July 1, 1997 12 min read
Cookies are more than just impulse buys for mall patrons, at least according to David B. Barr, president and CEO of Great American Cookies. And that belief is the inspiration behind the Atlanta-based franchisor's vision for growth through co-branding.
With locations up and running in Virginia and the Carolinas, the company's first co-branding partnership-with Farmington, Connecticut-based ice cream franchisor Carvel Corp.-seems to be a sweet success.
In addition to co-branding, Barr has worked to expand the traditionally mall-based company into other high-traffic locations, such as airports, grocery stores, strip centers and universities. "[Because] mall development has slowed in the last decade," Barr says, "we have to seek other ways to grow."
Although co-branding seems to be the best expansion option outside of malls for now, Barr hopes in future years that won't be the case. Says Barr, "I'd like to think that as we continue to develop new ways to sell cookies, [our] cookies will be able to stand alone outside malls."
When kids think of summer camp, they probably picture bunk beds, baseball bats . . . and bagels? Well, there are at least 20 kids who can't wait to sink their teeth into the bagel delivery business at Brookdale Community College's Young Entrepreneur's Camp in Lincroft, New Jersey.
The camp, now in its second year, is a welcome on-campus addition for those who want breakfast delivered to their desks-but it also teaches the sixth- to ninth-grade campers business basics such as marketing, advertising and price-comparison.
Last year, the campers sold about 120 breakfast boxes, which include any combination of bagels, fruit, drinks and other snacks-and evenly divided the $160 profit.
"Most people who got the delivery wanted to know if we were going to do it every week. I don't think I can handle that," says Larry Novick, a business professor at the college as well as the camp director and head of Brookdale's Small Business Development Center. "But they did convince me to do it another week." This year, the camp will be held July 21-25 and August 4-8.
Eatontown, New Jersey-based Manhattan Bagel Co. Inc. helps the young campers by having one of its franchisees sell them the bagels wholesale. Jason Gennusa, president and co-founder of Manhattan Bagel Co., enjoys motivating youngsters to become entrepreneurs. Says Gennusa, "It's a way of giving something back to the community."
As the new milennium approaches, many franchisors are setting expansion goals. Here's what two companies have in store:
7-Eleven: This convenience store franchise, operated by The Southland Corp. in Dallas, is planning expansion efforts in its major markets across the nation. Due to corporate downsizing and a leveraged buyout, it's been a decade since the franchisor has had positive net store growth.
The new stores will contain sinks in the coffee aisle so customers can rinse their refillable mugs, more ATM and banking services, a new floorplan to open traffic flow, and wall displays for magazines.
7-Eleven plans to open at least 100 new stores over the next few years. Eventually, all existing units will upgrade to the new concept.
Valvoline Instant Oil Change Franchising Inc.: In February, Lexington, New York-based Valvoline announced a plan to add at least 300 new stores by the year 2002, with locations concentrated in the nation's Sunbelt region.
"It's a perfect time for franchising an oil change center," says John Stilwell, vice president of franchising. According to Stilwell, this is due to a recent shift in consumer attitudes, from a "do-it-yourself" to a "do-it-for-me" mentality. The complexity of today's cars, for instance, often makes changing the oil yourself more difficult, so car owners are seeking assistance, says Stilwell.
The company hopes to add 65 new locations to its tally of nearly 500 by year-end.
Hungry For Expansion
In one of the most significant acquisitions in recent fast-food history, CKE Restaurants Inc., the parent company of Carl's Jr., purchased Hardee's Food Systems Inc. for $327 million in late April. The bond between Hardee's, the nation's fourth-largest hamburger chain with more than 3,100 outlets, and Carl's Jr., the seventh largest at 676 units, makes for a strong marriage, says William P. Foley II, CKE's chairman and CEO.
"These two brands are an excellent fit, in geography as well as in menu," agrees H. Stephen McManus, Hardee's president and CEO.
The match made in fast-food heaven means Carl's Jr., a California fast-food staple, gets the national presence it's long sought, while Hardee's, which has suffered through several quarters of stagnation, receives an opportunity for future growth.
Although Hardee's outlets will continue to operate under the Hardee's name, co-branding will be tested in Peoria, Illinois, and a second market yet to be determined. The test menu will include Carl's Jr.'s charbroiled fare for lunch and dinner alongside Hardee's popular breakfast fare, which drives nearly a third of the chain's overall sales.
Considering that they are expected to foot the bill for store remodelings and new charbroilers, the cooperation of Hardee's network of 2,364 franchisees is crucial to the plan. "We want to lead by example and demonstrate [the concept in] company-owned stores first," says Rory Murphy, executive vice president of CKE. "Hopefully, the numbers we produce will justify the cost to [franchisees]."
"It's a rather fascinating approach to dual branding," says restaurant analyst Ron Paul. "It's definitely one development we're going to be watching with a great deal of interest."
Employers might not equate welfare reform with good business. But with welfare-to-work plans cropping up left and right, some see it as a solution to ease the headache of worker shortages and help out the community at the same time.
Take Miami-based Burger King Corp. The franchise, which has some 7,000 outlets nationwide, recently joined other companies in a presidential initiative to examine ways the public and private sectors can bring welfare recipients into the workplace.
"[A welfare-to-work program] would give us a great employee base for the company," says Kim Miller of Burger King. "We anticipate it would create between 10,000 and 15,000 new jobs annually, for which current welfare recipients would be eligible."
And with plans to open nearly 500 stores this year, each needing about 35 crew members, "[the program] will help individuals who live in the areas where we do business," Miller adds.
Once Burger King's task force works out the kinks, says Miller-namely, child-care needs, job preparedness training and transportation for potential workers-the company will likely launch a model program in Miami and then expand the program nationwide.
The car rental world is revving up for some changes, and Thrifty Rent-a-Car Systems Inc. is poised to take advantage of the shake-up. The Tulsa, Oklahoma-based car rental franchisor is snapping up downsized car rental execs and recruiting them as franchise owners.
"With four of the top five car rental companies either recently sold or announced as being in the midst of a sale, there will be a displacement of experienced, talented car rental industry executives," says Don Himelfarb, Thrifty's president and CEO.
The "bootstrap" program provides financial assistance, including an initial fleet of vehicles, to experienced car rental executives who want to go into the car rental business as an owner but who don't have the capital to get started.
Ideal program candidates are industry executives with five or more years of operational experience who meet a minimum net worth requirement of $1,000 per fleet car.
At press time, Thrifty had received 21 inquiries; the company expects to have 10 franchises from the program operating by year-end.
Soapy Sales
lvin frankel, 68, has cleaned up his act since coming out of retirement in 1992 to start The Neighborhood Dry Cleaning Co. Inc. in Delray Beach, Florida. "I'd been in the dry cleaning business for 40 years," says Frankel. "I got tired of doing nothing."
His business opportunity company has established 47 dry cleaners in the Midwest and Southeast.
"It's a great industry because there is a growing population and more two-income families," says Frankel, "and it's not dominated by industry giants."
In fact, competition hasn't been much of a problem for Neighborhood cleaners, which Frankel says capture more than 30 percent of the market share at most locations. He credits the impressive numbers, in part, to sophisticated operating systems and the company's one-price structure (most cleaners charge a different price for each type of garment).
"Our stores attract customers from up to a five-mile radius, compared with an average of one mile for traditional dry cleaners," says Frankel.
Frankel expects to launch between 24 and 30 new stores this year, and 50 locations per year beginning in 1998.
A program created by and consisting of some of the nation's largest franchise systems recently proposed a cutting-edge partnership with the government. The National Franchise Mediation Program (NFMP) is offering to deal with franchisors who violate minor or technical aspects of the Federal Trade Commission (FTC) Franchise Rule. Should the FTC accept the proposal, it would be able to refer the alleged violators and violated to the NFMP for mediation sessions as an alternative to proceeding with the usual investigations and penalties.
Clay Small, co-author of the proposal and senior vice president and general counsel for Pizza Hut Inc. and KFC, believes this idea makes sense for all involved. "The FTC doesn't have the resources to resolve every issue in its jurisdiction," says Small. "If franchisees believe their franchisor has issued a misleading Uniform Franchise Offering Circular in a minor or technical fashion, they have no private cause of action under the FTC Franchise Rule and are left without an expedient way to proceed. And, from the franchisor's point of view, there's nothing worse than getting caught in a bureaucratic dispute that can go on for years."
The logical solution, Small believes, is a mediation process lasting no more than 60 days, guided by a neutral third party well-versed in franchising and mediation matters. The method has clearly worked-since the NFMP was formed three years ago, the nonprofit group has handled more than 100 mediations with an 85 percent resolution success rate.
Though FTC officials responded favorably, the NFMP had not, at press time, received a final nod from the agency. Next on Small's wish list, he says, is a meeting between franchisors, franchisees and the FTC staff "to see where they want to take this and what the [NFMP] can do to take it there.'
In the meantime, considering the NFMP's track record and the government's changing attitude toward private-sector initiatives, Small is extremely optimistic about the idea of making the leap to reality. "The NFMP was a private-sector initiative, and now we have a potential partnership with the federal government," he says. "The focus of the program has been to bring a more realistic sense to the relationship between franchisors and franchisees. This is just another step in that direction."
Just A Bill
Georgia has franchising on its mind, as it becomes the most recent state to forge ahead with a franchise bill. If passed, the Georgia Franchisee Protection Act would mark the first time the franchise relationship has been regulated in the state. "There is nothing on the books to protect the franchisee [in Georgia], nor anything that even addresses the franchisee," says Sen. Donzella J. James, who introduced the bill.
Prompted by letters and calls from franchisees throughout the nation, James held several franchise hearings last year and modeled the bill after other state franchise laws. "We're just trying to get some fairness in play," James says. "There are some serious problems, and we want to find some answers."
Though the state congress isn't in session, James says the legislation is still very much alive. "I'm working to help the committee get educated during the interim," James says, "so when we [take up the bill in January], we can actually work on passage."
Nontraditional lending programs are bringing financing within reach of restaurant franchisees. Franchise Mortgage Acceptance Corp. (FMAC), a cash flow-based lending company in Greenwich, Connecticut, opens doors for restaurant franchisees who have trouble finding financing elsewhere.
"[Often, franchisees] can't qualify for institutional debt, where they can get reasonable rates," says Thomas J. Shaughnessy, senior vice president of FMAC.
The strategy, which FMAC calls "debt securitization," differs from traditional collateral lending and its emphasis on assets. "We're a cash flow lender," says Shaughnessy. "It's based on the ability of units to generate cash flow."
For franchises such as Don Harty, the cash flow lending system seems heaven-sent. "[FMAC] understands the restaurant industry," says Harty, who owns three Burger King franchises in New York City. "Usually, we have to educate lenders about the restaurant business, but [FMAC] understands the low rate of failure of franchised restaurants and that the integrity and ability of the operator is the most important thing."
Harty, a Burger King franchisee for 20 years, believes companies like FMAC are the best route for financing franchised restaurants. Says Harty, "They really made it painless."
Burger King Corp., (305) 378-7277;
CKE Restaurants Inc., P.O. Box 4349, Anaheim, CA 92803-4349, (714) 774-5796;
Franchise Mortgage Acceptance Corp., 5 Greenwich Office Park, Greenwich, CT 06831, (800) 884-3622;
Great American Cookies, 4685 Frederick Dr. S.W., Atlanta, GA 30336, (800) 336-2447, (404) 696-1700;
Sen. Donzella J. James, (404) 656-0049, http://www.ganet.org;
Manhattan Bagel Co. Inc., 246 Industrial Wy. W., Eatontown, NJ 07724, (800) USA-BAGEL;
National Franchise Mediation Program Steering Committee, 14841 Dallas Pkwy., Dallas, TX 75240-2100, (972) 338-7661;
The Neighborhood Dry Cleaning Co. Inc., 75 N.E. Federal Hwy., #104, Delray Beach, FL 33483, (800) 697-1811, (561) 272-2797;
The Southland Corp., (214) 828-7345;
Thrifty Rent-a-Car Systems Inc., (800) 532-3401, (918) 669-2861;
Valvoline Instant Oil Change Franchising Inc., P.O. Box 14046, Lexington, KY 40512, (800) 622-6846;
Young Entrepreneur's Camp, Brookdale Community College, 765 Newman Springs Rd., Lincroft, NJ 07738, (908) 224-2738.