INVESTING IN PUBLICLY HELD RESTAURANT COMPANIES – WHAT DID THE PANDEMIC TEACH US?

Posted on November 10, 2020December 10, 2020 by Franchise Strategist

These days, investors are more typically ETFs which have to own broad swaths of particular industries, as well as institutions that are fighting for day to day performance. The result is that all stocks within an industry have a strong tendency to move together, and it takes a long time for fundamentals to prevail.

INVESTING IN PUBLICLY HELD RESTAURANT COMPANIES – WHAT DID THE PANDEMIC TEACH US?
By Roger Lipton

The dust is beginning to settle, especially with a vaccine now in view. The stocks within the restaurant industry made a huge move on Monday, going a long way to recovering from the severe decline that started at the end of February. We are comparing prices from before the pandemic to the current prices. We published a chart on October 22nd that attempted to compare the current valuations (relative to reasonable expectations) to those before the pandemic began. That exercise revealed some interesting “inefficiencies” in terms of valuations. Shake Shack screamed “overvaluation” so we wrote first about that Company. Of course, it stands to reason that the apparently most overvalued situation would make one of the largest upward moves in today’s news about a possible vaccine. Thank goodness we are not short this volatile situation, which our experience has taught us is a nerve wracking exericise in a Federal Reserve supported easy money environment.

Before we get into a broader discussion of the last seven or eight months, there’s a lesson to be learned by a conversation we had with one of our money managing friends. Back on April 30th, he asked for our suggestion as to a “paired trade” in the restaurant industry. You know… one name that was well positioned and would outperform on the upside, paired with the short sale of a weaker company that would not do as well. The theory, which fifty years ago spawned today’s multi-trillion dollar hedge fund industry, is that equal amounts invested in well chosen offsetting positions would be market neutral yet hopefully outperform the general market over time. It stands to reason, of course, that the stock price will follow the fundamental performance over time, and the good companies will fundamentally do better than the weaker participants. Ideally the long position will go up and the short position will go down, profiting on both sides in a neutral market. That was often the case decades ago, when stock ownership was more broadly spread among individuals and institutions who were picking Individual stocks. These days, investors are more typically ETFs which have to own broad swaths of particular industries, as well as institutions that are fighting for day to day performance. The result is that all stocks within an industry have a strong tendency to move together, and it takes a long time for fundamentals to prevail. Adding to this “inefficiency” is that multi-billion dollar hedge funds maintain large short positions, managed with a hair trigger to limit losses if even short term news is announced. That’s why on a day like Monday when the general stock market makes a really big move, the stocks with the largest short positions go up the most, whether the specific fundamentals justify that price action or not. We could go on….but suffice to say that short term trading has become very difficult in recent years.

As an illustration: relative to the request for a couple of paired trades back in April, after we suggested that this approach has become pretty difficult, we provided a couple of apparently compelling suggestions. We paired the highly respected Darden (DRI) on the long side with the enormously challenged Dave & Buster’s (PLAY) as a compensating short. Surely DRI would outperform PLAY, especially with the predictable health concerns of the public, even after the worst of the pandemic. The chart below shows in retrospect that by 4/30 PLAY, which had declined by 68% between 2/14 and 4/30, was already “oversold”. The profit in Darden (62%) from 4/30 to 11/9 (today) was almost exactly equal to the loss (60%) on the PLAY short. So that trade hasn’t worked yet. It is worth noting that PLAY would have worked well from 2/14 (before the pandemic) to 11/9 (45% profit), against a 2% loss in DRI, but it was already too late by 4/30.

The second presumably intelligent paired trade I suggested on 4/30 was to go long Starbucks (SBUX) along with a short sale of Shake Shack (SHAK). Who could argue with a worldwide brand selling an addictive product (with major growth ahead in China), offset by the short sale of a ridiculously valued hamburger chain whose business model couldn’t be designed more poorly to cope with a pandemic. SHAK had no drive-thrus, high rents, resort locations, city locations inhibited, etc.etc. You can foresee the result. Between 4/30 and 11/9, an investor would have made 26% on his long SBUX position, and lost 51% on the SHAK short. Even from pre-pandemic 2/14 until 11/9, right through the pandemic, SBUX gained 9%, but the SHAK short lost 14%. Every time we write about SHAK, we emphasize our respect for their management, but they are not magicians, and the store level culture cannot force customers to come to the mall or bring NYC stores back to the $7M level of a few years ago.

So…be careful “trading” out there.

On a broader level, we tabulated, as shown below, the price changes among the “darlings” of the institutional investing set, the asset light, free cash flow pursuing pure franchising companies. Without the operating “risk” of running restaurants, they can leverage up their balance sheets to 5-6x trailing EBITDA in a historically low interest rate environment, often with the intent of declaring special dividends to shareholders.

The chart below shows that the ten fairly pure franchising restaurant companies declined by a relatively modest 12% from 2/14 to 4/30. The average was helped quite a bit by Domino’s, Papa John’s and Wingstop which had the twin benefit of delivery and pure franchising. Even eliminating those three names, the seven remaining companies were down 24%, a lot less than the 37% decline shown by the company operated restaurant chains shown below. The franchising companies rebounded 23% between 4/30 and 11/9, more than recouping the worst of the pandemic, and showing a 6% gain through the cycle.

The chains that are primarily operating company stores, with all the operating challenges, have fared worse, also shown below. The stocks were down as a group by 37% by 4/30, recovered 48% by 11/9 and were down 8% through the cycle.

CONCLUSION:

Avoid “paired trades” on a short term basis. It’s just too tough.

For longer term investing, we too, in this environment would favor the pure franchisors, in general, even at their high multiples of earnings and cash flow, and historically high debt/EBITDA levels. We don’t see anything on the economic horizon that will reduce the availability of low interest rate financing. The operating challenges for those companies with company stores are not going away. It’s of course true that franchisors cannot prosper unless their franchisees are doing well, and franchisors will likely have to do more than in the past to support their franchisees but they can borrow at low rates and could even pass through part of that low cost capital to their franchisees.

About Roger Lipton:
Roger is an investment professional with over 4 decades of experience specializing in chain restaurants and retailers, as well as macro-economic and monetary developments. After earning a BSME from R.P.I. and MBA from Harvard, and working as an auditor with Price, Waterhouse, he began following the restaurant industry as well as the gold mining industry. While he originally followed companies such as Church’s Fried Chicken, Morrison’s Cafeterias and others, over the years he invested in companies such as Panera Bread and shorted companies such as Boston Chicken (as described in Chain Leader Magazine to the left) .

He also invested in gold mining stocks and studied the work of Harry Browne, the world famous author and economist, who predicted the 2000% move in the price of gold in the 1970s. In this regard, Roger has republished the world famous first book of Harry Browne, and offers it free with each subscription to this website.

Tips on How a Franchise Brand Can Become a Top-Performer in the Franchising Industry

Posted on October 16, 2020December 10, 2020 by Franchise Strategist

How a Franchise Brand Can Become a Top-Performer

By Ed Teixeira.
VP Franchise Development FranchiseGrade.com , Author, Franchise Expert, MA Economics, Industry Partner of Stony Brook University Center of Entrepreneurial Finance, Pace University Lubin School of Business Advisory Board

For a franchise brand to become a top performer, franchisors must adhere to certain operating principles. One of the most important ones is to grow the number of franchise locations to promote the franchise brand. In the case of certain well-known franchise brands, system size alone doesn’t always convert to a top performing franchise brand.

Franchisors that want their franchise to be recognized as a top brand need to follow a set of building blocks that can serve as the foundation for a successful franchise system. Utilizing these building blocks will strengthen the franchise program, provide its franchisees the best opportunity for financial success and help establish the franchise brand as a top performer.

1. Equitable franchisee ROI must be a priority

The foundation of the franchise program operationally and financially must provide franchisees an opportunity for success that does not require extraordinary performance. If franchisees follow the franchise program and do not earn an ROI commensurate with their original investment, then the franchise may be flawed.

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. Conduct franchisee surveys to measure franchisee satisfaction levels.

3. The franchisor must control the franchise sales process and adhere to its ideal franchisee profile

Establish a franchisee profile and if franchise candidates don’t fit this profile say no! If the franchisor utilizes brokers, the franchisor must maintain control over the franchise sales process.

4. Be transparent with prospective franchisees

Provide prospective franchisees full disclosure about the franchise opportunity and what’s needed to be successful. The franchisor sales staff should act as more consultant and less salesperson.

5. Franchisor leadership must be engaged in the franchise operation

Franchisor leadership should be accessible and involved in the franchise operation, so they are aware of franchise system performance. There shouldn’t be surprises when it comes to franchisee performance.

6. Franchisee input should be solicited for important operational and marketing strategies

Significant changes or alterations to franchise operations and marketing, should involve the franchisees. This can be done using the FAC, advertising committee or other representative body.

7. New products and services should be evaluated and measured by franchisees before introduction

The franchisor should test new products, services or equipment in representative franchisee locations before introducing them. This process leads to objective and credible results that will earn the franchisees buy-in.

8. Obtain financial results from franchisees on a regular basis

Use franchisee financial statements to identify individual and collective franchisee performance. A lack of important financial information prevents a franchisor from knowing which franchisees are profitable and which are not.

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 don’t end with start-up franchisee training but should be a continuing activity. When franchisor staff identifies weaknesses in the execution of franchisee operational practices the Training Department should implement programs to address these problems.

To build a top- performing franchise program franchisors can use these 10 building blocks, which requires implementing policies, practices and procedures to improve franchisee performance and success.
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Learn more about the author and Franchise Grade:
Ed Teixeira. VP Franchise Development FranchiseGrade.com , Author, Franchise Expert, MA Economics, Industry Partner of Stony Brook University Center of Entrepreneurial Finance, Pace University Lubin School of Business Advisory Board

Small-business retirement accounts 101

Posted on October 16, 2020December 10, 2020 by Franchise Strategist

Small-business retirement accounts 101

By Brandpoint

(BPT) – If you’re a small-business owner — whether your business consists of just you and your spouse or a handful of employees — and you’re emerging from the pandemic into your new normal, it may be time for you to think about setting up retirement accounts, not just for your employees, but for yourself, too. That may be a surprising statement, considering many small-business owners do not currently offer retirement benefits to their employees, let alone take the time to set up an account for themselves.

There are myriad reasons why small-business owners put off saving for retirement, including investing every last dollar back into the business so funds for things like retirement weren’t available, anticipating selling your business when you retire so there’s no need to save now, and, a reason every business owner can relate to, there are just not enough hours in the day to think about it.

But the reality is, it’s easier than you think. A good financial advisor can explain the ins and outs of retirement accounts to you in an afternoon and help you decide on the plan that makes the most sense for you, your business, and your employees. Your retirement-age self will thank you, and offering those benefits will make it easier for you to hire and retain employees now, too.

Until you make that appointment with your advisor, here’s a primer in Small Business Retirement Account Options, 101.

SEP (Simplified Employee Pension)

A SEP is designed for self-employed individuals or small businesses, ideally with fewer than 25 employees. If you earn a self-employment income, you are allowed to save more for retirement using a SEP plan than a traditional IRA or Roth allows. A SEP is less complex and costly than a 401(k), allows employers to contribute larger amounts than a traditional or Roth IRA, and may qualify for larger tax deductions.

SIMPLE IRA (Savings Incentive Match Plan for Employees)

A SIMPLE IRA is ideally suited as a start-up retirement savings plan for small employers who have 100 or fewer employees, and who are not sponsoring a retirement plan. Contributions are tax-deductible, and earnings within the account are tax-free until withdrawn.

Solo 401(k)

A Solo 401(k) is for those who are self-employed and offers the same benefits of a regular 401(k), but it is designated for a business in which only the owner (and their spouse) is an employee. You can choose to make after-tax salary deferrals (adding a Roth component), with the tax advantages of withdrawals being tax-free when the time comes.

The power of self-directed accounts

What’s the difference between a traditional and self-directed 401(k) or IRA? Where you’re allowed to put those investment dollars. Especially in uncertain economic times like the ones we’re living through right now, that choice couldn’t be more important. With a self-directed 401(k), you can invest beyond the stock market.

So, if not the stock market, where do you put those dollars? With a self-directed 401(k), you can choose from many different areas, including:

Real estate
Private debt like corporate debt offerings, notes secured by deeds of trust or mortgages
Private equity like stock of C-corporations, limited partnerships, LLCs, and REITs
Precious metals, including gold, silver, platinum, and palladium
Cryptocurrency like Bitcoin

Why self-directed accounts are so attractive to investors

The beauty of this type of retirement investing isn’t just about having options other than the stock market. It’s about following your passions and using your own expertise to guide your investments. Let’s say you’re a real estate agent. You know the market extremely well. With a self-directed account, you can put your knowledge and your dollars together in a tax-advantaged way.

It’s also about paving the way for what you want to do after retirement. For that same real estate agent, it means retiring from selling properties and living on the income from the ones he or she owns via these investments. Equity Trust Company has seen investors use their knowledge of medical technology sales to fund their retirements and people involved in home restoration tie their retirement to the activity of their business.

Whatever retirement account option is right for you, investing now means peace of mind later for yourself and for your employees. Equity Trust specializes in helping people make decisions about their retirement accounts. To find out more, visit https://www.trustetc.com/contact-us/.

Equity Trust Company is a directed custodian and does not provide tax, legal or investment advice. Any information communicated by Equity Trust is for educational purposes only, and should not be construed as tax, legal or investment advice. Whenever making an investment decision, please consult with your tax attorney or financial professional.

What Are Common Area Maintenance Charges In A Commercial Lease?

Posted on October 16, 2020December 10, 2020 by Franchise Strategist

What Are Common Area Maintenance Charges In A Commercial Lease?
Posted with Permission from Spadea Lignana Franchise Attorneys

What Are Common Area Maintenance Charges In A Commercial Lease?
Most commercial retail leases are triple net leases. The “triple” stands for (i) taxes (ii) insurance and (iii) maintenance.

Taxes: This is pretty straightforward, as the landlord will simply pass on to the tenant the real estate taxes proportionately based on the size of the overall property and the size of the tenant’s location.
Insurance: This is calculated in a similar manner based on the landlord’s insurance cost for the overall property, not the tenant’s specific insurance.

Maintenance: This is the big variable and is also called CAM or “common area maintenance.”
Basically, under a triple net lease, the landlord will pass through all of the expenses to maintain the property including landscaping, cleanup, snow removal and minor repairs to each tenant on a pro-rata basis. The CAM charges in a commercial lease are typically added on to base rent as additional rent (in addition to the taxes and insurance cost). This is an area fraught with danger for the unwary tenant. A landlord typically will try to pass through as much of their expenses as possible through CAM charges, and if not negotiated upfront, these expenses can grow and grow over the life of the lease.

CAM charges to be wary of are:

Administrative & Maintenance Fees
Roof Repair & Replacement
Capital Improvements
Lighting
Plumbing
Electrical Wiring
HVAC

Many of these charges should be considered capital expenses or general overhead of the landlord and should be excluded from CAM.

READ THE ENTIRE ARTICLE HERE:https://www.spadealaw.com/blog/what-are-common-area-maintenance-charges-commercial-lease

Top 6 ways to Distribute your Surveys to get Quality Feedback Responses

Posted on September 8, 2020December 10, 2020 by Franchise Strategist

Now the question arises, what is the right way or medium to distribute your surveys in order to get quality feedback responses. You design your survey and customize it with the help of a good Survey App, but are wondering the best way to distribute your survey?

Top 6 ways to Distribute your Surveys to get Quality Feedback Responses
By: Archit Jain
Photo by Emily Morter on Unsplash

When we talk about obtaining Customer Feedback, the first thing which comes to our mind is surveys. To get real customer insights, it is a prerequisite to survey your customers.

“Survey is a process of collecting data by asking certain questions to the group of individuals. A Customer Survey involves obtaining Customer Feedback by asking certain questions from your customers about your products, services and the overall Customer Experience with your organization.”

Gone are the days when the surveys were taken by approaching the customers physically with a pen and a paper questionnaire and then filling the survey forms. Nowadays, a popular method of obtaining Customer Feedback is to take surveys using different digital channels through a Survey App.

Well, it would not be wrong to say that the success of a survey majorly depends on the response rate of the survey. And to get a good response rate, it is necessary to send the survey the right way and through the right mediums.

Let’s list out some effective ways to distribute your surveys so that you can get a good response rate with high-quality feedback responses.

Top Ways to Distribute Your Surveys to Get Quality Feedback Responses

Email Surveys
SMS Surveys
Online Surveys
Survey post a help Article or a Blog
Surveys Embedded in Blogs
Social Media Surveys
Let us review how you can use these channels in an effective way to receive quality feedback response data with a great response rate.

1. Email Surveys

Email Survey is the most commonly used method to obtain survey data. Being a method involving establishment of direct contact with your customer, email is the first method which comes to most peoples’ mind when talking about taking surveys digitally.

The biggest advantage of this way of distributing your survey is that you can distribute your survey to a large number of people in a matter of few clicks. By using a good survey app, you can customize your survey and send through emails which further increases the effectiveness of the survey.

Email has a very good read and response rate. Email surveys not only enable you to send surveys to multiple people with ease, but also enables your customers to fill the survey and send response as per their convenience of time and place.

2. SMS Surveys

SMS Surveys are surveys administered to collect the survey data through Small Messaging Service(SMS). SMS surveys have proven to be an extremely effective and the most efficient way to capture Customer Feedback.

“SMS Surveys has the highest read rate, even more than the Email surveys.”

With the help of an effective Survey App, you can easily create your customized survey and send its link through SMS to multiple people in bulk with a survey tool. The SMS should contain a small effective message followed by a survey link which should open in a single click without taking much of the customers’ time so that the customers can easily open the link and take the survey.

3. Online Surveys

When you want to gather Customer Feedback, you must communicate this through your website. This conveys that you care about your customers and Customer Feedback matters for you. Online Surveys is an effective way of obtaining quality feedback responses of your Customer Feedback surveys.

Survey links should be provided on your website and should open easily within fraction of seconds on a single click so that the customers can easily fill the survey. You can also use pop-up links for this purpose.

4. Survey post a help article or a blog

Help articles and blogs are an important component of any website. When you post a help article or a blog, you can provide links of survey just below the article or the blog. You can also add some such content in your blogs and articles which helps to motivate the readers to take the survey.

Moreover, you can especially write short blogs and articles to motivate customers to fill the survey. In these short blogs and articles, you can tell the importance of providing Customer Feedback through surveys. You can explain the customers how taking surveys and providing feedback will help you to satisfy them in a better way.

5. Embedded in a Blog

You can also embed a survey link in your blog. For instance, you are running a health care center and you are writing an article on prevention of a certain disease and if someone catches that disease, how your health care center can cure it effectively.

In the same blog, you can embed your survey link in appropriate places. You can ask about certain health aspects in that survey and how aware the people are about the disease and its cure. You can take Patient Feedback also from the people who have been a patient in your center.

6. Social Media Surveys

Social media is a great medium nowadays, be it for promoting your organization or for gathering Customer Feedback data. Whenever you write a blog or a help article, make sure that you promote it on social media along with the survey links provided either below the article or embedded in the blog itself.

Moreover, whenever you are organizing a program or an event, it is important to promote it on social media and ask for the views and the opinions of the customers regarding that. Likewise, if you are organizing a major survey, you should use social media platforms to promote your survey.

In the promotion, concentrate on how in the survey, the customers can share their views, opinionsFree Reprint Articles, and feedback and how it will help you to serve them better. This will encourage the customers to share genuine feedback and their views about your brand.

Source: Free Articles from ArticlesFactory.com

ABOUT THE AUTHOR
Archit Jain
Experienced Content Writer and Strategist, been in the IT Industry from last 6 Years. Passionate about writing survey tips, customer experience, customer satisfaction, customer feedback, net promoter score, customer effort score, customer satisfaction score.

A New Magic Cup Franchise Is Coming To McKinney, Texas

Posted on August 29, 2020December 10, 2020 by Franchise Strategist

Experienced investors with degrees in finance and biology respectively, Chi and Tam already had an impressive portfolio in the beauty industry (and two luxury spa locations to their credit) before they decided to investigate their next business venture. Self-confessed boba, tea, and coffee addicts, Chi and Tam were always drawn to the beverage industry but knew they’d need a franchisor with both the patience and the resources to steer them toward success.

A NEW MAGIC CUP FRANCHISE IS COMING TO MCKINNEY, TEXAS
By re:verb Marketers

Big news for Texas tea lovers: After a solid 5 years of hard work and dedication, Magic Cup Cafe is excited to announce that our business is expanding to a new location!

Our new cafe will soon be opening in McKinney, TX, allowing even more tea and coffee drinkers to enjoy Magic Cup’s unique and delicious beverages in-store or on the go. Our Vietnamese-American-owned company’s innovative east-meets-west menu and its friendly community atmosphere have made us a local favorite for residents of both Richardson and Houston, and soon the citizens of McKinney will have a chance to experience our refreshing take on boba, tea, and coffee firsthand.

The move from beloved mom-and-pop cafe to the full-on franchise was a labor of love for our co-founder My Lynn Nguyen, whose expertise in both boba and coffee helped build Magic Cup into a top contender in a highly competitive industry. Beyond 5 years of work, it took 14 months to put together our franchise program. My Lynn notes: “The new Magic Cup franchise opening has been, and will continue to be, a massive collaborative effort, involving lots of careful preparation and consultation with experienced franchise programmers as well as an enthusiastic commitment from Tam T Trinh and Chi Tran, Magic Cup’s newly-obtained franchisees.”

#bubbletea #franchises #Texas #Dallas #dallastexas #houstontexas #franchisedevelopment #franchise #franchising #frachisee #restaurantnetwork #Houston #sanantonio #entrepreneurlife #profit #coffee #smallbusinessowners #restaurantmastermind #smoothies #juice #investors #sales #innovation #restauantmanagement, #profitfirst #therestaurantprofits, #howtofranchise, #franchisemybusiness #career, #motivation #money #IFA #IFPG #franchiseinfo #FranchiseOwner #franchisegrowthsolutionss, #innovation #Subway, #Houston #investment #AHOA #Vietnam #salon #Nails, #jobs #business #franchisemybusiness #boba — Magic Cup Franchisees

Once they met with My Lynn and our Magic Cup franchise consultants, Chi and Tam knew their search for the perfect franchisor was over. “We instantly felt the strong passion they have for the brand,” Tam says, adding that Magic Cup’s vision, core values, and comprehensive training program were precisely the right fit for her and Chi.

When Chi, Tam, and their new Magic Cup family were scouting for locations, they saw massive potential in McKinney, which has seen a remarkable development in recent years. The team is currently working with real estate developers in the area to finalize the location as soon as possible.

When doors open at Chi and Tam’s Magic Cup Cafe location, they hope visitors will experience the same welcoming feeling and thirst-quenching satisfaction they’ve come to expect from our Magic Cup brand. Whatever the future brings, Chi and Tam know that My Lynn will offer them ongoing support every step of the way.
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Franchise Money Maker — Franchise Growth Solutions is the Exclusive developer of Magic Cup Cafe franchises. For information on becoming a franchise partner please contact: [email protected]

The Human Resource: Engaging the workforce in a crisis

Posted on July 1, 2020July 21, 2020 by Franchise Strategist

As business leaders, it is more critical now to demonstrate strong leadership values and ethics in how you treat your employees and how you create and maintain a life-work balance. That includes the safety and protection of the workforce while building sustainable processes and practices that enable you to continue providing your products and services to your customers and clients.

The Human Resource: Engaging the workforce in a crisis

By Warren Cook -President and co-founder of SymbianceHR

The COVID-19 crisis has impacted us all in ways that may take years or a lifetime to reflect upon and understand. As businesses begin to reopen and emerge from the shutdown, our workforce — the employees we value and need to succeed — are emerging from a stay at home lockdown that can be a traumatic experience.

The myriad challenges today include returning to a new normal work environment with changes to working conditions. Those changes include moving from remote locations back to the regular physical office and dealing with the stress of civil unrest, protests or riots, on top of a Covid-19 virus that has no cure, and the risk of death. They all combine to create a traumatic situation for many of the people in our community.

Three important considerations as we emerge from the stay-at-home lockdown to support your strategy for success.

Employees will have genuine, valid, and realistic fears and concerns when asked to return to a physical work location. Do not demonstrate a disrespectful attitude or communication style by “ordering” people to return to the work location. Instead, develop a communication strategy and alternative working conditions that allow these concerns to be addressed and resolved collaboratively. Treat all employees fairly and collaborate with them through an interactive process to determine how to achieve a win-win situation for the employee and the business.
The employer, as always, has a legal obligation to provide a safe workplace for their employees. This means following all local, state, and federal guidelines and regulations to meet safety standards in the workplace. This includes but is not limited to social distancing, remote work when possible, disinfecting the worksite, monitoring the health of the staff, and communicating timely and honestly about positive test results in the workforce that require quarantine or migration back to remote working conditions to avoid the spread of the virus.
Establish policies to handle the new work processes and practices and provide training to all people leaders and the employees. Failure to communicate consistently, transparently, and timely with trust, respect and engagement could lead to employee relations issues that you don’t need right now on top of all the other challenges your business is facing.
Remember your obligations to keep certain matters confidential, to protect the rights of your employees, and to ensure their safety while under your management. The more effective you can be as leaders during this crisis, the more evident it will be that you become an employer of choice who treats people with dignity and respect, which leads to community approval and sustainable business success.

Wishing you all good health and safety during these challenging times.
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About Warren Cook
Warren is the President and co-founder of SymbianceHR and provides strategic oversight for service delivery, business operations, and technical guidance on consulting engagements. He is a human resources subject matter expert with over 25 years of experience as a strategic human resources business partner, project manager, and people leader across private and public sectors organizations. Warren is responsible for the strategic planning of all client consulting engagements from initial needs assessment and compliance review through delivery of customized strategic solutions that meet the client’s business goals. He has a proven track record of providing executive coaching and guidance to business leaders and human resource professionals at all levels including the C-Suite of Fortune 100 companies. Warren is also the Chief Talent Officer and cofounder of SymbianceHiRe, a Symbiance company dedicated to providing direct placement talent acquisition services and temporary and contract staffing solutions to the business community. Warren holds a B.S. in Human Resource Management, an MBA in Project Management, and a M.S. in Industrial and Organizational Psychology. Warren is the author of “Applicant Interview Preparation – Practical Coaching for Today.”

Investing in the COVID-19 Recession Era

Posted on July 1, 2020July 21, 2020 by Franchise Strategist

Investing in the COVID-19 Recession Era
By Patrick Findaro, Co-Founder and Business Development Director of Vetted Biz

An analysis on the industries with the strongest likelihood of a rapid recovery from the recent lockdown-induced recession

Introduction

The recent COVID-19 induced lockdown led to a rise in a nationwide recession of which the country is only now beginning to recover from. Nevertheless, after researching and analyzing more than 2,900 businesses at Vetted Biz, we have found a select few industries that were able to remain stable despite social distancing restrictions. Additionally, there are also other industries expected to thrive once restrictions finish being lifted and the worst of the pandemic has passed.
The criteria used for this article when evaluating these industries addressed several factors. First, it looked at how successful each industry’s businesses were in adapting to these new restrictions. Then, it studied what opportunities these industries offered for its businesses to diversify during difficult times; and also speculated on what curve model best suited each industry’s recovery process once lockdown restrictions finish being lifted. Finally, in cases where this was possible, this study also cross-referenced industries’ performance predictions with the historical data on their SBA loans, which can be found here.

Main Findings: 3 Characteristics, One Outcome

The findings from this initial research concluded that COVID-resilient industries normally contain the following three characteristics: 1. Secure payments, which refers to having recurring revenue ensured by having either periodic contracts or offering services deemed “essential”; 2. Market leverage, which concerns having a strong brand and industry performance prior to lockdown restrictions being imposed so that businesses do not have to disburse additional costs in marketing during this time; and 3. An efficient budget, which encompasses factors such as high margins, strong liquidity and overall profitability. The article below will address in-depth, industries that are deemed either “COVID-resilient” or that will likely bounce back in the short-term once local restrictions finish being lifted. It will provide pertinent examples on how each industry is adapting accordingly, and will conclude by showing how the industries selected all have the three characteristics previously deemed necessary by this article.

COVID-Resilient Industries

Ghost Kitchen Restaurants

Ghost Kitchen restaurants – which are professional food preparation and cooking facilities set up for the preparation of delivery-only meals – have not only remained open during the recent lockdown, but also saw an increase in sales throughout this period. Amongst the numerous benefits that come with investing in a Ghost Kitchen concept, two specific ones particularly created optimal conditions for them to continue to thrive during the current situation: their efficient budget, and market leverage. Because Ghost Kitchens focus solely on servicing delivery and takeout orders, not only is the kitchen’s site required by the restaurant smaller, but also, the location of the kitchen is not as important seeing the business is not as dependent on foot traffic – both of which allow for lower costs associated with real estate.
Additionally, Ghost Kitchens can be run by as little as 2 to 3 employees, a fact that given the current situation not only further reduces costs associated with payroll, but also mitigates any contamination risks which remain a predominant concern during COVID-19. In terms of this sector’s market leverage, it is important to consider recent studies showing that 31% of consumers use delivery services at least once a week, and that 59% of millennial orders every week are either for takeout or delivery.
Beyond that, a recent study on SBA Loans found that between 1991 and 2019, 61% of food and beverage franchise loans were paid-in-full – a relatively high value when compared to other industries such as fitness centers or home services. The characteristics outlined above shows that Ghost Kitchen models are a sector of the restaurant industry that should only be expected to continue to strengthen as social distancing growingly becomes a greater part of the population’s reality.

Landscaping

The landscaping industry, which includes installing, cleaning and maintaining any territory’s green area, is another industry that has remained stable throughout the recent lockdown restrictions. Because the landscaping industry was not shut down during the recent lockdown, it was able to keep servicing its clients and generating revenue. The fact that state and municipal laws require businesses to maintain the landscaping orderliness of the territory they are operating in, means businesses offering landscaping services are treated as a priority by its commercial clients.
Additionally, as commercial businesses open, landscaping businesses are once again able to leverage their presence and ensure they can hold existing clients while adding on new ones as well. Another important factor to consider is that most services contracts within this industry are signed on a long-term basis, meaning recurring revenues is a strong characteristic of this industry. Finally, because the services provided by this industry are at the client’s specific location, the business can be operated from a small office space and is consequently able to optimize its budget by not having to allocate a great percentage of it towards real estate costs, which normally make up a large sum of a business’ expenses.

Property Management

The Property Management industry, which offers services that manage commercial and residential properties on a large scale on behalf of homeowners, is an additional industry that has proven to be COVID-resilient. Property management businesses manage owners’ commercial or residential real estate properties on their behalf through long-term contracts. These businesses deemed essential by homeowners and their long-term contracts allow for greater stability and makes it harder for clients to go back on their service contracting decisions. This allows for a strong inflow of recurring revenue.
Additionally, property management businesses can be run from a home office and by 1 or 2 employees only. SBA studies show SBA loans disbursed to businesses within the Real Estate industry also had a relatively high paid-in-full rate of 60.1% – thus further corroborating the industry’s strength despite recent circumstances.

Bookkeeping & Tax Preparation

Finally, the bookkeeping and tax preparation industry has thrived during this most recent recession. With most of the population rushing to have tax returns filed to receive government stimulus packages, this industry has recently seen an increased demand that has allowed for its businesses to leverage their market presence.
Secure payments have also been a feature of the industry due to monthly payments and renewals from businesses in need of bookkeeping services as they adapted to recent conditions and prepared to apply for stimulus packages as well. Finally, these businesses can also be run from a home office and with as little as 2 to 3 employees. Once again, bookkeeping and tax preparation businesses have shown that with an efficient budget, secure payments and strong market leverage, an industry is able to remain afloat even throughout a COVID-induced recession.

Cleaning & Maintenance

While cleaning and maintenance services might have been suspended or diminished as lockdown restrictions were put in place, this industry is likely to see the strongest and fastest recovery curve as these same restrictions begin being lifted. ¬With one of the most important conditions for reopening being ascertained cleanliness at all times, it is likely the cleaning and maintenance industry will experience the strongest market leverage, as their services are considered the utmost priority of any business looking to reopen.
Additionally, cleaning services do not require an extensive employee count or entirely sophisticated equipment. When cross referencing this industry’s performance prediction with its historical data on SBA Loans disbursed between 1991 and 2019, the cleaning and maintenance franchise industry had the highest SBA paid-in-full rate at 67.8%, once again reiterating the industry’s strength and likelihood of recovery once lockdown restrictions have been lifted.

Barber Shops & Beauty Salons

Although beauty salons and barber shops were not deemed an “essential service” during the recent lockdown and consequently had to shut down their services throughout most of the quarantine, they are likely to see a strong recovery curve as restrictions are lifted and people begin to resume their normal lives.
Grooming services especially for men, will likely peak as they return to work in need of a haircut. Additionally, women will likely seek beauty salons to address services in need such as waxing, haircut, and eyebrow design. By leveraging its market presence as people begin leaving their homes and resuming their regular self-care routines, the barber shop and beauty salon industry will likely see a strong recovery.

Children Programs

Children education and after school programs is another industry that will likely experience a strong bounce back once lockdown restrictions are lifted. Because most businesses have remained open and transitioned to online platforms, they have been able to maintain their market presence and secure a steady inflow of revenue as their help in keeping their children entertained or providing additional reinforcement to online schooling efforts became an unprecedented priority to parents also working from home.
Additionally, it is likely their market leverage will be even further elevated once families resume their daily life and parents begin to push their children towards reestablishing their regular routines. Finally, as children return to school in the Fall and parents see the education gaps left from online schooling during the spring semester, education programs in particular should experience an even greater growth rate.
Children education and after school programs have a strong leverage to secure a steady growth once restriction lockdowns are lifted, a fact that is corroborated by its relatively low SBA default loan rate, which was at only 4.2%.

Conclusion

As lockdown restrictions are lifted, a business’ ability to adapt and grow under current circumstances will likely become a strong factor in any investment process being pursued. By outlining some of the industries we have seen thrive during these difficult times, we hope to have clarified and mitigated any uncertainty that may have risen during your entrepreneurial pursuits amidst COVID-19. In sum, businesses and their respective industries that have been able to secure payments, optimize their budgets, and leverage their market presence should be considered the strongest candidates for investment as the country begins to recover from this COVID-induced recession.

Learn more here: https://www.vettedbiz.com/

An Interview With Tropical Smoothie Cafe’s CEO, Charles Watson

Posted on July 1, 2020July 21, 2020 by Franchise Strategist

An Interview With Tropical Smoothie Cafe’s CEO, Charles Watson

By Gary Occhiogrosso
PHOTO COURTESY OF TROPICAL SMOOTHIE CAFE

CEO Shares His Story & Insights On Taking The Reins.
Amid all the pandemic news and stories of how the foodservice business is coping with the crisis, I thought I’d attempt to redirect our attention today, even if only for a short while. As a 35 year veteran of the restaurant and franchise industry, I have always been fascinated by the challenges, risks, rewards, and day to day “work” a CEO faces when first taking the helm of an ongoing franchise organization. Today’s post focus’ on that topic in an interview with Charles Watson, the CEO of Tropical Smoothie Café.

Mr. Watson was appointed the CEO position of Tropical Smoothie Cafe in December 2018. Since that time, he has led the company on its quest towards $1billion in sales by 2023. He’s no stranger to franchise development, nor is Charles Watson an outsider, having served four years as the company’s Chief Development Officer in addition to his prior role as VP of Franchise Development. He is directly responsible for selling more than 800 franchises.

As their franchise website states: “Tropical Smoothie Cafe’s menu boasts bold, flavorful smoothies with a healthy appeal, all made-to-order with quality ingredients. We find that real fruits, veggies, and juices just taste better.” The offerings have evolved over the years to include a menu of breakfast and lunch items beyond smoothies. From wraps to flatbreads to salads, Mr. Watson continues to solidly position Tropical Smoothie Cafe as a leader in the fast-casual, healthier lifestyle food category.

Gary Occhiogrosso: Tell us a little about your background before joining Tropical Smoothie?

Charles Watson: “Prior to joining Tropical Smoothie Cafe, I worked for several hotel and hospitality-centric companies, including Wyndham Hotels & Resorts, Intercontinental Hotels Group, US Franchise Systems, Inc. and Hospitality Real Estate Counselors. I joined Tropical Smoothie Cafe in 2010 as the Vice President of Franchise Development and, in 2016, became the Chief Development Officer, where I was responsible for all aspects of the development of the brand. In July 2018, I was named interim CEO, and then permanent in December 2018.”

Occhiogrosso: Please give our readers the “Elevator Pitch” for Tropical Smoothie Cafe?

Watson: “Tropical Smoothie Cafe is a national fast-casual cafe concept inspiring healthier lifestyles with more than 850 locations in 44 states. Beyond just smoothies, we serve better-for-you wraps, sandwiches, and flatbreads, and pride ourselves on living at the “intersection of taste, convenience, and hospitality.” In a highly competitive segment, we’re one of the fastest-growing quick-casual brands, opening 124 new locations in 2019 alone and singing 213 development agreements to open hundreds of businesses over the next few years.”

Occhiogrosso: What was the condition of the company before you were named CEO?

Watson: “We were in a good place! In 2018, when I was named CEO, we had more than 720 locations open nationwide. By year-end 2018 we opened 110 cafes and signed 191 new franchise agreements. Building off this momentum, in 2019, we celebrated the openings of our 750th and 800th locations, but taking over during such a monumental time for our brand certainly brought opportunities to improve. Each year, franchisees complete the Franchise Business Review to essentially grade us here at the Support Center on how we’re serving them. We gathered that feedback and used it to set goals and action plans for the company. Areas we wanted to attack immediately with our rapid growth were direct franchisee support as well as technology support and menu innovation. We set company-wide strategic imperatives around these issues immediately.”

Occhiogrosso: What were the one or two unique challenges that you faced upon taking over as CEO?

Watson: “As a first time CEO, learning to view the business from a thinking vs. a doing mentality was a challenge I faced. The success of our brand is about the talent and drive of our talented executives and Support Center team. It was not possible for me to get involved in every project – so I had to learn to let go and delegate. I would say that understanding the viewpoints and drivers of the different stakeholders I was serving was important. A presentation for a board is focused on very different things than a franchisee roadshow. Really trying to understand how to see the world through a different stakeholders’ eyes is something I still work on.”

Occhiogrosso: What was your plan for the first 90 days?

Watson: “I wanted to further instill a franchisee-first mentality. When our franchisees are successful, the brand is successful. When I became CEO, I launched a formal franchisee advisory council, known in our organization as the Tropical Franchisee Council (TFC). While we had always involved franchisees, I felt it needed to be formalized and more visible to our franchise system. In short, franchisees needed to know that there was a formal mechanism of their peers that was constantly feeding back to us at the Support Center. From there, we set up committees, reporting into our TFC, around the major parts of our business, and included more franchisees to provide feedback and work with us on further improving IT, Marketing, Design, and Construction, etc. It was important to me that we have franchisees themselves share their feedback and align on system initiatives and goals. In a franchise system, without broad franchisee buy-in, you cannot move as efficiently and effectively as is required in today’s business environment.”

Occhiogrosso: How is taking the reins of an existing company different than being part of a startup or a founder?

Watson: “I think when taking over any brand where you worked alongside your predecessor, there’s a certain level of pressure to continue carrying the torch, but also to make necessary changes to the brand to evolve with the changing economy and consumer trends. I was lucky enough to work with the founders of the business (and still do as they are board members) as well as work under our first CEO, who did an amazing job. Because 99% of Tropical Smoothie Cafe’s system is franchisee-owned and operated, it was my goal to maintain consistency for them and move the company forward in the right direction, with a lot of reverence and respect for the past. In my case, because I already had nearly a decade with Tropical Smoothie Cafe on the franchise development side, I had the unique advantage of personal relationships with our franchise community. We had a high level of mutual trust and respect for each other that existed before I assumed the role of CEO. I may have been, in fact, the person responsible for awarding them a franchise! My experience with the brand up to that point was beneficial because I was already very immersed in the operations and processes that had contributed to its success at that time. That created a kind of blueprint that served as the foundation for me to take the reins and lead the company the way I felt was best. Yes, I am putting my mark on the brand and culture, but I have been around long enough not to stray too far from the DNA of the brand.”

Occhiogrosso: What challenges, if any, did you face in getting “buy-in” from the existing franchise community once you became CEO? Were any of the franchisees reluctant to follow the system or embrace a new direction?

Watson: “Like I said, I was very fortunate to have had already developed relationships with our franchise community prior to becoming CEO. My predecessor did a great job, so most of the hesitancy candidly was, “will this guy be as good, will we have the same amount of success?” Luckily in my first two years as CEO, we continued to expand the footprint of the brand, and increase brand awareness, drive profitability for our franchisees and drive our comp sales…. So that was helpful! The impact of the more formalized committees we have set up, and the close connection I have with TFC has gotten the system more comfortable with my style and thinking, and I believe, since trust is earned, I still have a long way to go, but am off to a good start. Without our franchisees, committees, and council, I simply could not do this job. Those franchisees are serving our guests on the front lines – I can’t run this business without their candid feedback.”

Occhiogrosso: How do you feel about franchise advisory councils? And was one in place already?

Watson: “I’m a huge advocate for franchise advisory councils, specifically when nearly 60% of all franchise agreements at Tropical Smoothie Cafe come from existing franchisees. The Tropical Franchisee Council (TFC) was established in 2018 and has been invaluable for our growth. “Relationships Rule” is one of our core values, and because of that, people are at the heart of our company. Our relationships are founded on trust and respect for the unique talents of our teams, franchisees, and vendors alike. We strive to continue to harness these relationships in this way and feel that this approach will continue to fuel our success. The TFC works hand-in-hand with Tropical Smoothie on all facets of the business from operations, IT, marketing, construction, and beyond, and their genuine feedback continues to establish the open communication we strive for, helping us to enhance our business model on an ongoing basis. This process only helps our individual franchisees and their bottom line, respectively.”

Occhiogrosso: What is the mission and goal of the company over the next few years?

Watson: “At Tropical Smoothie Cafe, it’s our mission to inspire a healthier lifestyle by serving amazing food and smoothies, with a bit of tropical fun. We want to be an escape for our consumers in this hectic world we live, and an incredible business model for our franchise partners It’s an exciting time to be a fast-casual concept within this segment, specifically as the market size of the juice and smoothie bars industry is expected to increase by 2.3% in 2020, reaching nearly $3 billion in revenue across the globe. We consider ourselves to be an approachable, healthier option for the average American, and our customer loyalty system-wide continues to climb. Our company sells about 200 franchises, opens over 120 cafes a year, and has more than 500 locations in the pipeline. As a brand, we strive for excellence in service and creating a culture of hospitality for our business no matter which location you visit, and this year we’re prioritizing them even further by enhancing pillars of our hospitality-centric culture and the technology we use to create convenience for our guests in order to reinforce our position as the leader in our segment. Over the next five years, our goals are to reach 1,500 cafes open across the U.S., with over 18% profitability for our franchisees on average volumes in excess of $1M, all with very high operational satisfaction for our guests. Our annual tactics are focused around delivering those results.”

Although I did not want to focus on COVID-19 in this interview, it is difficult to ignore its impact on the restaurant community as well as franchisees in general. So I was compelled to ask Mr. Watson his thoughts on the pandemic and the company’s response.

Occhiogrosso: During the current COVID-19 crisis, what steps have you taken to ensure that Tropical Smoothie Cafe supports the local community?

Watson: “When COVID-19 struck the restaurant landscape in mid-March, we closed all dining rooms and shifted our focus to drive-thru, curbside pickup, and delivery where available. Then we determined two focus areas, giving back to the community and prioritizing support for our franchisees. Some of our franchisees had the idea to donate smoothies to first responders and hospital workers in Atlanta. We loved the idea so much we launched a nationwide campaign to donate 100,000 smoothies across the country and the response has been incredible. Within the first day, several local franchisees jumped on board and donated more than 600 smoothies each, and the donations just kept growing from there. On April 16 we met our goal of 100,000 smoothies, but our franchisees haven’t stopped there, and the new challenge is to donate a total of one million smoothies by the end of May. Knowing that those essential workers are not only in the healthcare fields, we’ve also extended our giving to grocery store, warehouse and post office employees. We’re proud to report that as of today, we’ve donated more than 200,000 smoothies to these hometown heroes, and we’re not done yet! In support of National Nurses Appreciation Month in May, we have also pledged to donate $100,000 to the American Nurses Foundation’s COVID-19 Response Fund upon reaching our goal of giving away 1,000,000 smoothies.”Our franchisees are the heart of our brand, so we wanted to make sure we were doing everything we could to help them stay afloat through the crisis. We decreased royalties and deployed hyper-local marketing strategies to drive business within a 1–to 2-mile radius of cafes. While our projected 2020 growth might take a step back due to the coronavirus, I believe our approach to navigating through this will help us emerge quickly once it passes.”

Occhiogrosso: What are some of the additional support initiatives you put in place for your franchise community during the pandemic?

Watson: “Our franchisees are the heart of our brand, so we wanted to make sure we were doing everything we could to help them stay afloat through the crisis. We’ve implemented various franchisee support initiatives, including decreased royalties by 50%, ongoing support with PPP loans and real estate deferrals and abatements, rolling out curbside delivery systemwide, deployed hyper-local marketing strategies to drive business within a 1–2-mile radius of cafes, among many others. While our projected 2020 growth might take a step back due to the coronavirus, I believe our approach to navigating through this will help us emerge quickly once it passes.

Occhiogrosso: How do you see the company moving forward?

Watson: “As you know, the restaurant industry has taken a huge hit. Although COVID-19 has directly impacted our business, some days being down more than 50 percent, we consider ourselves lucky to have a business model that allowed us to easily transition to grab-and-go, curbside, and delivery only. I think the biggest shift will take place for those restaurants that can’t be open right now. The guests who support local businesses in and around their communities are the ones we give the credit to because their loyalty to our cafes is what has ultimately maintained our ability to serve. Because of our amazing guests, our franchisees, and the communities they serve, including those on the front lines of this pandemic, we will get through this. As reopening guidelines are being determined, we plan to move forward with an abundance of caution.”

In conclusion, I believe the growth of Tropical Smoothie Cafe over the last two years demonstrates Mr. Watson’s steady leadership and a clear understanding of building on the momentum that has made the brand a leader in its category. In my experience, making franchisee success and profitability the priority is the key to the longevity of any franchised brand. The fact that nearly 60% of all new Tropical Smoothie Cafe units are opened by existing franchisees underscores the franchise owner’s satisfaction with the concept, the company, and it’s leadership. It’s almost all you need to know about the results of Mr. Watson’s work and commitment to the franchisees. Successfully taking the reins on an existing franchise company can be a daunting task, but in the case of Charles Watson, he continues, as their franchise website claims, to create waves for a brand that started on the beach.

About Charles Watson:

Charles Watson was named CEO in December 2018. In this role, he is responsible for the brand’s strategic vision and overall franchise performance. He was previously Tropical Smoothie Cafe’s Chief Development Officer since 2016, after serving as VP of Franchise Development since 2010. In these roles, Charles was responsible for all development of the Tropical Smoothie Cafe brand. A veteran hospitality professional, Charles has worked for several hospitality-related companies, including Wyndham Hotels & Resorts, Intercontinental Hotels Group, US Franchise Systems, Inc., and Hospitality Real Estate Counselors. Charles is a graduate of The Hotel School at Cornell University and also holds a Masters of Business Administration from The Terry School of Business at The University of Georgia.

The Franchisor/Franchisee Economic Relationship – It’s A New World!!

Posted on June 1, 2020June 5, 2020 by Franchise Strategist

Photo by Lukas from Pexels
This specific suggestion will not be adopted by existing large chains, because it would be such an obvious reduction of the current royalty stream. However, well established franchisors could, and should, absorb more of the additional systemwide needs…

THE FRANCHISOR/FRANCHISEE ECONOMIC RELATIONSHIP – IT’S A NEW WORLD !!

By Roger Lipton

Almost everybody has noticed that there is an increasing strain between franchisees and their franchisors. It is no accident that new franchisee associations are being formed and existing organizations are getting more militant. There are many intangible reasons, as too many franchisors do not treat their “z’s” as partners. We have written many times that the “asset light”, “free cash flow” model is not reflecting the necessary investments in the system to keep franchisees as profitable as possible. Many franchisees are especially bothered by the fact that their franchisors are spending hundreds of millions, sometimes billions, of dollars buying back stock and making acquisitions, while leaving the franchised operators without the necessary new product development, technology upgrades, marketing initiatives, etc.etc.
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Franchise your company, expand your brand, collect your royalties!

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With all of that in mind, the bottom line is the bottom line. Too many franchisees are suffering financially, under more pressure than ever. The typical franchise royalty is 5%, give or take a point, plus 2%, as an advertising contribution. There are often additional charges, not all that material in and of themselves, but adding to an already large burden. Let’s say the franchisee is fortunate enough to be making 17-18% store level EBITDA (and Depreciation is not free cash in the long run). Rebating 7 points out of 17 or 18 points starts to feel like a pretty big load, and there is still local G&A to be carried. Even if store level EBITDA, before royalties, is in the low twenties, 7 points gets to be a bother. Additionally: many franchisees, Dunkin’ Donuts and Burger King and Jack in the Box are just a few examples of mature systems where decent money is still being made at the store level because the store leases were signed ten or fifteen years ago, so occupancy expenses are lower than today’s economics would allow. That’s, of course, why so few new units are being built by many mature franchised systems, especially in the USA. Today’s economics do not allow it.

When Ray Kroc started franchising McDonald’s restaurants over 60 years ago, the royalty was 1.9%. By the 1960s, franchisors had started charging 2-3%, by the 1970s 3-4%, by the eighties 4-5%, and 5% seems to be the standard today, plus advertising and other fees.

Read the entire article click here https://www.liptonfinancialservices.com/2019/03/the-franchisor-franchisee-economic-relationship-this-is-not-your-fathers-world/