success of the locally based Russo’s New York Pizzeria and Russo’s Coal-Fired Italian Kitchen franchises. Buckets filled with 100 pounds of the stuff greet diners at the two restaurant chains. With 28 locations between them in three states and eight more set to open, the restaurants use almost 500 pounds of coal each day. “Real New York-style pizza is different because it’s cooked in these great brick ovens,” chef and founder Anthony Russo said. “It’s the kind of pizza you can fold in half because the bottom is crisp, but it’s cooked just right in the middle.” ■

World Franchise magazine April 2012

News US

Soup of the champions

asketball legend Shaquille O’Neal has 24Hour Fitness franchises, along with Five Guys Burger and Fries and a handful of others—“I don’t like to brag about what I have,” the 7’1”, 375-lb., former all-star told us—so why invest and become the pitchman for The Original Soupman? “I tasted it one day,” he said. “It’s a good product with a great team. My favorite is the lobster bisque... it has lobster chunks.” OK, we can see a big man like Shaq liking to put his money where his spoon is, but why did Baseball Hall of Famer Reggie Jackson join the board and become a spokesman for the brand? “I ate the chicken vegetable, the lobster bisque, the wedding soup,” Jackson says. “They’re all just so good. There’s no downfalls to me. It’s healthy.” Even actor Jason Alex-

ander, who was thrown out the Soupman’s store twice—once as George in the famous “Seinfeld” episode about the Soup Nazi and again in real life when Alexander tried to return to the restaurant after shooting the segment for a bowl of soup—wanted to get involved with the chain. Why? Because he liked the soup, according to Sebastian Rametta, executive vice president. But let’s not forget the celebrity who started it all, Al Yeganeh. Although he never liked the moniker that made him famous (and really, who can blame him?), the TV episode made his soup a celebrity outside New York City, where people routinely lined up and gratefully played by his posted rules: “Pick the soup you want; have your money ready; and move to the extreme left after ordering.” ■

World Franchise magazine April 2012

Even veteran Johnny Rockets franchisee Lloyd Sugarman jumped at the chance to be involved with the brand. Not only did he commit to open a number of units—he declined to confirm how many, saying, “I don’t like the pressure of

Shaquille O’Neal at the grand opening

five a year”—but he has already made a significant improvement to the brand by adding a premium sandwich line. The line will be adopted by new stores coming onboard. “That’s why you get food people (as franchisees),” Rametta points out.

News EUROPE

MCDONALD’S EXTENDS OLYMPIC SPONSORSHIP Fast food giant McDonald’s is to extend its sponsorship of the Olympic Games for another eight years until 2020. It is an International Olympic Committee (IOC) Top Partner, paying a reported $100m for each two-games deal of one winter and one summer Games. The new deal covers the 2014 winter Games in Sochi, Russia, and 2016 summer Games in Rio de Janeiro, Brazil. The 2018 winter Games will be held in Pyeongchang, South Korea, and the 2020 summer venue is yet to be decided. The company has been an Olympics sponsor since

1976. It is the seventh of the 11 top-tier sponsors to renew its partnership with the IOC until 2020. The others are Coca-Cola, Dow Chemicals, General Electric, Omega, Procter & Gamble and Visa. A further three firms have extended their sponsorship until 2016. It is estimated that the IOC has garnered about $1bn in sponsorship revenue in the current fouryear cycle which ends this year 2012. McDonald’s said the restaurant chain would use the extended partnership to introduce several new programmes “focused on balanced eating and fun play for children”. ■

World Franchise magazine April 2012

McDonald’s is continuing an Olympic partnership going back to 1976

News EUROPE

Pizza Hut seeks UK master T

he company that owns the Pizza Hut brand is looking for a UK Master Franchise for the restaurant chain. Yum! Restaurants International, which also owns KFC and Taco Bell, is looking for a Master Franchise Owner to take over the company’s 700 Pizza Hut restaurants in the UK with the potential of refranchising some to single unit franchise owners. A spokesperson for Yum! Restaurants International said: “Consistent with its strategy of focusing on high

growth, high return markets, Yum! Brands has decided to refranchise its entire Pizza Hut UK business and is seeking a single buyer to purchase its company-owned restaurants and to serve as a Master Franchise for the market. “The UK market is well developed and will benefit from a strong, growthoriented partner. Pizza Hut ranks as the UK’s favourite pizza and recently launched a re-branding campaign that has resulted in increased transactions and sales.”

Pizza Hut is owned by Yum! Restaurants International, among KFC and Taco Bell

Government support of export by franchising could benefit A new report by the University of East Anglia and supported by Franchise Development Services Ltd (FDS) has discovered that in countries such as the USA, Canada, Singapore and Malaysia government support provides a welcomed boost to exporting franchises around the world. To FDS 2012 is seen an Olympic year for franchising since the whole of the United Kingdom is a shop window for business, as well as for winning gold in the athletics arena. Should the UK government pick up some of the recommendations of this latest study, then there are huge benefits to the UK economy as international investors seek to take home with them golden opportunities. ■

FDS Financial Director Judy Seaman, FDS South East Franchisee Malcolm Porter & FDS Managing Director Roy Seaman CFE.

World Franchise magazine April 2012

News EUROPE

Franchising: As seen on TV

Martin&Co starts buying its own franchises

artin & Co has announced a new strategy, with its head office embarking on a purchase of franchisees’ businesses. The firm said it has ambitions to be its own biggest franchisee. Ian Wilson, managing director of the franchise lettings chains, said: “It’s the strongest possible signal we could be sending that we believe in the power of our own brand and in the longterm prospects for the UK lettings market by investing our own money in lettings businesses.” He added: “By guaranteeing our franchise owners a fair price for their business at the time when they want to sell, it de-stresses the whole sale process for them

in these uncertain economic times.” The first office is has bought back is in Worthing. Another four purchases this year are planned. It is the second shift of strategy in six months. Martin & Co operated a high street-only model until last summer when it started offering online franchises. It says it has so far recruited 14. This latest strategic direction shift means that Martin & Co will now be trading as a letting agent in its own right. Wilson said: “Well-run lettings businesses lack a ‘reverse gear’. We are very much looking forward to controlling our own offices directly and deploying all of the head

World Franchise magazine April 2012

office expertise and best practice know-how at our fingertips to increase their revenue and profitability.” He said Worthing became an obvious choice, as it is reasonably close to Martin & Co’s head office in Bournemouth and because the timing was right for the franchise owners. Martin & Co franchise director Scott Burgess said: “It can be a stressful period for franchise owners if they are ready to sell but do not have a buyer waiting in the wings. We could offer a fair price, and because we were funding the deal from cash reserves we could work to the seller’s timescales, without worrying about whether the bank would approve funding.

The British Franchise Association has announced that it will be working with PMG TV in their new series of “How To” documentaries to provide advice and guidance on franchising in the UK. PMG TV are an independent television production company behind the “HOW TO...” documentaries, to be broadcast across the Sky TV and BBC & ITV’s Freesat networks. They are currently producing a brand new documentary series entitled “HOW TO...Start your own business” which will be exploring franchise opportunities in the UK and the benefits of investing in an established brand and business model. The series launches on 29th April 2012 and PMG TV will be highlighting the role the BFA plays in relation to both promoting ethical franchising practice in the UK and helping the industry develop credibility. The bfa will feature in each of the shows to help provide objective advice to potential franchisees, as well as give further insight into the operation of the Association and its role as the single authoritative voice of UK franchising. Tom Endean, Marketing Manager of the bfa, said: “We are already fortunate to work with some outstanding exhibitions, newspapers, magazine, publishers and websites in the industry to help raise the profile of ethical franchising and provide sound objective advice. This new work with PMG TV will help the Association spread this message further and help even more people make the right decisions.” “We have been very impressed with the approach of PMG TV, especially as they are limiting case studies in the show to members of the bfa – further demonstrating their recognition of ethical franchising and the importance of our standards”. ■

News EUROPE

STARBUCKS PLANS EXPANSION IN GERMANY U.S. coffee shop giant Starbucks Corp. plans major expansion in Germany, CEO Howard Schultz said in an interview with a German newspaper. The number of German coffee shops will be “doubled or tripled” in coming years, he told German daily Handelsblatt. Starbucks’ German presence is relatively modest although Germany is one of the world’s leading coffee drinking countries. Starbucks has only 150 German coffee shops against 180 in Manhattan alone and a 17,000 branch global network, the report said. Starbucks is considering more local purchases of bakery products and other food in Germany closer to local

tastes, Schultz told the newspaper. Details would be given in the coming 12 months. Starbucks, which generates about 20 percent of its revenues from international markets, in July announced a reorganization to achieve its goals of generating half of revenues outside the U.S. Asked by Handelsblatt about the state of Starbucks’ European business, Schultz said: “Our business in Europe is still relatively healthy. In Germany the business is running good.” “But we can see very well that the world is currently very fragile and we are considering very carefully where and how we expand.” “In the next 12 months we will largely concentrate on Asia.” ■

World Franchise magazine April 2012

News EUROPE

Ikea profits rise 10% Swedish flat-pack furniture firm Ikea has unveiled a 10% rise in profits as emerging markets helped boost demand against a tough UK retail backdrop. The firm said sales grew 6.9% to 24.7bn euros (£20.6bn; $31.9bn) in the year to 31 August, with Russia, China and Poland performing strongly. The overseas growth, as well as cutting prices, helped profits rise 10.3% to 3bn euros. This came despite a 3% drop in UK sales to £1.15bn over the results period. To combat the sluggish UK retail market, Ikea said it lowered UK product prices by 5% across the home furnishings range compared with the previous year, and added 800 more products for customers to buy online, where sales grew by more than 25%. India plans Ikea opened stores in China, Germany, Italy, Norway, Russia, Switzerland and the US in the year, creating 4,000 jobs. The firm, founded in the 1940s, now has 287 stores in 26 countries. It plans to invest 3bn euro on its expansion plans this year and is considering its first move into India. The company also has plans to open further stores in China, Japan, Finland and Italy. Ikea’s chief financial officer, Soeren Hansen, said the fiscal year had been “a challenging period” but added that “being cost-conscious is part of the Ikea DNA”. “We’re fortunate to have the resources to safely navigate uncertain economic climates,” he said.

McDonald’s and Burger King offer gluten-free buns in Europe Although such a widespread rollout has yet to hit domestic stores, McDonald’s restaurants in Spain, Sweden, Finland and Norway now include gluten-free buns.

The blog Triumph Dining also found that Burger King offers a gluten-free bun in Scandanavia. McDonald’s Spain announced the addition of gluten-free buns in June. The company collaborated with the Spanish Federation of Celiac Associations (FACE) for the rollout. Gluten-free Appetite posted a statement from Patricia Abril, president and CEO of McDonald’s Spain, to introduce the menu item at more than 400 units throughout the country. “McDonald’s has a strong commitment to responsible nutrition and in this sense have always worked to tailor our products to the tastes and nutritional needs of our consumers. With the launch of bread suitable for people

World Franchise magazine April 2012

with gluten intolerance we take a further step in our commitment to responsible nutrition and hope that celiac patients not only found in McDonald’s a restaurant in which to enjoy and eat with total security and confidence, but thereby also contribute to increasing their options of leisure “ In the U.S., some QSRs have embraced the gluten-free diet, including Subway , which has been testing bread for more than a year. Burger King launched its BK Positive Steps campaign in 2010, which includes a glutensensitive menu . Wendy’s and Arby’s also both have gluten-free menus available on their websites, and Chick-fil-A’s extensive menu for those with gluten intolerance now includes its new kids’ meal with grilled chicken nuggets. According to Fortune/CNN , the number of U.S. restaurants with gluten-free menus rose 61 percent in 2011. ■

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News AFRICA

Yum! Brands to double KFC footprint in Africa Yum! Brands has plans to expand its KFC brand into seven more African countries throughout the year, adding 100 new stores. The company also plans to have 1,200 KFC outlets in Africa by 2014, according to the Wall Street Cheat Sheet . Last year, the brand opened in Zambia, Ghana and Kenya. This year’s target countries include Angola, Malawi, Tanzania, Uganda, Angola, Zimbabwe, Congo and Madagascar. Yum! Brands is investing $74 million for the expansion. Yum! also plans on introducing the Pizza Hut brand to South Africa within the next two years. African countries have been a recent target of growth for many retailers and restaurant chains, as the middle class is expected to increase to 1.1 billion people by 2060, according to the African Development Bank.

The Coffee Stop gives young BEE franchisees a head start Derek Smith, the managing director of Hot Dog Café and its subsidiary The Coffee Stop, creates small business opportunities for unemployed youth who do not have the key elements of business skills or financial capital. Adopting the same model that he uses for Hot Dog Café, Smith established The Coffee Stop with the objective of being an empowerment franchise, partnering with retailer Massmart and the National Youth Development Agency to assist previously disadvantaged young people in becoming small business owners. The training programme recruits 15 individuals from the local community who participate in a six-month training and mentoring programme, where they are taught to work in and

World Franchise magazine April 2012

manage every aspect of the franchise. A cadet is then chosen and awarded a 51 percent loan (assisted by the franchisor) to purchase shares in The Coffee Stop store in which they trained. The Coffee Stop also ensures that each franchisee has access to finance for his or her business loan and stands surety for the loan, while providing mentorship and coaching for the owner to ensure the success of the business. Accounting and financial support are also provided by the head office on a continuous basis until the franchisee has paid off the 51 percent loan and is comfortable with the financial management of the business. The Coffee Stop has grown steadily during its four years, with eight now in operation. To date no store has been closed since the first one opened in Nelspruit in 2007. ■

News AFRICA

Livestock services for small-scale farmers About 300,000 farmers in remote regions stand to benefit from more than 150 livestock service centres being constructed by a franchise. Sidai Africa Limited, a newly established social enterprise owned by Farm Africa, a UK-based charity organisation, is seeking to fill the gap left when the Government withdrew extension services due to tight budget. Managing director Anthony Wainaina said Sidai has built 16 franchises in North Rift, North Eastern, Kajiado, Narok and Garissa. “We should have opened more than 150 franchises in the country in the next three years,” he said. The

project is estimated at Sh500 million. The franchise model targets to deepen access to agro-veterinary services potentially improving the livelihoods of an estimated 300,000 smallscale farmers. The company is so far partnering with Coopers Kenya, Unga Feeds, Twiga Chemicals, Ultravetis and Kenchic among others. The model seeks to provide drugs and advisory service and equipment at affordable prices. Weak demand in rural areas has seen professionals keep away, leaving quacks to have a field day. The enterprises target to initially focus on areas that

have traditionally failed to attract professional veterinary extension services. “Through these franchises, we are not only creating a link for small scale farmers to eneable them to access equipment at affordable prices but offering other quality extension services necessary to raise healthy and productive livestock”, he said. Small scale farmers contribute significantly to the dairy sector and collectively account for more than 60 per cent of milk deliveries. Shortage of experts has hurt the growth of the sector, a situation partly bred by the dwidling numbers of students enrolling for

veterinary courses. There was a 28 per cent drop in the total number of students studying agricultural courses between 2009 and 2010, hitting service provision and production by smallscale farmers. The firm says it will hire qualified staff as the key to the survival of the concept. Students taking the courses at Egertone University dropped by a third from 3,101 in the year 2009 to 2,017 students in 2010 while at Moi University the drop was at 40 per cent to 821 students. Mr Wainaina says the franchise model will help get profits to sustain the services in the long-term. ■

World Franchise magazine April 2012

News AUSTRALIA

Ben & Jerry’s searches for young, “cool” franchisees US-based ice cream brand Ben & Jerry’s is looking to expand its Australian network by opening a series of franchisee-owned stores, describing its ideal franchisee as someone “cool” aged 18-35. Ben & Jerry’s, which already has six local outlets scattered across Sydney, Melbourne and the Gold Coast, is about to open its first franchisee-owned store in the Sydney suburb of Chatswood. According to Ben & Jerry’s brand manager Johnny Hammond, the Chatswood store is “an important first step” of the company’s franchise strategy for Australia.

“We’re looking forward to increasing our footprint in this area as we enter our third year Down Under,” Hammond says. Ben & Jerry’s is on the hunt for franchisees to operate in Sydney, Melbourne, Brisbane, the Gold Coast and Canberra, although it’s unknown how many franchisees the company will recruit. “Our rollout plan only allows for stores in key high-traffic locations with day and night trade,” Hammond says. Nick Prohasky, general manager of the Ben & Jerry’s Australian operation, says the network’s survival isn’t reliant on its expan-

World Franchise magazine April 2012

sion, so store openings won’t be rushed into. “It’s all about bringing the brand experience to the customers,” he insists. “The essence is a 360-degree brand experience, and we’re looking for brand beacon locations. It will be a controlled and measured rollout… We know how to do it.” Ben & Jerry’s joins a long list of ice cream franchises operating in Australia, including Baskin Robbins, Cold Rock Ice Creamery, Tasti D-Lite and Trampoline, just to name a few. However, Hammond is confident Ben & Jerry’s will be able to compete based on the laidback lifestyle of

Australian consumers. The brand is also well known for the nature of its product. “We’re the third largest ice cream market in the world. We love our ice cream and we love choice. We feel there’s enough room in the market,” he says. “What brings people in is [Ben & Jerry’s] chunks and swirls. We use quality ingredients and no emulsifiers. And the product is made in a sustainable way.” Hammond describes the ideal Ben & Jerry’s franchisees as “18-35-year-old cool hunters or flavour explorers”. For a full turnkey operation, the investment range is $350,0000-$500,000. ■

News AUSTRALIA

Stan Gordon is expanding his franchise businesses S

tan Gordon admits he is hungry. And he is not just talking about sampling the ice cream from the outlets covered by his brand management business, Franchised Food Company. He has an insatiable appetite for expansion with the company overseeing around 150 outlets from the Gold Coast to Fremantle. As the boss of FFCo, he is always sniffing out opportunities. Mention any of the franchise operations that have struggled during the economic downturn and it is likely he has been trying to cut a deal. When franchises such as Cookie Man, BaskinRobbins and Souvlaki Hut hit the skids he put his hat in the ring. “We tried to negotiate with the administrator to buy Cookie Man. We couldn’t come to an agreement and it was sold to an associated party. It was disappointing,” he says. He has also chatted to three ice cream chains about selling. None are on the market but he believes everyone has a price. “I always say that everything is for sale, except my children,” he says. Mr Gordon emigrated from South Africa in 1996, having worked in promotions at ad

agency Ogilvy & Mather and in franchising. “My security guard was murdered in front of my wife and two children who were aged one and three,” he says. He was overseas on business at the time. The incident prompted the shift to Australia. He divested himself of much of his South African business interests, including equity in Pies for Africa. The business had a philanthropic thrust, and was set up in consultation with the Mandela family, to assist black entrepreneurs. Coming to Australia, he also tried to sell pies, which he admits was ill-advised. “I thought Australians did not know anything about pies, but I was wrong, there was a brand called Four N’Twenty which I did not realise was so big,” he says. He cut his losses, closing Pie Works, and set about acquiring some other brands. In 2000 he bought the rights to Mr Whippy which had some retail outlets in northern states. While most of us associate the name with ice cream trucks playing Greensleeves, he says the trucks are not actually Mr Whippy. These operators are theoretically breaching his trademark, but he says he is not about to pursue every Mr

Zippy or Mr Yippy doing the rounds. “Those blokes have to make a living, too,” he says. Instead, he plans to colocate Mr Whippy ice cream outlets with other complementary products. In 2005 he acquired Pretzel World, followed by Cold Rock and more recently Nutshack. Underpinning each acquisition is the need for the outlets to be fun, interactive experiences. “It has to be theatrical and staff have to be out there engaging with the customer,” he says. Cold Rock, for instance, allows customers to choose from up to 50 flavors and up to 100 mix ins which are then “smashed up” on a cold slab. There are 3000 possible combinations. Mr Gordon says he negotiated for 18 months to snare the brand. There are now 106 with plans for 100 more within the next three years. In the longer term, Mr Gordon does not see a place

for franchises offering ice creams without the theatrics. The future, he insists, is the co-location of two different brands, offering a summer and winter product, or a main course and dessert. Cold Rock has done a deal with the Souvlaki Hut to colocate mini ice cream outlets. Another scheme will see small Cold Rocks in Video Ezy stores. Visiting a new Hawthorn Cold Rock/Pretzel World outlet, Mr Gordon says colocation is an ideal way to manage back of house costs and spiralling rent. He blames greedy landlords for stunting the expansion of franchise operators. “I try to be fair. I like to believe that everyone needs to make a dollar, but landlords can’t gouge tenants,” he says. While discretionary spending has taken a hit, he says the ice cream side of the market has held up well. “People might not want to take their family out for a dinner but they will take them out for an ice cream,” he says. ■

World Franchise magazine April 2012

News AUSTRALIA

Bakers Delight eyes expansion

akers Delight has forecast growth in its franchise numbers and market share as its bucks the wider retail trend. The Australian owned baking company has targeted 100 new franchises in Australia by the end of the financial year. “In FY11 we took on 50 per

cent more franchisees than in previous years - in FY12 we’ve already exceeded expectations,” chief executive Lesley Gillespie said in a statement. Bakers delight was established 31 years ago and currently has over 700 bakeries across Australia, New Zealand and Canada.

Fastway supports brand refresh with improved app Courier franchise, Fastway Couriers, is complementing its brand refresh with a new, more user-friendly app, complete with parcel tracking information. iFastway, downloaded approximately 5,000 times last year, has been redesigned to reflect Fastway’s new look and the evolving needs of users. “We’re constantly looking for new ways we can make the latest technology work for our customers. Our iFastway app offers everyone an easy, convenient and reliable way to track and trace their parcels – anywhere, anytime,” said CEO Richard Thame. ■

World Franchise magazine April 2012

The company expects global sales turnover of $587 million in the 2011/12 financial year, an improvement on $571 million in 2010/11. It holds a 13.8 per cent share of the Australian bread market, according to Roy Morgan research, and this will grow with aggressive expansion plans, the com-

pany said. “Our product is a staple that continues to stack up despite retail pressures,” Ms Gillespie said. “Our intent is to be around for another 31 years. “I am confident that our proven business model and continued expansion will enable us to achieve just that.”

News AUSTRALIA

Theobroma chocolate cafe heads for Sydney and QLD Theobroma, the Victorian based chocolate cafe and bar franchise, is in expansion mode in Queensland and Sydney and is calling for international inquiries too. Due to open soon are the Bondi Junction outlet in Sydney, and Auckland’s Botany Downs store. The franchise chain has six stores in New Zealand, 13 in Australia and five outlets in Malaysia. Franchise and operations manager Wayne Wright said “We are extremely excited to be finally taking the brand to Queensland and Sydney. We see it as a great growth opportunity.” Potential franchisees can choose from four concept models and an expanded menu: in addition to the traditional chocolate, cakes, slices, cookies and muffins the menu includes breakfast, lunch and evening options, and a variety of drinks (nonalcoholic, and alcohol).

Franchise Council of Australia calls for small business assistance program The Franchise Council of Australia is calling for the development of a small business assistance program that would allow emerging companies to use the Federal Government guarantee when seeking funding. FCA executive director Steve Wright says a Government guarantee would boost funding opportunities for emerging companies, including franchises, as well as bolster entrepreneurship and jobs amid fragile economic times. He points out that small business assistance programs work successfully overseas, especially in the United States – where delinquency rates are low and support has not lagged for the

program, despite the country’s economic woes and fractious political climate. Stressing the idea is in its infancy, Wright says he expects the idea will attract widespread support from small- and mediumsized enterprises. “At the moment the economy and changing consumer habits are making it harder [for businesses] to simply maintain their current position, let alone grow,” Wright says. “I doubt there would be any group right now that wouldn’t be in favour of targeted support for new business and new employment.” ■

World Franchise magazine April 2012

News AUSTRALIA

Pie Face invites young entrepreneurs to franchise P

ie Face has launched a new program inviting young entrepreneurs to qualify to franchise one of its stores. The Young Entrepreneurs Program aims to finance 21-30 year olds into Pie Face stores with successful candidates offered ownership of a franchise after only a $5,000 deposit and the full $300,000 to $400,000 repaid over an extended period at below bank rates. Pie Face chief marketing officer Ben Macpherson said the program was recently launched in Sydney offering several of the city’s prominent stores. “The company was swamped with some of the best franchise candidates we have seen. We are incredibly encouraged by the capability and determination of these young people,” says Macpherson. The initiative began as a result of constant enquiries into franchises from young people who did not have the funding to own their own store. The program is to be run across company owned stores in Sydney, Melbourne and Queensland.

RedRoomDVD sale heralds a move to kiosks DVD rental company Franchise Entertainment Group has bought Australia’s RedRoomDVD, in the company’s latest bid to move away from bricks-and-mortar stores to kiosks and vending machines. Franchise Entertainment Group, operator of the Blockbuster and Video Ezy chains in Australia and Asia, said the acquisition of RedRoom DVD’s network of 100 DVD kiosks gave it a jump start in plans to roll out more than 3000 kiosks in Australia. RedRoom was founded seven years ago by Dan Joyce and Nic DiVenuto. ■

World Franchise magazine April 2012

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News NEW ZEALAND

HELL FIRES ITS PIZZAS AROUND THE WORLD Hell Pizza is firing up in Korea, 15 years after it first started selling pizzas in Wellington’s Kelburn squash club. The irreverent takeaway joints are now spread around the world, including franchises in Canada, Britain and India. Director Stu McMullin says its master franchisor in Korea – backed by entrepreneur Yong-Seok Kang, who previously headed up a pharmaceutical company specialising in horse-cloning – will open its third Hell store in the South Korean capital Seoul next month. It also has plans for a further seven “pilot” stores there. New Zealand has 65 Hell

outlets, he says, but such is the scale of Korea that Seoul, with a population of about 20 million, could end up with 100. A Hell Pizza shop in New Zealand has a catchment area of about 10,000 households, which is usually about 25,000 people, McMullin says, but there were that many people living in just four apartment towers across the road from its first Hell store in Korea. “The numbers just blow you away.” The two Korean stores, which opened in August and November (2011), “are doing OK”, and turning over between $12,000 and $15,000 a week, McMullin says.

World Franchise magazine April 2012

“It’s going to take one to two years to build critical mass. The second store was busier than the first upon opening, so that’s a good sign.” The company has not had to revise any of its pizzas to suit Korean tastebuds, but its menu has shrunk. “They don’t like a huge amount of choice. We have 21 pizzas here; they only have about 11.” A large proportion of Korea is Christian, and Koreans are well exposed to American culture, so concepts such as hell and Halloween are not lost on them, he says. But Hell’s relaxed Kiwi approach is not a perfect

fit with Korean culture and it has introduced a slightly softer version of its often controversial brand there. “The thing they struggle with a little bit is brand personality. We pick up the phone and say `How the hell are ya?’ but they are very proper and very organised.” HELL’S pizza bar opened in New Delhi about a year ago, with a heavily vegetarian menu. “It’s also going OK.” Hell is proud of its expansion – it does not look to enter new markets but waits for prospective franchisors to make an approach – but is realistic about its overseas prospects, McMullin says. ■

News NEW ZEALAND

Winnie Bagoes hopes to reopen in CBD Owner of well-known Christchurch pizza restaurant Winnie Bagoes, Geoff Cavell, approached Recover Canterbury for help in the new year. Cavell is upbeat about the future of his business. He is on the verge of buying a building within the four avenues where he plans to reopen his pizza restaurant, but also wants to redevelop the site into a live entertainment venue. But the costs associated with earthquake strengthening the building, complying with council consent processes and the new fit-out will be hefty. Design company Element 17 director Steve Rosling, who will manage the fitout and design for Winnie Bagoes’ new premises, said the project could be in the region of $800,000 to $1 million dollars and take three to four months to complete. Cavell’s business partner, an accountant, suggested he contact Recover Canterbury to see if it could contribute in some way. “I feel a bit guilty knocking on the door,” Cavell said. But the business has been quake-displaced twice. On September 4, 2010 Winnie Bagoes’ Gloucester St premises took a big knock, and the business relocated to Colombo St, reopening in October 2010. “When we moved to Colombo St we thought, ‘This is perfect’, then we got four months’ trade and - bang,” Cavell said. Fortunately Winnie Bagoes has had a “pretty healthy” insurance payment, as when

the business reopened on Colombo St its turnover went up 80 per cent, and that was what its business interruption insurance payment was based on. The business had a good insurance broker, and having a director and business partner who was also a chartered accountant had been invaluable. “The new model will require a lot of extra expense for us, to cater for good quality live entertainment,” Cavell said. Insurance is proving expensive, and difficult to find. Cavell said his quoted insurance premium had gone from $9000 to $70,000 plus GST. His excess, for material damage cover, has gone from $2500 to $180,000. The alternative is for Cavell to just pay for business interruption insurance and material damage cover for equipment and furnishing for about $4000 and not insure the building. “It’s all risk. Do I put $70,000 in, and feel good when I go to bed and the aftershocks are going, or do I take this punt?” The good news is, based

on the track record of the business, and its sound financial records, Cavell’s bank has said it will give him the funding to buy the building, whether he can find an insurer to cover the site or not. At this stage it might be not - he has gone as far as London to try to secure insurance, but so far, no dice. Its franchised Ferrymead Winnie Bagoes restaurant had been a “Godsend” as it had been a source of income

after February 22. As with each new business he meets, Recover Canterbury business co-ordinator Bevan Killick explains to Cavell its role and what possible forms of help the organisation can provide - from facilitating applications to the Canterbury Business Recovery Trust, to putting the business in touch with business mentors, training vouchers sponsored by New Zealand Trade and Enterprise and possibly training through the Institute of Directors, to help Cavell upskill as his business grows and franchising opportunities develop. Winnie Bagoes will have to present its financial records to Recover Canterbury, and Killick points out that as Winnie Bagoes is set to grow, Cavell is already taking on a raft of responsibilities and could consider “shoring up the ship” in terms of governance. ■

DESTROYED: Winnie Bagoes was destroyed in the September quake, and again at its new premises in February.

World Franchise magazine April 2012

News NEW ZEALAND

Domino’s aims small town expansion Domino’s Pizza is expanding into small towns throughout New Zealand and general manager Josh Kilimnik says the company is looking for people to take on a franchise in towns such as Mosgiel, Mt Maunganui, Feilding, Tokoroa, Huntly, Mana, Queenstown, Oamaru, Bishopdale, Ashburton and Rangiora. “We’re one TV market here. People in the regional markets see [TV commercials] but don’t get to try the product.” Kilimnik said the amount of money required to invest would vary depending on location and the type of premises selected. People did not necessarily have to have ever owned a business but experience would help. A lot of training would be provided and Kilimnik said: “If you have the right attitude we can make a good franchisee out of you.” Each franchise would generate about 15 jobs, although Kilimnik said some employed more. Whangarei had 40. Kilimnik said outlets succeeded when they were owned by a local identity who would get involved with the community. The chain is also looking to expand in some areas of Auckland. Domino’s franchise development manager Rian Bell said: “We have found that our most successful regional stores are the ones that are owned and operated by locals because they already have a great insight into the local businesses in their area and have a great feel for the community.”

most new franchisees DON’T DO ENOUGH DUE DILIGENCE A new report by Massey University suggests that over half of all New Zealand franchisees felt they had failed to conduct sufficient due diligence before purchasing their franchise. The survey also suggests that 44% of franchisees spent less than one month researching the opportunity before buying their franchise, and finds that resolving conflict later becomes an issue for many franchisees.

The latest study from Massey’s School of Economics and Finance, entitled Towards Understanding and Resolving Conflict: Franchising in New Zealand 2011,accompanies an earlier Australian study which set out to explore perceived levels of conflict in the franchise relationship, the types of conflict and the causes. The Massey study was sent to 1500 randomly-selected franchisees in mid-2011. There were 196 useable questionnaires returned. According to the 2010 survey, also conducted

World Franchise magazine April 2012

by Massey, there are an estimated 23,600 franchised units in the country. The franchisee sample of the latest survey is perhaps not fully representative of the franchising in New Zealand as a whole: for example, over 13% of respondents were in the education and training sector, which in 2010 was found to account for only 2.4% of franchisors (and probably a lower percentage of franchisees), while almost 32% of respondents are from the retail sector, which the 2010 survey suggested accounted for only 24% of franchisors. In addition, almost 31% of respondents were multiple franchisees – an unusually high proportion. The questionnaire consisted of a series of statements with which respondents were invited to ‘Strongly Disagree’, ‘Disagree’, ‘Neither’, ‘Agree’ or ‘Strongly Agree’. Around 1/4 of respondents answered ‘Neither’ to most statements. ■

News ASIA/OCEANIA

Declining failure rate underlines strength of franchise business

he franchise business in Thailand is expected to grow by 17% this year to a value of 160 billion baht as more people look to earn more income by opening their own businesses.

The number of franchised outlets is likely to rise beyond 40,000 this year and employment to exceed 200,000 jobs, said Peerapong Kitiveshpokawat, director of the International Retail and Franchise Business R&D Center at Sripatum University. A survey by the centre in 2010 found a total of 514 franchise operators in the country, 480 of which were

Thai businesses, running a total of 26,922 outlets. Around 40-45% of the operators were in the food and beverage industry and approximately half of the business value came from convenience stores. The average time in existence for a franchiser was more than five years, which indicated the strength of operators in the industry, in line with the declining rate of failure which stood at 12%, down from 20% in the past. Collections of franchise fees entrance and royalty fees were around 870 million baht in 2010 and were estimated to have exceeded one

billion baht in 2011. Mr Peerapong said the franchise business this year could receive a boost in the aftermath of the severe floods of late 2011. Businesses that may rise are service-oriented franchises such as home building and renovation, cleaning, termite control and automobile service centres, as changes in society have reduced the amount of time many people have to handle some jobs themselves. The expansion of food and beverage franchises to other provinces will spread a new consumption culture among people who have been wait-

ing for more choices in their areas. Education franchises expanded substantially in the provinces years ago but the pace has slowed because of the shortage of qualified personnel to run the businesses. Mr Peerapong said one rising trend is the purchase of rights to characters of internationally renowned films or comics to use in Thai businesses. The arrival of Asean Economic Community (AEC) in 2015 will also open a wider opportunity for Thai franchisers to explore a regional market with a population of 600 million. â&#x2013;

World Franchise magazine April 2012

News ASIA/OCEANIA

FRANCHISING INDUSTRY SEES 20% GROWTH IN 2012

Manila’s fast growing rate had a huge influence over the franchise market

World Franchise magazine April 2012

MANILA, Philippines—The local franchising industry is targeting a conservative 20 percent growth this year, to be fueled largely by an expected increase in investments made by overseas Filipino workers (OFW). More OFWs are now said to be looking for such investment opportunities in the Philippines, following the aggressive programs implemented by the Philippine Franchise Association (PFA) and Association of Filipino Franchisers Inc. (AFFI). According to fast-food firm Binalot, a member of PFA and a founding member of AFFI, local brands may still find growth as the market for goods and services is pushed by the strong peso. With the strong economy, people have more buying power, it said in a statement. “Indeed, franchising in the Philippines has gone a long way from its beginnings back in the 1980s, with the sector dominated mostly by foreign franchise companies. From around 20 foreign and local franchises, the sector rapidly grew, with the figure reaching around 1,000 by 2008,” Binalot said. Both PFA and AFFI are nonstock, nonprofit selfregulating governing body for franchising in the country. Established in 1995, the PFA now has 180 franchisers and allied members nationwide. AFFI, on the other hand, was established on 1997 and has grown from seven founding members to over 100 constituents. ■

News ASIA/OCEANIA

CHINA TO BOOST ITS FRANCHISING MARKET The Ministry of Commerce (MOC) has vowed to increase the number of franchised outlets, expand the scale of their operations and standardize the franchising market within five years, according a guideline issued by the ministry. The ministry will revise and improve relevant regulations to standardize management of the franchising market, said the newly released guideline. The guideline said relevant authorities will help companies build brands and bring the brand-building efforts into line with local governmentsâ&#x20AC;&#x2122; trade development plans. The authorities will support the development of excellent charter brands and establish an evaluation system for these brands. Meanwhile, they will help companies construct their information systems and accelerate the establishment of local logistic systems. In addition, the ministry will strive to improve collection of industrial statistics and credit rating, according to the guideline. The franchising industry plays an important role in driving private investments and creating jobs. The countryâ&#x20AC;&#x2122;s franchising market still fosters great potential and will make further contributions to employment and consumption in the future, according to analysts. Data from the MOC shows that the country had more than 4,500 registered franchisees by the end of 2010, ranking the first in the world.â&#x2013;

World Franchise magazine April 2012

News ASIA/OCEANIA

Baskin-Robbins is opening stores in Vietnam I

t won’t be long before folks can enjoy Baskin-Robbins ice cream in Ho Chi Minh City, and the chain added that patrons in Vietnam will not only be able to order such company standbys as Mint Chocolate Chip and Jamoca Almond Fudge, but also such Southeast Asian flavors as Green Tea and Mango Mania. Baskin-Robbins, a sister chain of Dunkin’ Donuts, announced that it has signed a master franchise agreement with Blue Star Food Corp., a Vietnamese food manufacturing company. The agreement calls for about 50 Baskin-Robbins restaurants to be opened in Vietnam over the next several years. The first three stores under the agreement open this week in Ho Chi Minh City. With the opening in Vietnam, Baskin-Robbins said it now has more than 6,600 locations in nearly 50 countries, including about 2,000 in the Asia-Pacific region. Both Baskin-Robbins and Dunkin’ Donuts are operated by Dunkin’ Brands Group Inc. of Canton. ■

Saladworks begins international expansion Saladworks, the first and largest fresh-salad franchise in the United States is going global. A household name in the Philadelphia region for the last 25 years, Saladworks grew steadily along the East Coast. After insurmountable local success, Saladworks has spent the last few years introducing its chopped fresh daily fare to new markets across the country. Now, with 100 locations in 12 states, Saladworks has franchise agreements signed for five new U.S. markets, including Louisiana, Washington, South Carolina, Texas and Washington, D.C. The company is on track to open more than 20 new locations in 2012. After years of preparation, strategic business planning and support-staff enhancement, Saladworks is ready to bring

World Franchise magazine April 2012

made-to-order salads to Singapore. The agreement with Amos Lee of Singapore outlines a 15-store development with the first restaurant to be opened in 2012 and two more in 2013. “We were the first to introduce the fresh-salad franchise concept to the U.S. market and have been perfecting our brand for a quarter century,” said John Scardapane, chairman/ CEO of Saladworks. “We feel that we’re in a solid position for international growth; we’re excited to start that growth within Singapore.” Singapore was strategically chosen as the first of several international endeavors. The Singaporean government has worked fiercely over the last decade to position itself as a regional franchise hub. ■

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News MIDDLE EAST

Subway plans to open 120 outlets by 2017 ALKHOBAR, Saudi Arabia Shamel Food Company, the master franchisee of Subway Restaurants for the Kingdom of Saudi Arabia, held its second annual Franchisee Meeting in Alkhobar. The meeting was headed by Mohsen Adeeb, CEO of Shamel Food Company, and was attended by all sub-franchisees of Subway in the Kingdom. The event dubbed as “Moving Forward” has capitalized in its Global Strategic Plan of achieving 120 stores by the end of 2017 along with stabilizing its Kingdomwide operations and supply chain. Currently, Subway Restaurants has 48 stores to serve its customers across the Kingdom, and 12 stores are planned to be opened in the current year. All of which will be offering healthier sandwiches options that Subway is known for worldwide compared to other fast food operators and, continually adding value to every purchase made thus making every visit topped with good customer experience. Subway restaurants are present in more than nine countries in the Arab world, including Saudi Arabia, the UAE, Kuwait, Qatar, Oman, Bahrain, Jordan, Lebanon and Egypt. Through 250 outlets, the Subway chain is aggressively taking forward its message of “eating right today for a better tomorrow.” It comes as no surprise then that the Subway brand is poised to open 1,000 new outlets by 2015 in the Middle East and African markets. ■

World Franchise magazine April 2012

News MIDDLE EAST

UAE’s petrol station stores eye franchise deals Home-grown convenience stores in the UAE are eyeing overseas franchise deals in a bid to finance their ambitious expansion plans, franchise consultants have said. Eateries owned by the region’s biggest petroleum companies are hoping to sell tens of stores to investors in the GCC, before growing their brands globally, the manager of Francorp’s Middle East division said. “All the major oil and gas companies here have their own convenience stores, and they have been extremely successful,” Imad Charaffedine told Arabian Business. “They are all looking at expanding their businesses into franchise businesses.

Most of them have started working on their programme to become a franchisor in this region. Then they will consider international.” The firms include Emirates National Oil Company (Enoc)-owned ‘Zoom’, Emarat’s ‘Freshplus’ and Abu Dhabi National Oil Company (Adnoc)-owned ‘Oasis’, he said. Enoc, which boosted the number of Zoom stores at Dubai Metro stations from six to 16 earlier this year, is eyeing the sale of 30 stores in the GCC between 2012 and 2013, and 100 stores across the region in five years. The average investment required per store is around AED1m. Charaffedine said Emarat’s

Freshplus had similar numbers in mind for expansion, after it began franchising in 2010 along with its sister concept ‘Bakeria’. Also in discussions to franchise is the Abu Dhabi equivalent of Zoom, known as Oasis. Charaffedine declined to give numbers but said the firm was again looking at regional growth through the franchise model. “[Most of the firms] build their concepts in the UAE, but when they want to expand, it’s better to have a good partner who has the capital and resources to operate their business and expand on their behalf,” he said. “Some are even franchising in the UAE, so [expansion] depends on the strategies of

each business.” A report by Business Monitor International (BMI) in 2010 said UAE convenience store sales would outperform the wider mass grocery retail sector over the next four years. According to the report, sales would increase by more than 50 percent by 2014, to reach a total AED430m ($117m). Abu Dhabi-based Lulu Hypermarket Group announced plans to roll out 50 local stores across the Gulf in three years. Retail Arabia also said in September it would launch 10 Géant supermarkets in Kuwait within 12 months and eight branches in Bahrain by 2014. ■

World Franchise magazine April 2012

Franchise Event calendar 2012

Event Calendar

World Franchise magazine April 2012

Event Calendar 1st Quarter 2012 20 Ian - 21 Ian

Franchise Expo South

Miami Beach

United States

11 Feb - 14 Feb

IFA Franchise Convention

Orlando

United States

24 Feb - 25 Feb

The National Franchise Exhibition

Birmingham

United Kingdom

01 Mar - 03 Mar

Feria Internacional De Franquicias

Mexico City

Mexico

02 Mar - 05 Mar

KEM International Franchise Exhibition

Athens

Greece

16 Mar - 17 Mar

British and International Franchise Exhibition

London

United Kingdom

18 Mar - 21 Mar

Franchise Expo Paris

Paris

France

23 Mar - 25 Mar

Franchising Expo & Business Opportunities

Sydney

Australia

28 Mar - 29 Mar

Franchising & Partnership 2012

Brussels

Belgium

13 Apr - 14 Apr

Dutch Franchise Exibition

Hoevelaken

Netherlands

19 Apr - 21 Apr

Expofranquicia

Madrid

Spain

27 Apr - 28 Apr

Ulster Bank Irish Franchise Association Expo & Awards 2012

Dublin

Ireland

11 May - 13 May

ExpoFranchise

Lisbon

Portugal

26 May - 27 May

Franchising Expo & Business Opportunities

Perth

Australia

08 Jun - 09 Jun

The British Franchise Exhibition

Manchester

United Kingdom

15 Jun - 17 Jun

The 2012 International Franchise Expo

New York

United States

21 Jul - 22 Jul

Franchising Expo & Business Opportunities

Brisbane

Australia

17 Aug - 19 Aug

Franchising Expo & Business Opportunities

Melbourne

Australia

07 Sep - 08 Sep

Franchise Opportunities Live 2012

London

United Kingdom

08 Sep - 09 Sep

Franchising Expo & Business Opportunities

Brisbane

Australia

05 Oct - 06 Oct

The National Franchise Exhibition

Birmingham

United Kingdom

12 Oct - 14 Oct

The West Coast Franchise Expo

California

United States

01 Nov - 03 Nov

Franchising & Licensing Asia 2012

Marina Bay Sands

Singapore

06 Dec - 07 Dec

International Franchising Forum FHI 2012

Kyiv

Ukraine

2nd Quarter 2012

3rd Quarter 2012

4th Quarter 2012

World Franchise magazine April 2012

Event prewiev

Franchise Expo Paris, the international hub Franchise Expo Paris is the international hub connecting investors from 83 countries with the most renowned franchisors looking to expand their concept worldwide. Franchise Expo Paris is recognized as the world leading and most diversified franchise exhibition with more than 450 franchisors and more than 32 000 ready-toinvest entrepreneurs. The entire international franchise community including consultants, lawyers, bankers, franchise associations, retail real estate developers converge in Paris to exchange ideas, create new relationships and discuss

franchise business opportunities. Franchise Expo Paris is the leading marketplace where investing entrepreneurs can identify and meet the top 450 franchise systems, from 75 industry sectors, looking for their exclusive business partners. This 4 days show & forum will provide you every information about master franchise and network development so that you can maximize your one-to-one meetings. Franchise Expo Paris specific setting and decorated stands help the entrepreneurs to find their best match.

Paris is not ONLY Business Well informed, eloquent and oh-so-romantic, the “City of Light” is a philosopher, a poet, a crooner. As it always has been, Paris is a million different things to a million different people. Paris has all but exhausted the superlatives that can reasonably be applied to any city. Notre Dame and the Eiffel Tower – at sunrise, at sunset, at night – have been described countless times, as have the Seine and the subtle (and not-so-subtle) differences between the Left and Right Banks. But what writers have been unable to capture is the grandness and even the magic. Paris probably has more familiar landmarks than any other city in the world. As a result, first-time visitors often arrive

in the French capital with all sorts of expectations: of grand vistas, of intellectuals discussing weighty matters in cafés, of romance along the Seine, of naughty nightclub revues, of rude people who won’t speak English. If you look hard enough, you can probably find all of those. But another approach is to set aside the preconceptions of Paris and to explore the city’s avenues and backstreets as if the tip of the Eiffel Tower or the spire of Notre Dame wasn’t about to pop into view at any moment. You’ll soon discover (as so many others before you have) that Paris is enchanting almost everywhere, at any time, even ‘in the summer, when it sizzles’ and ‘in the winter, when it drizzles’, as Cole Porter put it. And you’ll be back. ■

World Franchise magazine May 2012

NYC is opened for business

Event prewiev

The world’s premier franchise event showcasing hundreds of franchise concepts arrives this year at New York. International Franchise Expo (IFE) is an annual event sponsored by the International Franchise Association (IFA).

Franchising companies at the IFE come from a vast array of industries offering concepts at all investment levels. Another high point at the IFE is the most comprehensive conference program offered on franchising. The three-day event, which is moving to New York this summer after being held in Washington D.C. for more than 20 years, uniquely showcases hundreds of franchise companies offering a wide range of opportunities at virtually every investment level. Tens

of thousands of prospective investors from across the country and overseas have attended the show. The franchise industry is a major contributor to the U.S. economy, employing more than 20 million people and contributing over $2 trillion in economic activity, according to the International Franchise Association, the show’s sponsor. International Franchise Expo’s 2012 edition is held in New York at Javits Center on the 655 W. 34th Street. Be there on 15-17 of June. ■

EVENT PRINT

Event prewiev 48

West Coast goes franchising The westâ&#x20AC;&#x2122;s premier franchise event showcasing hundreds of franchise concepts visits California. West Coast Freanchise Expo is an annual event sponsored by the International Franchise Association (IFA). Franchising companies at the WCFE come from a vast array of industries offering concepts at all investment levels. WCFE hosts one of the most comprehensive conference programs offered on franchising. A powerhouse marketing campaign

attracts qualified prospects from through out the western United States. For six years, WCFE has been the meeting place for the franchise industry where franchisors, franchisees, suppliers, industry publications, all come together to conduct the business of franchising. This year, on 12-14 October, WCFE gathers in Anaheim Convention Center, on 800 West Katella Avenue, California. â&#x2013;

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Cover Story

SCHULTZ.

HOWARD SCHULTZ. He rescued the coffee chain. It had record financial results last year. Now the CEO is on a campaign to save USA from its politicians. Hereâ&#x20AC;&#x2122;s how he blends capitalism and activism. 50 World Franchise magazine May 2012

Cover Story

World Franchise magazine May 2012

Cover Story The president of the United States wasn’t on the phone to talk about Pumpkin Spice Latte. Back in September 2011, two days before Barack Obama delivered his speech to Congress on jobs, he put in a call to Howard Schultz, the chairman and CEO of coffee king Starbucks. Schultz was on the President’s mind because the business icon had suddenly become a political activist, announcing that because he was disgusted with Washington’s dysfunction, he would cease making campaign contributions to incumbents in either party. Deploring a system that has “chosen to put partisan and ideological purity over the well-being of the people,” Schultz asked fellow corporate executives to join him in a boycott. More than 140 quickly did, including the CEOs at Pepsi (PEP), Disney (DIS), Intuit (INTU), Whole Foods (WFM), J. Crew, AOL (AOL), the New York Stock Exchange (NYX), and Nasdaq. Obama evidently took note. He had no personal relationship with Schultz, a registered Democrat, and the two had met only once, when Obama was the junior U.S. senator from Illinois. “Howard,” said the President, “I’d like to talk to you about a number of things, including your campaign initiative, as well as your thoughts on the economy and job creation.” Seated at his desk at Starbucks headquarters overlooking Puget Sound, Schultz barely had time to collect his thoughts; the White House had set up the call two minutes in advance. Said Obama: “Let’s have an honest and straightforward conversation.” Because they did - for more than half an hour, Schultz recalls - he’s circumspect about this previously undisclosed discussion. Schultz says he went out of his way to let Obama know that his decision to cut off political cash was not directed at the President specifically, even though Democrats had received almost all his donations in the past. “I’m much more concerned about America than the Democratic Party,” he told Obama. Yet if you read between the lines, it’s clear that Schultz’s campaign moratorium had the shock value he intended. Schultz and the President discussed Schultz’s “concerns for the country,” the budget predicaments facing 42 states, and “the profound crisis of confidence in America.” There aren’t many CEOs who would get such presidential calls, or who

Howard Schultz brews strong coffee at

Starbucks

World Franchise magazine April 2012

Cover Story would meet a few weeks later at the presidential palace in Paris with Nicolas Sarkozy to discuss eurozone economic issues. (Sarkozy’s wife, Carla Bruni, is a big Starbucks customer.) But it’s been that kind of year for the 58-year-old Schultz - out in the realm of political and social activism, as well as inside the caffeinated corporate suite. His dynamic union of the public and the private has made Schultz a signal American CEO - all the more so when government seems so bereft of effective leadership. That’s why Schultz earns the No. 1 spot on Fortune’s Businessperson of the Year list for 2011. His company, with 17,000 retail stores, in every state and 56 countries, is becoming a dominant player among global food empires. The ubiquitous brand has transcended mere coffee to become a lifestyle emblem. And Schultz has proved that it wasn’t just Steve Jobs who could come home to a company to save it. Brewing big numbers With a market capitalization of about $33 billion, Starbucks Corp. (SBUX) itself is soaring: the best financials ever, more stores than ever, rapid expansion abroad, and still more new words for “big” and “sweet.” The consumer brand that Schultz has built over a quartercentury - stepping out of the CEO job in 2000, only to return eight years later - has never been stronger. Revenue hit nearly $12 billion for the year ended Sept. 30, and profits $1.7 billion. A third of the revenue came from overseas. In the most recent quarter total revenue reached $3 billion for the first time; in the key measure of stores open at least a year, sales were up 10% domestically (and 9% internationally) compared with 2010. And, not least important, Pumpkin Spice Latte was up 44% this autumn! Starbucks’ chief bean counter, CFO Troy Alstead, calls the numbers “phenomenal” in a distressed economy and with coffee prices historically high. The company also just announced the $30 million acquisition of Evolution Fresh, a boutique California provider of super-premium fresh-squeezed juices. Starbucks intends to use Evolution as its entry into the “health and wellness” food category; expect to see a separate menu of juices to go and food next year at some Starbucks, as well as at standalone stores called Evolution By Starbucks. “We’re going to make a big bet in health and wellness,” Schultz says. Starbucks’ stock price reached an alltime high in November, 2011 up more than five times from its 10-year low in

2008. If you’d invested $1,000 in Starbucks at the initial offering price in 1992, you’d have more than $70,000 today. One longtime employee inherited $75,000 around the time the stock fell below $8 in 2008; with Schultz leading the turnaround, she invested it all in SBUX -and now has about $450,000. An entrepreneurial epiphany Howard Schultz created the American coffeehouse on a Grande scale. Affable and astute, he’s been a nonpareil salesman all his professional life. After majoring in communications at Northern Michigan University, he made cold calls in Manhattan for Xerox’s (XRX) latest invention - the “word processor” then went to work for the U.S. division of Hammarplast, the Swedish kitchenware maker. Schultz learned that a lot of its coffee equipment was being sold to an unremarkable retailer in Seattle’s Pike Place Market called Starbucks Coffee, Tea and Spices. Starbucks had been around since 1971 and had four stores. Coffee purists loved its whole fresh Arabica beans, sold in little bags. Schultz was restless and intrigued - and ventured west to pay a visit. A violinist was playing Mozart by the door. After courting Starbucks’ founders for months, in 1982, at 29, he joined Starbucks as head of marketing. Schultz then had what he calls his entrepreneurial “epiphany.” The following year, at a trade show in Italy, he discovered the small espresso bars all through Milan and Verona. He watched the flamboyant baristas grind the beans, pull the shots of espresso, foam the milk. It was “great theater,” he thought. Here was a Continental subculture that Americans knew nothing of -- a “third place” between a person’s job and a person’s home. Schultz also did the math: Italy - a country with a fifth of the U.S. population - had 200,000 of these cafés. “I was taken by the power that savoring a simple cup of coffee can have to connect people and create community,” he wrote in memoir earlier this year. You didn’t hear such perorations from Dunkie, the old mascot at Dunkin’ Donuts (DNKN). Starbucks’ founders didn’t get it. They eventually let Schultz begin selling fresh-brewed cappuccinos by the cup, but he quit to start his own three-store espresso bar. In 1987, Starbucks decided to sell - and Schultz rounded up $3.8 million from investors to buy it. By the time the company went public in 1992, Starbucks had 165 stores. Back

then, some on Wall Street were dubious. As Schultz recalled to an interviewer, “They’d say, ‘You mean you’re going to sell coffee for a dollar in a paper cup, with Italian names that no one in America can say - at a time when no one’s drinking coffee and I can get coffee at the local coffee shop for 50¢? Are you kidding me?’ “ The company grew at an astonishing pace for the rest of the decade. It wasn’t Milan, but the “third place” had arrived. It became commonplace in America to see a vast range of people at the local Starbucks: hurried bankers in suits, parents with strollers, students with laptops, someone writing a novel or dozing off in a comfy chair. “We’re not in the coffee business - we’re in the experience business,” says Schultz, who typically drinks four to five cups of his product a day (Aged Sumatra, made in a French press, no milk, no sugar) and for some reason says he doesn’t sleep much. 2011 Fortune Businessperson of the Year There were Starbucks counters at the airport, Starbucks ice cream and coffee at grocery stores, Starbucks CDs, and Starbucks food. NEW STARBUCKS OPENS IN REST ROOM OF EXISTING STARBUCKS, merrily reported The Onion. In 2000, after running daily operations for 15 years, Schultz decided to step down as CEO. He was 46. Though he had presided over a company with an annual growth rate of 49% for eight years, he was “a bit bored.” He stayed on as chairman. And he tried his hand as the owner of a professional basketball team, which was pretty much an unmitigated disaster - he wound up selling the Seattle SuperSonics, who moved to Oklahoma City. Getting him to talk about it is like watching someone pass a kidney stone. In his absence, Starbucks thrived at first. On some blocks in some cities the ratio of Starbucks to traffic lights was 2 to 1. There were photos of people making Starbucks coffee on Mount Everest. By 2007 there were 15,000 stores, including ones in Brazil, Bahrain, and the Bahamas. Yet the perils of breakneck mass-market expansion began to set in. Customer traffic started to decline for the first time. Consumers developed a love-hate relationship with a brand whose product they were addicted to but whose price point could seem ludicrous. The emergence of bloggers and social media gave critics an instant platform.

World Franchise magazine April 2012

Cover Story McDonald’s (MCD), with its own line of espresso beverages, went snarky. four bucks is dumb, declared billboards in sight of the alluring green-andwhite siren atop Starbucks headquarters. On Valentine’s Day in 2007, Schultz e-mailed his successor and senior management, lamenting the “commoditization of our brand” and “the watering down of the Starbucks experience.” The memo, which leaked to a Starbucks gossip website, became his cri de coeur. In early 2008, Schultz returned as CEO. In short order he shut down 800 poorly performing U.S. stores and laid off 4,000. Staff were retrained, technology modernized, operations improved. For half a day, all U.S. stores were closed so that baristas could learn how to make better espresso. Starbucks spent $30 million to bring 10,000 store managers to New Orleans for a weeklong pep rally and a combined 50,000 hours of community service to Hurricane Katrina victims. But second acts by corporate leaders don’t always work. For every Steve Jobs, there’s a Jerry Yang. At Starbucks, Schultz roused the troops and invigorated innovation. “When you start a company,” he says, “it’s a singular focus. You have the wind at your back. You have much less to lose. In football terms, we tended to play defense, as opposed to trying to score.” He came back a little less impulsive, a little more relaxed. “Sun Valley and Davos no longer mattered,” he says. “For a long time I really wanted to be invited to all those high-profile conferences that CEOs were invited to. I thought that meant something.” He was invited, and he went to a few, but he rarely goes anymore. “I no longer needed approval or adulation from the outside world -- maybe because the stock price was at an all-time low and the noise coming from every constituency was so bad and so critical about both the company and me. I just drowned it out. I had to transform both the company as well as myself.” He cycled more with friends and family, and went back to playing chess. Prosperity has now returned to Starbucks. Next year it aims to open 200 company-owned stores in the U.S., as well as remodel 1,700 others that will aspire to more of a neighborhood feel - earth tones, wood counters, long tables, handwritten menu boards, better sightlines. The food’s better: Vivanno smoothies, the Ham & Cheddar Artisan Breakfast Frittata, Bistro Boxes for lunch. Starbucks joined the instant-coffee market with Via in 2009,

introduced K-Cup single servings a few weeks ago, and is coming out with its first mild roast, called Blonde, in January. Abroad, the company plans 600 new stores, with about a quarter in mainland China - on the way to a projected total of 1,500 in that country by 2015. India awaits. Vietnam will get its first store in 2013. With its 17,000 stores altogether, Starbucks has more than any food chain other than McDonald’s and Subway. And U.S. job creation? Starbucks had a net of 3,700 new employees last year and will add several thousand in 2012. The right thing for its own sake You don ‘t have to be Dr. Phil to recognize the roots of Schultz’s business benevolence. Schultz lives very nicely now -- Bhambi Custom Tailored suits, a Colorado ski retreat, and a beach house in New York’s Hamptons, where Bono and Madonna have visited -- but the memory of Brooklyn is never far away. The corporate canon of Starbucks really dates to Schultz’s 1950s and ‘60s childhood in Canarsie -- a neighborhood that still serves no Frappuccino and won’t be employing any cheery $10-an-hour baristas anytime soon. Schultz’s father was an uneducated veteran of World War II and worked in a series of blue-collar

World Franchise magazine April 2012

jobs, never making more than $20,000 a year: factory worker, cabbie, truck driver delivering cloth diapers. The oldest of three children, Schultz felt the enduring “sadness” of his father’s work life. When Schultz was 7, he came home to find his father “sprawled on a couch” with a cast on the lower half of his body: Fred Schultz had fallen on a sheet of ice at work and broken his hip and ankle. He was fired and sent home -- without health care coverage, worker’s compensation, or severance. That image both haunts and inspires Howard Schultz. Few American employers offer what Starbucks under Schultz has long given its 107,000 “partners” (what the company calls its employees) in the U.S. In addition to equity grants of “Bean stock,” all fulltimers and part-timers putting in at least 20 hours a week (which means nearly all of them) get health care benefits. When Schultz returned as CEO, he refused calls from institutional investors to reduce health care coverage. That would have been anathema to the corporate “ethos,” Schultz says, and it would ultimately have been “selfdestructive” in “sapping the reservoir of trust” that employees had. It was pretty good PR too, particularly during hard economic times. For Schultz, though, doing the right thing for its own sake -

Cover Story have become accretive to the brand, but it was never by design.” By design or otherwise, Starbucks employees get health benefits, and Rwandan coffee growers get fresh milk. Less Machiavelli than mensch

which these days costs a quarter-billion dollars annually in health insurance premiums - wasn’t inconsistent with the corporate mission of turning a profit. Something similar happened with the Rwandan cows. On a 2009 trip to see subsistence coffee growers in that country, Schultz met a woman named Mukamwiza Immaculate and asked what she most dreamed of having. A Friesian cow, she softly told Schultz (with a camera rolling). “If I had a cow,” she explained through a translator, “I could give fresh milk to my children every day.” Schultz was momentarily speechless. When he returned to the U.S., he arranged the purchase of 55 cows for 55 families through the Starbucks Foundation and contributions from employees. At a recent Nasdaq luncheon Q&A, Schultz was challenged about his expansive view of “corporate social responsibility”: Was it not the role of the corporation simply to maximize profits for shareholders, who in turn can use the proceeds to do good in the world if they choose? And was it not arrogant for a corporation to do the do-gooding itself? Schultz would have none of it. “Companies should not have a singular view of profitability,” he replied, with the conviction of a preacher rather than the

caution of a CEO. “There needs to be a balance between commerce and social responsibility … The companies that are authentic about it will wind up as the companies that make more money.” Bill Bradley, the former U.S. senator and basketball star, who’s been on the Starbucks board since 2003, says the company’s reputation is central to its success - a kind of halo effect. “You don’t get millions to support your social networks just by selling coffee,” he says. “People have to admire the company.” He does - and goes for those Tazo Green Tea Crème Frappuccinos, but, please, no whipped. Way back when, Schultz was an admirer of Bradley. In the early 1970s, high school senior Schultz once slept outside Madison Square Garden all night to buy tickets to watch him play for the New York Knicks. (Schultz paid for his ticket by buying four and scalping three.) Schultz believes beneficence is good business. Full health benefits breed devotion in the rank and file. Cows for Rwandan workers make those workers more loyal and productive. “To be a benevolent organization, you have to make a lot of profit,” he acknowledges. “But if your sole goal is to maximize profit, you’re on a collision course with time. We’ve made commitments that

Of course, it helps to have a flair for marketing. It was Schultz himself who came up with the idea of the red-whiteand-blue wristbands - to be seen at Starbucks counters and to be worn by customers. It was also Schultz who persuaded Fox and Major League Baseball hours before game time - to make room for the Create Jobs for USA ad during Game 7. And it was surely Schultz who got La Russa, the Cardinals manager, to wear a wristband during that game. A cynic might be tempted to say this is actually marketing of the highest order - that selling wristbands will just draw more folks in to buy Peppermint White Chocolate Mochas this joyous holiday season. But there’s a story about Schultz that suggests he’s less Machiavelli than mensch - told by Billy Etkin, 55, who runs a mergers-and-acquisitions investment-banking boutique in Manhattan. In 1995, Etkin’s first wife, Susan, was diagnosed with multiple myeloma. Etkin and Schultz did not know each other at the time, but a mutual friend from the Hamptons heard that Susan was going to Seattle for a bone marrow transplant in early 1997. The friend told Schultz and his wife. When the Etkins arrived in Seattle, they found that a furnished apartment had been set up for them by the Schultzes. The Schultzes opened their home to the Etkins’ young children. Howard checked in with Billy every few days. No cameras were turned on. Few knew, or know, of the Schultzes’ kindness. One month after the transplant, Susan died in Seattle. Etkin and Schultz both well up when they talk about what happened. “It was pure, unvarnished goodness,” Etkin says. “It was a grim time, and I was grateful for Howard’s help, and I figured I’d go back to New York and he’d go back to running his company, and that would be the end of it.” Instead, they and their families became dear friends. Sticking with what he does best If Schultz has ambition and charisma and values - and a low view of the current dramatis personae in Washington why doesn’t he enter the political fray? “I can do more good at doing good at Starbucks than I ever could in politics.”, Howard says. ■

World Franchise magazine April 2012

Franchising is like a marriage. It has its ups and downs, its better and its worse. But, if you can make it work, the reward makes it all worth it.

FRANCHISEs e i r o st

Franchise Stories

British brothers One-Stop take Illinois Shoperator Glenn Miller’s first look at the franchising business came in the early 1990s, when the British Chartered Accountant’s brother, an attorney, wound up with six Arby’s in Central Illinois. It didn’t take a rocket scientist to see some of the problems that needed fixing. “It was wrongly structured,” recalls Miller, who says two loans had been taken out that charged 15 percent and 13 percent, and the debt payments were dragging down the operation. “It took about two years,” he says. “The loan was paid off and we refinanced with a local bank when I came on board three years down the line.” The local Busey Bank was able to restructure the debt, and in 1996 Miller left the U.K. and made the trip to the U.S., where he gradually took over the operational end of the business and later turned his thoughts to expanding it. “I came on to do some consulting at the end of ‘96 and got into it more deeply in ‘97. We knew what we needed to do by the end of ‘97, and I took over the running of it in ‘98.” And there was more work to be done. “When I came on board in ‘96, I started with a five-year analysis with expenses and revenue,” says Miller, the managing partner. “We were advertising free food. Plot number one: Let’s stop advertising free food. The gals who ran the company said that was what Arby’s wants us to do. I said to have faith in the product and earnings started moving up.” Once the existing opera-

tions had been restructured, Miller turned his attention to growth. “My first act when I took over was to sign a fivestore development agreement with Arby’s. We added three more in the September of the same year and then two more after that. We built it to 18 stores. That took eight years.” By the time 2007 rolled around, Miller and his brother had reached the end of their development agreement with Arby’s, as well as the end of their growth opportunities for Central Illinois. By then they had already started looking around to see how the second act of their franchising saga should begin. “We needed to go to the next stage,” he says. That entailed trips to inspect Asian fusion concepts, chicken operations, and more. “We went through quite a number of other franchises we were considering,” says Miller. “I was in Richmond, Virginia, and went into a local Jason’s Deli one day and said, ‘Blimey, this place is packed!’ I found out that McAlister’s was available in Virginia, and that was a very healthy option. We went to a day of discovery at McAlister’s, liked the food, and said we would go for this. The majority of Virginia was open so we signed up.” Now the plan is to open up at least 15 more stores in their territory in the state, with a potential to expand to a total of 30 to 35 locations. Along the way, Miller can take time to see how a possible third act of his U.S. franchising career might play out.

World Franchise magazine April 2012

Andy Lanz got started in franchising right out of the University of Wisconsin in Madison. With the help of his parents, the newly minted economics graduate purchased a Cousins Subs franchise in nearby Verona. Then he added a Figaro’s Italian Pizza franchise as well as a Chocolate Shoppe Ice Cream operation, and put them all together inside his first 2,500-square-foot store. By combining concepts, he could to cater to more than one taste or time, and was able to build steady traffic throughout the day. It just made sense, he says. Grouping franchises also helped his customers, giving them gourmet sandwiches and pizza for lunch and dinner and ice cream in the afternoon--an idea that worked well in the little town just outside of Madison. “Verona is one of the fastest-growing communities in the area,” says Lanz, “and I felt a little less competition than other places in the area.” Soon after, he started to branch out into other locations. Now Lanz owns five Cousins, two Chocolate Shoppes, one Big Apple Bagels, and a Figaro’s. Most of these brands are grouped together as cobranded locations, which also helps him cut back on his fixed costs. Choosing the right concepts to mix together took some research, says the young multi-concept operator, who was able to get a fast start on Cousins, a brand he knew well as a customer. “Cousins was always my

favorite sandwich shop,” he says. “That’s how I got started looking at it.” After that he began surfing the Internet in search of complementary brands, tracked down the Chocolate Shoppe and just kept going. But the real key to his success, he says, has been his ability to attract a good group of employees to prepare and serve the food. After all, he says, “The restaurant business is really more about the people than the food.” Just about anybody can make a good sandwich, but if you want customers to keep coming back day after day, you need to have friendly, likable people behind the counters. To do that, he budgets extra time to get to know the people who are applying to work, probing them to find out more about what makes them tick to get a better idea of how they will handle customer relations on the front lines. “Part of hiring is just having a feel for people,” says Lanz, “finding out who will be outgoing and talk to your guests, and who’s reasonably hardworking.” By taking more time for job interviews, he’s been able to reduce his remedial work with problem employees to a minimum. Lanz just doesn’t talk the customer service talk. He helps set the pace, and provides an example by making sure he’s in one of his stores every lunchtime, serving food and talking it up with employees and customers. For Lanz, winning at franchising takes long-term commitment, and he’s all in for the long haul. ■

Franchise Stories

Better Burger Business

Jeff Kullman loves his new life in franchising. He’s a part of the growing Mooyah Burgers, Fries, & Shakes franchise system and he’s opened two restaurants in the past year in the Dallas, Texas area. But life hasn’t always been burgers and fries and for Kullman. Kullman spent 6 years working for Oscar Mayer and Land O’Lakes before shifting gears and spending two-and-a-half decades in the real estate business. Each of those careers played a role in both his interest in operating a restaurant and how he has transitioned into franchising with Mooyah Burgers, Fries, & Shakes. He didn’t enter this endeavor alone. He’s had help close to home. His two sons, Jason and Josh, each had successful management careers with Pappadeaux and Cheddar’s restaurants, respectively, before joining their dad in the burger franchise venture. Kullman says he and his sons looked into a number of franchise concepts before deciding on Mooyah Burgers, Fries, & Shakes. He says he liked the brand’s culture, philosophy, and quality products. “Fresh cut fries, buns baked instore daily and meat that is never frozen just can’t be beat,” says Kullman. “Mooyah has a killer combination of products that our family is proud to associate our name with.” The family’s first location in Flower Mound, Texas opened

about a year ago. In fact, that unit’s grand opening set the company record for revenue sales in an opening week. It was a promising start for the Kullman crew. Now, fresh off the grand opening of their second location in nearby Southlake last month, Kullman’s son Josh explains their strategic choice, “Southlake is the perfect location for a Mooyah, it’s booming and its residents need a great burger!” Mooyah Burgers & Fries is the brainchild of Todd Istre and Rich Hicks, who launched the brand in Plano, Texas in 2004. The company now has 18 locations in Texas and a store scheduled to open soon in Knoxville, Tenn. The brand was ranked #1 in Fast Casual’s “2009 Top 100 Movers and Shakers,” and ranked in the top five in the 2010 awards. Quality burgers in a quick casual environment have been steady players in franchising during the past couple of years. Kullman is pleased with his decision to open the two Mooyah restaurants and says he’s proud to be part of the franchise. “The brand is focused on creating a positive experience for our customers and being family friendly; we couldn’t have picked a better company for our own family business. I am blessed to spend time with my sons in Mooyah’s exciting and uplifting environment.” ■

World Franchise magazine April 2012

Franchise Stories

Home-based:

Keeping it local in Texas For years, Jeff Orlando has read with fascination the articles in franchise and business magazines about super-successful entrepreneurs. “It’s amazing to read about these guys who have 87 Burger Kings and 92 Wendy’s units and these unbelievable homes and lifestyles,” says the Killeen, Tex., resident. However, he adds, it’s also nice to read about “regular guys like me,” who choose to define their success in a different way. Orlando, with one Wingstop and one Schlotzsky’s, says he admires the hard work and smarts it took for these operators to become so large, but he doesn’t really want 92 units--maybe 12 close to home. “I want to build my success here in this community and I’m spending many hours doing that. I don’t really want to spend so much time traveling to units far from home,” he says. His Schlotzsky’s is in a shopping center near his home in

Killeen, an hour north of Austin. His Wingstop is three doors down in the same shopping center. The two brands (both under the Roark umbrella) work very well together, he says, because Schlotzsky’s is a 70 percent daytime business, and Wingstop is a 70 percent evening business. He plans to open another Schlotzsky’s co-branded with a Cinnabon (another Roark brand) later this year in Harker Heights, three miles down the road. Orlando, a self-described “Air Force brat” and youngest of four brothers, believes he has the best of both worlds. His first franchise experience--he and his brother opened a pizza place that lasted about 18 months when they were young-came in 1999 when he opened the 10th store in the thennew Wingstop brand. “Everybody told me I was crazy,” he recalls. “When we were growing up, nobody wanted the wing--everybody wanted the drumstick. We threw the wings away.” Obviously, things have changed, he says, pointing to Super Bowl Sunday, the busi-

World Franchise magazine April 2012

est day of the year for his store. “Wings and sports just go together.” Orlando, who worked 10 years as a manager for Blockbuster and other video stores, says he signed on with Wingstop because he loves the simplicity of the concept. “I love the product and the way the company is set up, the way founder Antonio Swad designed the packaging. It’s just meticulous, perfect. I also really liked the man behind the vision, and I had a lot of confidence in him. Some people have great concepts but they can’t execute them. Wingstop just felt right to me,” he says. He opened a Wingstop in College Station and then one in Austin, following the Wingstop philosophy of locating units in shopping centers with video or grocery stores because people go there several times a week. His mother died unexpectedly the same day he opened the Austin store, and Orlando decided to sell the stores in outlying areas and bring another business home to Killeen. “My stores were 100 miles apart, and I was already tired of the travel. Plus, it’s a struggle to find the right employees to leave those businesses with,” he says. In the process of doing his due diligence, Orlando learned that Schlotzsky’s had been purchased out of bankruptcy by Bobby Cox, a major Blockbuster franchisee in Texas. “I had a whole new feeling of confidence in Schlotzsky’s, the deli with the funny name and the serious sandwich,” he says. “Bobby understood the value of the chain, that it had a great product and great name recognition and just needed fixing.” About the same time, he heard the 27year Schlotzsky’s franchisee in his shopping center wanted to retire. He bought that unit and hasn’t looked back. “It’s worked out great. Our biggest advantage is that both my units are in the same shopping center, so if I have a problem at one, I just walk down the sidewalk and get help. I can work both the stores.” As he works on plans to open the new Schlotzsky’s/Cinnabon, Orlando is mindful of the constant challenge of owning and operating restaurants in a military town. “Here in Killeen, we have Fort Hood Army base, which is the world’s largest military base. What that means, business-wise, is that we’re hurt when soldiers are deployed, because they go in huge numbers, not just a few here or a few there.” he says. “My best advice is do your homework. Running your own business is getting tougher all the time. Twelve or 15 years ago, if you were a marginal operator, you could make money. These days, with the cost of food, labor, and energy, you have to be a shrewd operator to make it.” ■

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Franchise Stories

Franchisee explores Smoothie frontiers Jason Mann learned early that a career in advertising sales could get you just so far in life. And that wasn’t far enough for him. So in 1999, at the age of 30, Mann stepped out of his sales role and joined forces with his father to enter the franchising business. After seeing a Planet Smoothie in operation at a local convenience store, his father suggested to him that this was the best way to start in franchising. First good sign: people were lined up to buy smoothies. Second good sign: one employee was able to handle all the work. Third good sign: the trash can was full of empty straw wrappers, indicating that demand was steady and strong. “In the sales industry, the better you do the more they cut your commissions and territory,” says Mann. “I had no command over my future. But I’d always been very entrepreneurial and I wanted to do something on my own. I was green. I didn’t know anything about restaurant operations. But Planet Smoothie is a simple businessnot easy, but simple.” They started with one location. “It was the classic story. My wife and I worked behind the counter 14 hours a day with 3 days off during the year: Christmas, Thanksgiving, and Easter.” Just months after the couple got their start, they were building out their second location in the Orlando market and negotiating for two more. They got them-and more. Their operation eventually grew to six locations before he decided to sell off many of them and concentrate on working the region as an area representative. Today he’s helping `counsel franchisees with 28 locations in Florida while managing his own operations with wife and business partner, Connie Jane. “As an area rep I’m a hybrid between a franchisor and a franchisee,” says Mann. “The franchisor has support groups for marketing, operations, store development, consultants, and so on. I handle each one of those groups for my franchisees.” Mann, who is refreshingly focused on doing whatever must be done, has handled everything from working the streets as a costumed banana to building out multiple locations. “Whatever my franchisees need is what my week entails,” says Mann. ■

World Franchise magazine April 2012

Franchise Stories

Volume is the key in franchising Tom Kazbour doesn’t believe the secret to success lies in studying the ABCs of business. He believes new franchisees can whiz on past most of the alphabet and focus on the letter “V.” “Volume is key. Volume can cure a lot of problems. You can have a small margin and still do well if you have the volume,” says Kazbour who, with his brothers and partners, owns and operates 56 Hungry Howie’s pizza and sub restaurants in Florida and Alabama. “I learned that years ago when I was struggling with a new store in the Gainesville market and had to discount just to make it. Soon we went from struggling to having the highest volume store in the system at that time.” That experience led Kazbour, with the blessing of Hungry Howie’s founder Jim Hearn, to offer an inexpensive large pizza on the menu at all times. “Remember when Little Caesars became popular with ‘buy one, get one free’? Well, almost 2 years ago, Jim Hearn, my brothers, partners, and all the franchisees got together and decided that since the economy was starting to slump, we’d go back to basics and promote value-priced products. So we implemented the $5.55 large cheese or pepperoni pizza. We still have it today. It has saved us so that our stores continue to do well, even in today’s economy,” says Kazbour, who also is an area developer oversee-

ing 30 other franchisees and units. For a man who has been making pizzas for 34 years, Kazbour has boundless enthusiasm for his business. “I love it,” he says. Kazbour, who moved from Lebanon to the U.S. when he was 9 years old, started working at the age of 15 for Roman Village, a pizza place in Dearborn, Mich., where he grew up. “I worked washing dishes and making pizzas throughout high school,” he says. “That place is still in business.” Because he liked the pizza

business, Kazbour passed on college and continued to work and learn. At 20, he bought Super Crust Pizza in Oxford, Mich., and built it up. He sold it in 1984, convinced that he was more likely to better himself in Florida. He went to work for a Hungry Howie’s franchisee who had opened the first store in the state. After six months in the system, he and that franchisee opened up a unit in Bartow, Fla., where he learned a lot about franchising. “I came from a situation where I was a single-unit with a large

menu to Hungry Howie’s where there was more consistency as far as the product and system went. I liked it,” says Kazbour. Pretty soon, one of his brothers followed him to Florida. Then another brother came, and they all began to partner and open stores in central Florida with each other and with other friends from high school. Today, Hungry Howie’s counts 600 stores. Despite the size of the network, Kazbour calls it “one big family with lots of uncles, brothers, cousins, and friends.” ■

World Franchise magazine April 2012

Franchise Stories

Finding new life The postman in franchising delivers Gary Hughes turned 50 and decided he’d had enough of the corporate executive life. Based in the Seattle area at the time, he also decided he’d seen enough big city congestion to last a lifetime. Hughes soon found a picturesque, midsized town to call home and moved to Clarkston, Wash., pop. 50,000. “I used to say that we’re so far out into the boondocks it’s 120 miles to the nearest freeway,” says Hughes gleefully. He gave up the manufactured housing industry and a busy schedule that involved frequent flights around the country, and searched for a one- or two-store franchise deal that could support a life devoted to more laidback endeavors, like hunting and fishing. “I found out that hunting and fishing was as much work as running a business,” he says--and that it didn’t pay as much. Hughes has always thought for himself, starting early in life at achieving the ambitious goals he set. As a 16-year-old high school dropout and self-described youthful rebel, he took the advice of an Air Force buddy and enrolled in college, where he went on to graduate with a 3.9 GPA. Later in life, when he entered franchising, he dove in with the same vigor that had served him in his suit-and-tie days, eventually building a 33-store chain of ColorTyme franchises in 7 states, specializing in rent-to-own furniture, appliances, and electronics. As a franchisee, Hughes instituted several innova-

tions in his stores, spurring the franchisor to follow his example by adding financial services at all of the brand’s stores--a smart move for a franchise that caters largely to customers who often don’t have a bank account. His second career has met with resounding success. Named Franchisee of the Year on five different occasions, he has taken the time to advise his colleagues in the business. And he still makes a daily habit of going through each day’s numbers with a fine-tooth comb as he navigates through the worst economic downturn in recent history. All this (and more) helps explain why Gary Hughes was selected as one of the first annual MVP award winners by Multi-Unit Franchisee magazine. Franchising not only gave him a new purpose in life, it also gave him the money and time to travel the world, build a collection of exotic cars, and contribute generously to the local college and hospital and sponsor needy kids at the local Boys & Girls Club. Hughes believes that when a community supports your business, it’s important to give back and help others. Today, at 71, he has scaled down to 12 stores, each run by a partner, with an eye toward eventually selling out his interest. He’s already helped set up nine of his former employees with their own franchises and partnerships, starting them down the same entrepreneurial path that has rewarded him so richly.

World Franchise magazine April 2012

In 1980, Bob Chase was in his early 20s, with a small family and not much money. He was barely able to start his first franchise, a DryChem carpet cleaning operation, from a then-fledgling franchisor. But Chase wasn’t the kind of young man to let a few little things like that stop him from building his own business from the ground up. “At 22 years of age, trying to figure out what to do with my life, newly married, with one child and another on the way,” he says, “I had to learn very, very quickly. I learned marketing and personnel management and built a good business.” Armed with an unyielding work ethic and a desire to grow quickly, Chase wound up in the top 1 percent of Chem-Dry’s franchisees by running seven crews in the brand’s considerable worldwide network. And along the way, a sales representative from Money Mailer dropped by to sell him an ad in one of their mailers. Chase liked the concept at first sight and decided soon after that meeting to buy Money Mailer’s first franchise in Phoenix. By that time, Chase had also learned plenty about building organizations and achieving ambitious goals. “It certainly helped from the perspective of business operations,” Chase says about his franchising background in carpet cleaning. “When we ran across Money Mailer we were primed and ready to launch, and it took off quickly.” Chase later sold his Chem-

Dry business and went on to acquire a host of Money Mailer franchises covering the Phoenix and Denver metropolitan areas. Today his packets of coupons arrive every month in more than 1.5 million homes, covering 154 zones of 10,000 addresses in each. Money Mailer works directly with small and mediumsized businesses, says Chase, shipping out monthly stacks of 30 to 50 advertisements distributed on a ZIP Code basis. With that kind of pinpoint delivery system, the local dry cleaner, for example, can hit their target audience in the critical two- and three-mile radius around the store. “It allows a nice campaign for as little as $300 a month,” says Chase. “My company works with 1,300 businesses each month in Phoenix and Denver.” It’s also the kind of business that appeals to consumers’ thrifty side, a strategy that is helping him continue to grow even as the economic downturn plagues his two regional markets. “The trend is quite good,” says Chase. “Couponing became very popular. As times got tighter our product has held on very nicely. Consumers really like what we do. It’s an important service. That’s why we keep customers and grow. Our typical advertiser has one location, with an owner on the premises. So the Money Mailer product has weathered the storm extremely well.” So has Chase. His Money Mailer franchise operation has swelled into a multimillion-dollar business. ■

Franchise Stories

Changing Places: Trading the Corporate Life for Franchising The remarkable change in his life is not lost on John Betz. It seems one day he was wearing a three-piece suit and hopping a private jet to meet with telecommunications industry clients, and the next thing he knew he was wearing shorts and rolling pretzel dough behind the counter of his first Auntie Anne’s Pretzels. His first brush with the brand came when he grabbed some of the soft pretzels in Philadelphia and took them back to the office. Pretty soon, he didn’t dare face his colleagues without them. “You don’t forget those pretzels, and I recognized the uniqueness of the product when I saw the reaction of the crew at the office,” Betz recalls. In 1990, he struck up a relationship with the owners,

first as a guest, and later got to know them better. About a year later, when the brand started franchising, he and his wife Anne opened their first store in the nearby Cherry Hill Mall. Like many new franchisees, Betz kept his corporate job at MCI Telecommunications for a time, while Anne left MCI to open their first store. “She worked Monday through Friday, and I worked there on Saturdays and Sundays when I wasn’t at my day job,” he says. As the business began to grow, they opened another Auntie Anne’s, this time in the Philadelphia International Airport. Later, as they prepared to open their fourth store, Betz left the corporate world and dove full-bore into the life of a franchisee. “My salary

decreased initially, but that was all right because we knew this was ours. We were in control of our destiny and no longer had to worry about downsizing, right-sizing, or promotions that would move us out of the area,” he says. “I have five sisters and one brother here, and our families are all very close, so this is home.” Over time, Betz & Associates grew to encompass 11 Auntie Anne’s Pretzels, including the one they opened in 1999 on the boardwalk in Atlantic City, N.J. Starbucks came along in 2000, when Trump Plaza in Atlantic City asked Betz to be a licensee for Starbucks there. The new Starbucks Coffee opened in Trump Plaza on the boardwalk in 2003, and three others have followed in the Pennsylvania/ New Jersey area, says Betz, who says he is wowed by the concept. “Their core belief is that your first place is home, your second place is work, and your third place is somewhere you can congregate with family friends or co-workers and feel at peace. Starbucks wants to be that third place,” Betz says. “I can’t be-

lieve the attention to detail involved--the color selection, the material, the layout, the music. In doing our fourth store, we were involved in the design with strategic teams looking at locations and how the environment can create something special.” Recently, as part of a strategic plan to sell off his Auntie Anne’s stores, Betz signed a contract with Swiss Farms for three units in New Jersey’s Camden County, becoming the first franchisee for the company, which describes itself as “America’s Drive-Thru Grocer.” “Swiss Farms is 42 years old and two of my sisters worked at one in my neighborhood when I was growing up, so I’ve been going there since I was a kid,” Betz says. “Their products are great, they’re located in high-traffic, high-density areas, and the support from the franchisor is fantastic. There’s nobody better than Rocco Fiorentino .” Betz is happy with his franchise portfolio and “blessed” with the support of his wife Anne; his assistant of 14 years, Liz Robinson; and his team. “Our people really care,” he says. It’s also important for company management to know what’s in it for them, he says. “Every GM and manager within our company is tied to profitability with bonuses based on the profitability of the stores. Several things can enhance or detract from those bonuses: payroll costs, secret shoppers, and surveys. We want our people to feel emotionally appreciated and also financially appreciated.” ■

World Franchise magazine April 2012

Franchise Stories

Changing Sides

Walking the Walk Rob Parsons knew all about franchising. He had worked on the inside at Popeyes and Denny’s assisting franchisees with real estate. He had learned the ropes. In fact at Popeyes, Parsons worked with Jim Lyons, an industry vet-

eran who is now chief development officer for Del Taco and Captain D’s. Lyons played a key role in mentoring the young Parsons. During a five-year stretch at Popeyes, Parsons played a key role in pushing the brand’s New York market from 58 to 101 locations.

Just turning 40, about to get married, and enjoying a successful corporate career during a savage economic downturn, Parsons decided the time was right to emulate the entrepreneurs he had been working with for years. “I decided that I wanted to walk the walk,” says Parsons. And he chose a tough region to take that walk. Parsons got his start working the real estate market

England and good locations are hard to find. I couldn’t recruit people to it, but I believed in it because I lived here.” With all the real estate development savvy he needed, Parsons teamed up with investors and an experienced operations chief to form Synergy Dining Group. “You need three things in this business: capital, operations, and real estate development,” he says. “That’s

in New Hampshire before becoming directly involved in franchise development in the Northeast. He knows firsthand how tough it is to develop a franchise in New England, where the locals tend to remain steadfastly loyal to their favorite restaurants. It’s the polar opposite from the Midwest market, he says, where most are quick to embrace a new franchise location. Also, he says, “Real estate is expensive in New

World Franchise magazine April 2012

what we have in our threeway partnership, and that’s why we’re called Synergy. We formed in February 2009, and I retained my post at Popeyes until July, training my replacement. I resigned and two weeks later opened my first restaurant.” That was July 17. “We did $1 million in sales inside of four months in that unit,” he says. Three days after they hit the $1 million mark, the partners opened their second store, in Fall River, Mass. And they’re a long way from finished: the deal with Popeyes calls for Synergy to build 18 restaurants in their territory. As those late-night TV ads say, “But wait, there’s more!” Once those 18 units are built, Parsons plans on adding a noncompeting brand to help improve the odds for longterm success. And then he might add more locations. “Who knows how many restaurants the market will hold? And there are other markets. I sold franchises for a long time, and every franchisee that ever came to me had a number in mind for how many locations they wanted to have. Usually it was 100.” Parsons chuckles at that. If each location makes money and reports growing sales, then he’s doing fine. He says there’s no real magic number that adds up to success. ■

Franchise Stories

Franchisee returns to his roots

Franchising in Harlem When Emir Lopez was ready to open his first Domino’s Pizza store, he could have done it anywhere. But after working his way out of the James Weldon Johnson Project in East Harlem, New York, Emir decided the best place to open that store was right in the neighborhood he had come from. Born in Puerto Rico, Emir came to New York when he was four, brought over by his mother. He was raised in the Weldon Project, a cluster of ten 14-story buildings in the heart of East Harlem, known by most as Spanish Harlem. During his youth, Emir focused on education as the way to get out and make a better life for himself. “I wanted to be financially independent,” Emir says. “I wanted to enjoy life, and I knew I had to work hard to get there.” The path he took, however, was not the one he expected. Emir worked his way through the New York Institute of Technology and graduated with a degree in architecture. He landed a job after graduation and was on his way…until he was laid off, a casualty of tough economic times. Disillusioned, Emir gave up architecture and went in search of something else. “I thought I would go into the food business, because I really love food - I love to eat,” he says. “I wanted to get into restaurants with the idea of owning my own one day.” He applied

to a few culinary schools, but they weren’t offering scholarships. Still paying for his architecture degree, he decided not to take on more debt for additional schooling. By happenstance, he saw an ad for a manager-intraining position at Domino’s Pizza. “I applied for the job and went to interview with Jim Denburg,” he recalls. “I wore a suit and tie that day. It was the middle of July and it was hot. Everyone else waiting for an interview was in t-shirts. I guess I made an impression, because Jim took me to meet Dave Melton.” Hired as a manager-intraining, Emir plunged himself into the job, often working up to 80 hours in a week. “People at first thought I was crazy to take a job making $4.15 an hour, especially because I was in debt from college. But I decided to bite the bullet and pay my dues. Within six months, I was a general manager.” Emir managed Melton’s 89th Street and 3rd Avenue shop for more than three years before deciding he was ready to open his own store. Domino’s Pizza was expanding rapidly at the time, and opportunities existed throughout the United States and across the globe. Emir’s choice for his first store: East Harlem, where no other delivery business had

ventured to this point. “I could have franchised anywhere. I even considered applying to be the master franchisee for Brazil,” he says. “But I grew up in East Harlem. I’m just a kid from the projects. I did what I had to do. I went to college, got myself started, and came back to my old neighborhood to open my own business.” He opened his store on Friday in April of 1996. During his first three days in business over that weekend, sales topped $18,000. The first full week he was in business netted $27,000 in pizza sales. Knowing that East Harlem presented even more opportunity, he opened a second store soon after. “I’ve been a franchisee for 12 years, and I love being in my store. I love hiring and recruiting. I love the flow of the business. I want to raise sales, serve my customers, and make money for the long run,” he says. Emir has given back to his community in many ways, not the least of which was being a pioneer in providing hot food delivery to a community that felt shunned. “Nobody would deliver to the projects. Nobody,” he says. “Then along came Domino’s, and now everyone wants to deliver here. Do I feel like a pioneer? Absolutely. A lot of my competitors saw that I was

delivering here and they’ve gotten into delivery, too. I’m okay with that. Competition makes you work harder.” Emir donates pizza to people who volunteer to maintain and repair the gardens in the projects, and he also donates pizza to organizations dedicated to children. He sponsored an event in which he fed an entire school. During the annual East Harlem Puerto Rican Festival, which draws half a million people to the neighborhood during the weekend, Emir gives out pizza slices and branded items to anyone who passes by. For a businessman who had the opportunity to leave the projects behind but didn’t, does Emir have any regrets? “There have been moments that have been rough,” he admits. “Safety and security can be a challenge. Winter is tough, because we deliver on bicycles. Delivery guys are not thrilled about going out on bikes when it’s negative 10 degrees outside. My brother helps out in the winter. He’s got a car…which I bought for him. But no, I’ve never regretted it.” “I love Domino’s Pizza. I love that I had the opportunity to own my own business. I love that I can give back to my old neighborhood. I still have the passion for this business that I had when I started.” ■

World Franchise magazine April 2012

Franchise Stories

Developer Extraordinaire For more than 20 years Rick Huffman and his two partners -Sam Catanese and Marc Williams - have been building things. They’ve developed shopping centers, hotels, apartment complexes, a large stock of affordable housing units, and Branson Landing, a $400 million mixed-use project in Branson, Mo. Now, they’re building a hotel franchise as well. The trio’s portfolio includes Hampton Inn and Hilton properties along with four Value Place locations - an extended-stay concept that has continued to thrive in a down economy by promising hotel convenience and apartment essentials. “It just made a lot of sense,” says Huffman. “If we could build something of apartment grade, at the bottom of the extended-stay market from an affordability/price point, we thought the model would be good.” Fine-tuning their business strategy, Huffman and his partners have been focusing on areas

with military bases, like Ft. Leonard Wood in Missouri and Junction City in Kansas, minutes from Fort Riley. “The military has a lot of travel and a lot of extended stay involved with it,” says Huffman. “There are a lot of moving parts around a military base. The first Value Place we built was in Junction City, a huge military area with a lot of travel and a lot of construction going on. Construction workers also use extended stay places, and it worked quite well.” Huffman feels right at home doing this kind of development work. The 53-year-old helped put himself through college working construction, “pounding nails and bidding a little plumbing and doing a little electrical work.” So when it’s time to break ground on a new Value Place, he knows how to bring a project like that in on time and on budget. “I spend a tremendous amount of time reading reports and keeping in tune

World Franchise magazine April 2012

with our projects,” says Huffman. “My biggest strength has always been in the development side. I’ve kept in tune with construction and costs and means and methods.” He’s also kept in touch with his own values, which he likes to see reflected in the people who work for his company. “If I find people who are family-oriented and honest and can admit their faults, those are pretty strong core values,” he says. “That’s what makes everything work.” Like so many others involved in real estate development, Huffman has felt the chill winds of the economic downturn. But if you stick to your values and recruit a good team of people who share them, he says, you can get through anything. It also hasn’t hurt that the sour economy has cut labor and land costs to the bone, trimming the cost of building a Value Place to less than $4 million. To get ahead in Huffman’s

company, there are some ground rules, though. Being on time for meetings is essential for a manager who keeps Vince Lombardi time: “If you’re five minutes early, you’re late.” And despite every new advance in technology, Huffman still believes that the best way to communicate with anyone is face to face. It’s all part of a down-to-earth game plan that depends on keeping things simple and straightforward. “There’s nothing special,” he says about his success. “I think it’s just getting up every morning, looking for deals, treating people like human beings, just being honest. A friend of mine once said that we spend a tremendous amount of money trying to keep the dishonest from taking our money. But at the end of the day there’s only that one percent of people who are bad who will steal from you. Don’t worry about that one percent, because they’re going to hell and you’re not.”■

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You may be a stranger in franchising , a beginner or an experienced franchisee or franchisor. No matter what you are, one thing is certain: information is gold. And you can never have enough gold...

advice

franchise

Franchise Advice

Buying a Franchise

or a Business Package

What is a ‘business package’? There are some organisations which enable the budding entrepreneur to start in business by providing the necessary equipment, expertise or training to do so within a package. The package includes a number of moulds and tools, the materials and a day’s training to show you how to use them. So, ‘Business packages’ are not ‘franchises’. What is a franchise? The term ‘franchising’ covers a variety of arrangements in which the owner of of a product, process, service or even just a name (in the terms of a celebrity) allows someone else to use it in exchange for some payment. This rest of this article refers particularly to ‘business format franchising’. It is a method of starting a business which minimizes risk by using or emulating a tried and tested ‘business formula’. A contract is forged between ‘the franchisor’ - (the organisation that supplies the franchise) and ‘the franchisee’ - (the party that purchases the franchise). The franchise package supplies most of the things that one needs to launch the business successfully:- training, licence to use franchise name, customer base, supplies and raw materials, equipment, promotional material etc. In addition to a set-up fee, the franchisor may charge an ongoing fee based on the percentage of sales or profits

of the business. The key point is that it should be a proven business system that is offered - not merely the right to sell a product or service. Business format franchises generally fall into one of two categories: - a ‘job franchise’ (in which the franchisees actually do the work that provides the service to the customers) - a ‘management franchise’ (in which the franchisee is mainly organising others to do this labour) It is important to appreciate the difference between the two categories because it will help you to find a franchise that suits your skills. In order to prevent franchisees within the same organisation competing for the same customer base, territorial limits are often stipulated within the franchise contract. Also, the franchise contract may stipulate certain standards regarding the quality of service or products supplied by the franchisee, thus upholding the brand image. When choices have to made, we tend to go for the ‘familiar’. Thus, a company can win business by ‘branding’ a product or service to make it more familiar to potential customers. A franchise opportunity enables you to buy into this brand image and win custom that would otherwise go elsewhere. Comments and Advice For many people franchising is an excellent way of

World Franchise magazine April 2012

starting up in business. It is in the franchisor’s long term interest for you to succeed and so there is often continuing support at hand, unlike buying an existing business or starting from scratch on your own. You may feel that the restrictions stipulated in a franchise contract-with regards to your choice of suppliers, recruitment policy or products- contradict the ethos of ‘working for yourself’. However, in the majority cases, these are in place to uphold the franchise brand name and are part of a successful business formula. You may also find it painful to see a percentage of your hard earned profits being diverted towards the franchisor. Again, in most cases, the majority of this money is spent on advertising / marketing and benefits the group as a whole. When considering a franchise, try to understand why they are offering you the business in the first place. Very often, franchising is an extremely quick low-risk method of expanding a successful business across the world. The franchisee has the local knowledge and takes on the majority of financial risk. In return the franchisor is offering a successful business formula that has been proven to work. But before you go ahead, ask yourself whether the support, training, stock, experience and brand name justifies the investment asked. Watch out for companies that create franchises as an

‘end product’. Be aware that some companies use the term ‘franchise’ to describe what is really a commission agency, network marketing opportunity or other form of start-up. Always thoroughly check the contract, you don’t want to discover three years down the line that your successful business has to be sold back to the franchisor after they increase the cost of your supplies to unreasonable levels, and at the same time forbid you to seek a more competitive price. Seek independent specialised legal and financial advice from experts in the field. You may have to pay relatively high fees for such a service but it could save a great deal of disappointment in the future. Don’t expect to be able to change the franchise contract, it is often a standardised format used across the network. Before accepting the advice of a third party franchise ‘broker’ be aware that they may not be entirely independent. Be aware of the high level of investment or borrowing that you may need to succeed, but don’t overstretch yourself. As with every business start-up, you have to be careful. Franchising used to have a bad name but regulation in recent years has improved the industry beyond recognition (in the UK at least). It is now a very realistic method of starting up a long term successful business.

Franchise Advice

Pros: - You are often investing in a

tried, tested and successful business formula. - You are gaining the benefit of a franchisor’s experience and knowledge thereby reducing the scope for mistakes. In particular you are spared many of the administrative headaches associated with setting up a business. - In many cases you will be taking advantage of the name and reputation which has already been built up by the franchisor. - On many occasions the franchisor offers training and ongoing support within the package. - You can benefit from the franchisor’s activities in such areas as advertising, mar-

keting, research and development and you can take advantage of their enhanced buying power. - Many high street banks see franchising a sound investment and are more likely to lend more, and on better terms, than if you were starting your business from scratch. - A properly tested and structured franchise system, offered by a competent franchisor, offers more of a safety net than going into business independently. - You do not necessarily need direct experience in your chosen area so this can open up access to many types of business which you may not have otherwise considered. - If you carry out your research properly, you should

have a clear idea of how you will be spending your time. - As with any form of self employment, you will be working for your own future and not someone else’s. It is a well respected method of starting up in business.

Cons: - Often a percentage of your

profits goes to the franchisor. You are not entirely your own boss. - Your business practice may be restricted with regards to; choice of suppliers, employment policy, customer base and territory etc. You may find this frustrating. - A reasonable sized investment is required (ranging from about EUR 5,000 to EUR 200,000).

- The failure of a franchisor can leave the franchisee with a business which is not as viable as an independent operation. - If the control of the franchise changes hands it could be for the better, but it could be for the worst. - You are very much dependent upon the franchisor and other franchisees to maintain the integrity of the brand. - One bad apple can adversely affect the whole network. - You may not be entitled to resell your franchise. - Franchising is a complex area with many sources of potential conflict between the franchisor and franchisee, particularly regarding the terms of the contract..”■

World Franchise magazine April 2012

Franchise Advice

Know yourself.

Then buy the franchise.

To succeed as franchise owner, you must be able to follow the rules, and conduct the business according to the book, in this case, the Operations Manual. If you find it hard to follow someone else’s rules, then a franchise probably does not suit you. You must be happy following an established system, without constantly trying to improve or change it; and be able to promote your franchise with pride, even though you did not invent the business yourself. Knowing yourself sounds like obvious advice, but it entails examining important issues about your objectives, talents and strengths, finances, family commitments, and even your personal habits, like sleeping pattern and clothing preferences. By knowing yourself, what it is you want to achieve, and the most practical way for you to do it, you’ll eliminate wasting time on researching franchise choices not suited to your temperament and abilities. Grab a pen and paper, and consider these some points to honestly evaluate yourself: 1. Your goals: · Where do you want to be in five years? In ten years? · Do you want to make a full-time

commitment, or start out slow? · How important is money vs. job satisfaction? · Are you motivated by personal challenge? 2. Your talents, abilities and temperament: · What activities, such as sports, computers, decorating, etc, do you like to do? · Are you better at physical or mental tasks? · Are you good at interacting with people or organizing things? · Are you an outgoing “people person” or more introverted? · Are you patient in the long term or eager for fast results? · Do you prefer to wear business attire, a uniform or casual dress? · Do you want to be outside and on the go, or work inside the same premise each day? · Can you accept the discipline of a franchise system? 3. Demands on yourself and family: · What about your physical endurance – can you work long hours on your feet or do you prefer sedentary work? · What is your preferred work schedule – fixed hours or flexible? Do you

World Franchise magazine April 2012

want to have your weekends free? Are you a morning or night person? · Is your family supportive of this venture? How will it impact their lives? What are your child care commitments? · Do you want clear separation of your business interests from your home and personal life? · What about leisure time -- do you want to be able to attend evening social gatherings or school events? Take time away for vacations? 4. Your financial situation: · Do you have the resources to buy a franchise and survive the initial start-up phase? · Can you cope with unexpected losses or setbacks? · What is your risk tolerance? How much of your assets are you willing to put on the line? · What is your credit history and can you raise financial backing? Recognizing your true abilities, natural preferences, and real limitations is the first step to success in any type of business. By having some clear direction as to your goals, personal commitments, and lifestyle choices, you’ll have a better idea of the most realistic way to achieve your ambitions. ■

Franchise Advice

Franchisors can reach the top using 10 building blocks to success

ountless books, articles have been written about the franchise industry and that trend continues. Topics run the gamut from starting up a new franchise, to buying a franchise, and everything in between. If you search the Internet, you’ll find lots of articles describing what makes for a successful franchisee, but few if any describing what makes for a successful franchisor. When it comes to what sets the top franchise companies apart from the rest of the pack, the determining factor is usually the number of units. However, as we’ve recently seen in the case of certain franchise programs, size doesn’t always relate to a good franchise program. What is needed is a set of building blocks that can serve as the foundation for a successful franchise. Following these building blocks will result in a franchise company providing its franchisees the best opportunity for financial success. Ten Building Blocks for a Successful Franchise System 1. Equitable franchisee ROI must be a priority The structure of the franchise program both operationally and financially must provide franchisees an opportunity for success that does not require extraordinary performance. If the franchisees follow the program and do not earn an ROI commensurate with their original investment, then the franchise is flawed. There must be balance between the earnings of the franchisor and its franchisees. 2. If the franchise program is flawed, then it must be fixed Franchisors should adjust a franchise program that isn’t “working.” There is no reason why a royalty or advertising fund

contribution can’t be changed. If certain products or services aren’t successful then find alternatives.

3. The franchisor must control the franchise sales process and adhere to its franchisee profile One of the most frequent reasons for franchisee failures is undercapitalization followed by a lack of skills needed to operate the franchise successfully. Establish a franchisee profile and if franchise candidates don’t fit this profile just say no! If the franchisor utilizes brokers than the franchisor must be in full control of the franchise sales process. 4. Total transparency with prospective franchisees Provide prospective franchisees complete details’ regarding what is needed to be successful. Don’t sugarcoat the franchise opportunity. The franchisor sales staff should act as more consultant and less salesperson. 5. Franchisor leadership must be fully engaged in the franchise operation Franchisor executive leadership must be totally invoWlved in the franchise so that there is total awareness of successes and failures. There is no room for “surprises” when it comes to franchise operations. Whatever the forum, franchisee feedback must flow to franchisor leadership. 6. Franchisees must be included and their input solicited for important operational and marketing strategies The franchisor must include its franchisees in important decisions. Any significant changes or alterations in the area of franchise operations, marketing or finance should involve the franchisees. This can be done using the FAC, advertising committee or other repre-

sentative body.

7. New products and services must be tested, evaluated and measured by franchisees before introducing to the program Test new products, services or equipment in select franchisee locations before introducing them. This process leads to an objective and credible result for the rest of the franchise network to decide upon. 8. Obtain financial results from franchisees on a regular basis Despite certain requirements set forth in franchise agreements it’s been my experience that many franchisors fail to obtain financial results or reports from their franchisees on a regular basis. This lack of critical information prevents a franchisor from knowing which franchisees are profitable and which may be in trouble. 9. Uphold and Protect the integrity and standards of the franchise program It’s critical that the franchisor uphold the standards of the franchise. The franchisees that follow the program deserve it and the customers that use the product or services provided by the franchisees are entitled to consistency. Franchisors that don’t protect the brand are not respected by their franchisees. 10. Invest in franchisee training and support Top notch franchisors have viable and effective training programs. Training and support does not end with start-up franchisee training but rather is an ongoing activity. When franchise operations identify weaknesses in the execution of best franchise practices the training component should implement programs to address these problems. ■

World Franchise magazine April 2012

Franchise Advice

Would your franchise system pass the stress test?

he current economic environment is making trading exceedingly uncertain and difficult for many franchise systems. But times were already challenging with, for example, changes in customer preferences, the market for supplies, the labour market and technology, and increased competitive intensity. All factors you’ll find in the strategy text book but might not have expected to conspire as they have. For examples of their impact, we need look no further than chains involved in video-rental, books, music & CDs, pizza and second-hand goods retail. There are some franchise systems that are doing well, but many have been impacted. In fact, many have been hit very hard and there are some heart-breaking situations involving franchisees and franchisors alike. Now is certainly a time for franchisors to know their position in terms of strengths,

weaknesses, opportunities and threats. Now is also a time to make plans that are realistic, and make the most out of available resources. In the US, the Federal Reserve has taken steps to determine, rather publically, whether their largest banks are strong enough to cope with a sustained period of economic downturn - without requiring additional capital. To investigate this they tested the banks business models using two key outlook scenarios covering the economy, unemployment figures and house prices. The outcome was that 10 of the top 19 would require extra capital. An important question for franchisors is should the concept of stress test be limited to banks, or would franchisors also benefit by engaging in a regular health check, benchmarking process and/or performance improvement regime? For franchisors, it has be-

World Franchise magazine April 2012

come even more vital to consider how different futures might impact upon franchise system growth, development or even survival prospects. Proactive franchisors do this on a regular basis. Less active franchisors may wait until a banking covenant is already broken. Looking forward, the reality is that we do not know the shape of recovery globally or in New Zealand. Will it be a V-shaped (probably not, because we would know by now)? Or will it be U, W or L shaped? Are we at the bottom yet, and how long will it take to get back to where we were? We are certainly all hopeful for economic growth in 2010 but the size, speed and shape of the recovery remains uncertain. For some the current tough economic environment is exacerbating weaknesses that were already in inherent in the franchise system’s strategy, structure and associated management practices

– or lack thereof. Accordingly, such systems are left more precarious as they may not have recognised [and built adequate reserves in] what we now regard as relatively good times, prior to the economic crisis which began unfolding in late 2007. Weaknesses in franchise structure are crucial because regardless of business strategy poor structure can variously limit available opportunity, margin, efficiencies, and profits (and equitability) and therefore value. Importantly also, weaknesses in franchise structure often limit franchisors (and therefore franchisees) from implementing the types of initiatives and changes required to compete and build value effectively into the future. The time has never been better for reviewing your overall franchise strategy, structure, practices and performance to identify what weaknesses and opportunities for improvement exist. ■

Franchise Advice

If the franchise doesn’t come with a marketing machine, don’t buy it. Marketing machines . . . that’s what separates successful franchisees from failing franchisees. As you’re evaluating franchise opportunities, be sure to look only at those that come with a marketing machine! Major issue today: marketing! In most cases of franchisees whose businesses are failing, their overriding concern is marketing. They want to know: 1. Where are the leads? 2. Where are the customers? 3. How do I get more customers? 4. How do I keep my customers? 5. How do I get customers to spend more money in my business? Those are the questions and issues facing far too many franchisees today, which is why marketing is the most important component for you to evaluate prior to buying a franchise. Unfortunately, many franchisors either don’t know the importance of producing a marketing machine or they can’t afford to. Sometimes, in fact, the franchisor hasn’t figured out how to market the business, and their franchisees are in the worst situation. It’s easy for franchisors to overlook the importance of marketing to their franchisees because there are so many other things that compete for a franchisor’s time and money: Selling

franchises, training and support, site construction, managing the corporate team, funding the business, dealing with vendors, etc. When franchisors forget (and some just don’t know) that marketing propels franchising - that nothing is more important than marketing, especially to a franchisee - they fail to live up to their responsibilities as franchisors. Protect yourself by not buying their franchises! Franchising is in a bit of a mess right now because too few franchisors are marketers, and too few franchise companies are providing marketing machines for their franchisees. And things aren’t going to get better until franchisors begin to invest again in marketing. Look for the marketing machines . . . they’re out there! Ask existing franchisees: How effective is the franchisor’s marketing machine? If the franchisee looks at you like you’ve got two heads, you know to continue shopping! Don’t believe anyone who tells you that everyone is struggling to sell franchises today. Not true. Franchisors with marketing machines are doing just fine, even in these troubled economic times. If you expect to do just fine as a franchisee, only buy the franchise that comes with a marketing machine structure, practices and performance to identify what weaknesses and opportunities for improvement exist. ■

World Franchise magazine April 2012

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