Tag: franchise Growth Solutions

Warning Signs Your Restaurant Is Not Ready To Franchise

Posted on by Franchise Strategist

I cannot emphasize enough that any franchise company’s overall growth and success depends on its franchisee’s success. Your restaurant concept needs to have proven methods along with quantifiable sales results.

Warning Signs Your Restaurant Is Not Ready To Franchise
By Gary Occhiogrosso – Managing Partner, Franchise Growth Solutions, LLC.

As a former franchisor and now a consultant to the franchised restaurant industry, it has always been my role to promote, expand, improve, and advocate franchising as the most influential business development tool ever created. As my regular readers might imagine, the mere thought that I would approach the idea that a business would not be better off as a franchise is personally challenging. That said, I have worked with scores of companies and seen hundreds of concepts in the franchise industry. Some of which left me scratching my head as to why anyone would believe a particular idea would be a viable business under a franchise model. As a result, and as a follow up to my previous article, I’ve compiled my top four warning signs for delaying a franchise launch or avoiding franchising your restaurant altogether. It’s a short checklist when deciding if your business is ready and feasible for franchising. These reasons alone or any combination would cause me to pause and “go back to the drawing board” before launching a franchise brand.

No Proven Operating Prototype

On occasion, the owner of a marginally successful restaurant or one with a minimal track record of successful performance considers expansion through franchising. Sometimes, the wannabe franchisor may believe that building additional restaurants without the founder’s initial mistakes using a franchisee’s money will make up for a brand’s shortcomings and somehow be successful. Not only is this thinking irresponsible, but it disregards the fact that potential franchise buyers expect a franchise system that works and is proven. Using a franchisee’s enthusiasm and investment as your “canary in a coal mine” will almost always end in disaster.

Ed Teixeira, a former franchisor executive and franchisee with 40 years of franchising experience states “that when franchising an existing business, a key precept is that the business used to develop the franchise must be a profitable operation. To expect a new franchisee in a startup franchise program to surpass the existing business owner’s financial performance is a dangerous strategy. In this case, the fledgling franchisor should identify why his business is not profitable and correct the situation before expecting a new franchisee to solve the problem. A flawed business used to develop a new franchise will end up creating a flawed franchise.”

I cannot emphasize enough that any franchise company’s overall growth and success depends on its franchisee’s success. Your restaurant concept needs to have proven methods along with quantifiable sales results. Every system in your operation, from recipes to marketing, needs to be documented and “teachable” through your confidential operations manual. If this is not the case for your restaurant, take a step back and continue working on the total operating system before offering franchises.

Your Menu Is Too Big Or Complicated To Replicate.

Chef owners often fall into the trap of creating an elaborate, difficult to produce menu because their professional skill set is highly developed. They are not looking at the reality of who their franchisees may be and the level of experience they bring to the table. Delivering a chef-quality menu is perfect for a chef, but maybe not so much for a franchisee or a franchisee’s young entry-level employee. There is nothing wrong with a unique, high-quality menu in a franchised restaurant. In fact, it’s a great thing. Innovative and delicious food is one of the points of differentiation that every restaurant should pursue. However, in the world of franchising, it’s about delivering a product and experience the same way for every customer, flawlessly and consistently. Your menu needs to be simple to execute and served without the complexities of a fine-dining, chef-driven process. Your menu also needs to be crave-able, profitable, and very focused.

Fred Kirvan of Kirvan Consulting LLC, a New Jersey-based restaurant development and operational assessment firm for the franchise industry, says: “many independent restaurateurs find it challenging to embrace the idea that less is best. Offering guests too many choices or menu items with complex procedures may create confusion for the guest; it can negatively impact the overall cost of goods, and often increases employee mistakes.”

You Haven’t Branded Your Concept.

People buy brands. When customers step into a successful franchised restaurant, there is usually a theme and a brand voice surrounding the guest. The guest leaves with more than just a satisfied stomach. You want them to remember the service, the decor, the music, and the restaurant’s messaging. Many restaurants simply focus on the food without regard to the many facets of an overall guest experience. Suppose you have not developed a distinctive decor and brand identity. In that case, you may have difficulty competing when it comes to selling franchises because you haven’t created the necessary points of differentiation that attract potential franchise owners. Your restaurant’s branding is not merely your food or the price point. Creative, disruptive restaurant brands are not only attractive to consumers but also to those seeking to invest in a franchise. That is why although some restaurants may sell similar cuisines, the successful franchise brands do it with a new twist and an exciting environment.

You Lack Sufficient Capital To Launch Your Brand

One of the most significant failings of fledgling franchisors is underestimating the cost of launching a brand into the sea of franchises. Some believe they can bootstrap the effort and fund their company’s growth by using the upfront franchise fees collected. I have always stated (sometimes at the risk of losing a potential new client) that “on a good day; you won’t lose money on a franchise sale.” In many instances, that’s the best-case scenario an emerging brand should expect. Franchisors should set their sights on royalties as their revenue stream, not initial franchise or license fees. You’ll need to consider the real cost of the franchise sale. For a startup brand or an emerging brand, the price to generate enough leads to sell one new franchise may be anywhere from ten thousand to fifteen thousand dollars. No matter what you may want to believe, franchises do not “sell themselves”.

Additionally, the sales commission to an outsourced franchise sales organization, in-house salesperson, or franchise broker may range from 40% to 60% of the initial franchise fee. Then there are legal fees as well as the cost to train and support the new franchisee. According to Evan M. Goldman, an attorney and the Chair of the Franchise Law practice at A.Y. Strauss LLC, “the legal costs to close a deal can range from a small amount ($1,000 or so) for a simple deal, to more than $5,000 for a complicated purchase with lots of requested changes by the franchisee.” Goldman adds, “without proper funding, you’re never going to sell that first franchise because it ‘takes money to make money.’ Undercapitalized franchisors face a difficult predicament whereby they can hold their limited cash but not be able to sell their franchise, or use all available money and potentially sell their first few franchises, but cannot support their franchisees. And to add to that, undercapitalized franchisors are potentially disastrous for franchisees who rely on the franchisor to provide services (advice, marketing, etc.), which they cannot do without capital. In essence, it is mutually-assured destruction.”

Carefully Weigh All The Factors Before Franchising

Although my list covers what I think are the most crucial reasons not to franchise your restaurant, there are numerous others. Everything from the market needs to unit saturation in the space to the economy at launch time. Indeed, my thoughts here are not intended as a deterrent to franchising your restaurant but rather a professional recommendation to look at all aspects and apply critical and long term thinking to the endeavor.

What is a Master Franchise and Sub-Franchise and How Are They Different Than An Area Development?

Posted on by Franchise Strategist

A master franchise is distinguished from an area development agreement in which a person or entity who buys a territory or region is required to develop that region directly. The area developer would be trained and supported by the franchisor and required to open a certain amount of locations within a certain territory and in a certain time frame.

What is a Master Franchise and Sub-Franchise and How Are They Different Than An Area Development?
Reposted with permission from Spadea Lignana – Franchise Attorneys

 What is a Master Franchise and Sub-Franchise and How Are They Different Than An Area Development?
Like most business disciplines, franchising has its own jargon or vocabulary. The terms “master franchise” or “sub-franchise” and “area developer” have specific technical definitions, but are often used improperly. This article will help to define a master franchise or sub-franchise and area developer and distinguish them from other forms of expanding a franchise system.
Franchise systems sell a master franchise (also known as a “sub-franchise”) in order to more rapidly expand their brand and system. Master franchising is typically the most common way brands expand internationally. In that context, a master franchise or sub-franchise may be sold to a person or entity to sell franchises on the franchisor’s behalf in another country. The master franchisee has the responsibility of recruiting, training and supporting franchisees throughout that country acting as their franchisor. This makes sense for the franchise system that is interested in expanding globally to capture local knowledge, relationships and the logistical advantages of being in country.

Understanding a Master Franchise
In the United States, many systems have used master franchising to grow domestically by carving the country into regions that may be individual states or groups of states, or even parts of largely populated states, like California. There is no formal rule on the breakdown of the geography. For example, a system may sell a master franchise for Northern California. That master franchisee would be responsible for selling, training and supporting the franchisees in Northern California and would typically receive a percentage of any franchise fees and royalties paid under the franchise agreement by the franchisees.

The Advantages & Disadvantages
The advantages to this method of expansion are quicker growth, local knowledge and potentially better logistical support for the franchisees. The disadvantages to this method are both the division of future cash flow to the franchisor (which will affect their overall enterprise value) and the potential of weakening brand standards, which would be upheld and enforced by multiple master franchisees instead of the single franchisor. Unless tightly controlled and monitored, this has the potential of fragmenting the brand. There are also additional administrative and legal costs in being a master franchise system, such as a separate Franchise Disclosure Document (FDD) for the master offering and the individual offering, and the master may also need their own FDD for their franchisees. This is an area where franchisors and franchisees should consult with an experienced franchise attorney to ensure the legal documents are compliant with both federal and state law.

What’s the Difference Between a Master Franchise & An Area Development Agreement?
A master franchise is distinguished from an area development agreement in which a person or entity who buys a territory or region is required to develop that region directly. The area developer would be trained and supported by the franchisor and required to open a certain amount of locations within a certain territory and in a certain time frame. Panera Bread® is an example of a franchise that has expanded through area development. Historically they sold a minimum territory of 15 units and that owner must develop those stores within five or six years.

Becoming an area developer for a territory is another means of rapid expansion and has its own concerns for both the franchisees and the franchisor. There is no perfect method of expansion, only options that should correspond with the business goals of the owner. Each method has advantages and disadvantages. If you are considering master franchising or area development as a means to grow your system or you are considering becoming a master franchisee or area developer, we would be happy to have a discussion to see how we may be able help. We have drafting, reviewed and negotiated these documents both internationally and domestically for many clients on both sides of the transaction. We look forward to talking with you.

About the Author:

Tom Spadea spent more than 15 years in corporate and entrepreneurial positions before completing law school at Temple University’s Beasley School of Law. His undergraduate degree is in finance from Marquette University, where he graduated Cum Laude. Tom is a Certified Franchise Executive (CFE), a non-legal designation earned from the International Franchise Association. He has also been named a “Legal Eagle” by Franchise Times, a distinguished award recognizing Tom as a leader among his peers in franchising.

Tom is the founding member of the Philadelphia Franchise Association and is the current President and Chairman. The Philadelphia Franchise Association holds quarterly networking and educational meetings, bringing together franchisors, franchisees, and suppliers.

Focus:
Tom has been lead counsel for dozens of new franchise launches and has assisted franchisors and franchisees alike with a variety of legal issues, including private equity transactions, litigation, trademarks, partnerships, and real estate deals.
Background:
Tom’s entrepreneurial background goes back to the 1990’s when he was the co-owner and President of a communications equipment manufacturer where he co-founded a factory in Latin America, successfully created an international sales network in Asia and invented a product for which he was granted a US Patent.
Tom’s next move was into the franchising world working as a Franchise and Business Broker for Sunbelt of Philadelphia. He acted as an adviser to clients looking to transition into the ownership of a franchise or the purchase or sale of an existing small business. As a business intermediary, Tom handled dozens of transactions every year, ranging from listing businesses for sale to recruiting buyers. His specialty was negotiating transactions that satisfied all stakeholders.
It was while Tom was a broker that he decided to pursue his legal education. Balancing law school and a young family, Tom also managed to hold senior executive positions for multiple national franchise concepts throughout law school including a 100-unit fast casual restaurant chain; a franchised chain of over 400 supplemental education centers; and a 500-unit retail chain of franchised frozen dessert restaurants.
Passion:
Thanks to his background as an entrepreneur and a corporate franchise executive, Tom has a unique perspective as a franchise and business lawyer. When combined with his experience and acumen as a lawyer, he can vigorously defend his client’s legal rights without losing sight of their business goals. Tom understands franchising from the inside, giving his clients valuable counsel to help them map out and meet their business objectives.
More important and valuable, however, to any of Tom’s professional accomplishments is the time he gets to spend with his wife and their two children.

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

Posted on 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

How Do You Write A Good Brand Story

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How Do You Write A Good Brand Story
By Jon Allo  

Your brand story differentiates you from everyone else. Otherwise, you’re just one more solution for the same old problem that customers can choose from, and usually without a standout differentiator they’ll base their choice on price. Most of the time, you do not want customers to choose you based on price alone. You want them to choose you because you’re you.
Telling your unique story starts with these questions:

When, Why and How Did You Start?
The best way to show authenticity is to be able to tell your audience when, why and you started doing what it is that you do. If you can tell your story in a way that your audience relates to you, and even roots for your success – even better.

How Do You Want Customers to View You?
As you write your story, it’s important to convey your values and ideals in a no-nonsense way. While you may be frightened of turning off some people, you really don’t need to worry about that. Those people aren’t your audience. Your audience consists of the people who can relate to your story, share your values, and want to be part of it.

Where Do You See Your Business Down the Line?
This is where you’ll try to dream big, and let your audience know where you see your business in the future. It also gives you the opportunity to refine consumer expectations toward what you offer rather than what the competition offers.

How you answer these questions is important.
You’re going to have many opportunities to do so via every communication you have with your audience – be it your blog, social media or even through the types of products you offer.

With the answers to these questions you can start to form your story and weave it throughout everything you do.

Share through Story Telling
Using an honest, no-holds-barred communication style to tell your story, your customers’ stories, and the story of your products is a good start. Use case studies, interviews, and in-depth relatable blog posts to accomplish this.

Share through Doing Good
Get involved with your community to give back something that is noticeable. You don’t want to do this just to get noticed, but you do want to pick something that helps people understand who you are as a business owner and what your business stands for.

Share through Experiences
You and your audience likely share common experiences that should be discussed. The more ways you can relate to them, the more ways they’ll see your offerings as unique and different.

Share with the Truth
Don’t hype, and don’t “blow smoke”. Consumers are smart today. They want the black and white truth of the matter. If it takes 20 hours a week to do what you do, and you’re teaching them, tell them the truth. If you’ve had to stay up overnight to work around children’s schedules, say so.

Share Everywhere
Don’t just “tell” your story on your blog in the “about” section. Tell your story everyplace. Use infographics, memes, blog posts, guest blog posts, articles, testimonials, good deeds and every possible way to spread your story. Be your story by your actions.

Branding is important for small business owners as well as large ones. If you have a limited budget, smart branding is perhaps the most inexpensive business tool you can create. To learn more about how to make you and your business stand out, download my free checklist, Branding For Small Businesses at https://jonallo.com/branding

Article Source: https://EzineArticles.com/expert/Jon_Allo/1079948

The Human Resource: Engaging the workforce in a crisis

Posted on 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

WARREN COOK

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.

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.

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

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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/

Pandemic Spurs Innovation for Small- to Mid-Sized Businesses

Posted on by Franchise Strategist

Set up your business in the right entity and state. Mistakes in formation or taxation can have a lasting negative impact on business growth and viability. Before starting a new business, consider the best structure for asset protection and tax minimization. For example, a limited liability company (LLC) gives business owners time to operate at a loss for the first few months and write off the loss on their individual 1040 forms against other forms of income.

Pandemic spurs innovation for small- to mid-sized businesses

By Brandpoint

(BPT) – As COVID-19 continues to disrupt normal day-to-day operations of small- to mid-sized businesses and nearly half of the U.S. workforce hangs in the balance, employers are taking creative measures to reset their go-to-market strategies and offerings. By changing their operations to meet the demands of their customers, businesses can not only stay relevant but keep their staff employed and thrive in the new economy.

This pandemic offers business owners, investors and solopreneurs the opportunity to take a critical look at their overall business model, offerings and operations and reset the entire business structure, creating new opportunities to serve and prevail. This is the perfect time to explore new legal solutions to the most common business obstacles to help companies preserve and protect their brands and prosper for generations to come. There are great examples of resets happening within many industries.

With the pandemic closing summer camps throughout the country, ACA-accredited Adventure Links, a 23-year-old summer camp in Virginia, has found a way to replace its usual summer adventure camp programs with

The CampCloud(TM) , an experiential online alternative. The company is now offering its virtual camping programs to individuals and employers to assist employees working from home by keeping their kids engaged, learning and delighted all day from virtually anywhere. The program is being offered to other camps as a customizable, online option for their campers.

Ensuring the health and safety of employers when stay-at-home orders are lifted, and business resumes, is critical. Thanks to a team of entrepreneurs, Disinfect & Shield(TM), an FDA-registered, EPA-approved and eco-friendly disinfectant used in surgical suites for the last decade, is now available to businesses worldwide to kill SARS-CoV-2, the virus that causes COVID-19 and other dangerous organisms. It works by creating a permanent anti-microbial shield, preventing the virus from attaching to surfaces where it has been applied without risk to humans, animals or crops. With Disinfect & Shield(TM), employees, customers and visitors can feel safe knowing that their space has been properly disinfected and treated for optimum health and safety.

Clint Coons, founder of Anderson Business Advisors, offers 5 financing and entity creation tips to help entrepreneurs and small business owners:

  1. Know how to use loans: CARES Act loans have specific guidelines like having to use at least 60% of the loan within 24 weeks of receipt for payroll expenses. Concerned that money would dry up, many small business owners applied with no way of utilizing them because their business cannot reopen under the strict guidelines imposed on the industry.
  2. Alternate cash sources: Borrow from a 401(k) or IRA to keep businesses afloat, as it does not need to be paid back for at least 3-6 years. However, pulling money out of a retirement plan comes with some risk, such as if the business does not see profitability, then retirement funds were wasted on a failed business venture.
  3. Beware of increasing liabilities: Because insurance will not cover claims brought under COVID, reopening comes with risk and business owners are wondering how they will operate under strict COVID-19 related guidelines and still make a profit. Now is the time to pivot and reset.
  4. Consider restructuring: Set up your business in the right entity and state. Mistakes in formation or taxation can have a lasting negative impact on business growth and viability. Before starting a new business, consider the best structure for asset protection and tax minimization. For example, a limited liability company (LLC) gives business owners time to operate at a loss for the first few months and write off the loss on their individual 1040 forms against other forms of income. There are different entity funding options with protection ramifications.
  5. Utilize Privacy Shield Protection by creating anonymity with trusts.

COVID-19 has shown that many businesses aren’t prepared for worst-case scenarios and make common mistakes that can affect their ability to grow and borrow money. If approached strategically, small- to medium-sized businesses can take this time to implement changes and help their operations succeed and thrive.

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

Posted on 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.

It’s Harvest Time – Tips On Selling Your Franchised Business

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You have used the franchise system, brand, and people to build your business. Don’t be afraid to use them to exit.
They have a critical interest in a successful transition. Use them to help you close the deal.

In today’s post, Tom Spadea, Founder and Partner in Spadea-Lignana Franchise Law shares his thoughts on the best way to sell your existing franchise business. As you might imagine there are steps that you need to be aware of while moving through this process. Working with your franchisor is just one way to expedite and ensure a smooth transition. Selling your business is a big decision. If you’ve worked with the end in mind then it should be a payoff, not an act of desperation. The payoff after years of smart work should be reflected in the multiple paid on EBITDA from an eager buyer who sees value. One thing I’ll remind you; Buyers want “potential” but they don’t often actually pay for it. Smart buyers will pay based on a specific set of guidelines to determine “valuation” or “enterprise value” which directly equate to selling price and price paid. This article explores best practices and tips when selling your franchise.

Franchise Attorney

Where Do I Start if I Want to Sell My Franchise or Buy an Existing Franchise?
By Tom Spadea – Spadea Lignana Franchise Law

If you have made the decision that now is the time to exit a franchise, you need to accomplish three critical things before placing your business on the market. If you are interested in buying an existing franchise, it’s also important to understand these three factors because it can affect how you move forward.

1. Discuss Future Plans
First, you should discuss with your franchisor what your plans are. All franchise relationships eventually come to an end. You are probably not the first and won’t be the last franchisee to exit the system. You have used the franchise system, brand, and people to build your business. Don’t be afraid to use them to exit. They have a critical interest in a successful transition. Use them to help you close the deal. If you have a specific reason why you think telling the franchisor will compromise your exit, then you should discuss that with your franchise attorney. If you don’t have an attorney that you are comfortable working with, please give us a call for a free initial consultation at 215-544-2452.

2. Gather Documentation
Second, you need to gather documentation and clean up any inconsistencies, errors or omissions in your paperwork. The list is extensive and you can never have too much documentation. Buyers will take lack of documentation or documentation they have to fight to get as a sign of trouble and it will break down the trust between you. Not only will it potentially affect your value, it will cause unnecessary delays.

In a small business transaction, the trust between the buyer and seller is critical. Without trust, the deal will not happen. The way you can build trust is by having all the documents readily available for any buyer who is serious about making an offer. You need to tell a story to the buyer, and that story has to be validated by documentation.

Read the entire article here: https://www.spadealaw.com/franchise-law/buying-or-selling-an-existing-franchise

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About Tom Spadea
Tom Spadea spent more than 15 years in corporate and entrepreneurial positions before completing law school at Temple University’s Beasley School of Law. His undergraduate degree is in finance from Marquette University, where he graduated Cum Laude. Tom is a Certified Franchise Executive (CFE), a non-legal designation earned from the International Franchise Association. He has also been named a “Legal Eagle” by Franchise Times, a distinguished award recognizing Tom as a leader among his peers in franchising.

Tom is the founding member of the Philadelphia Franchise Association and is the current President and Chairman. The Philadelphia Franchise Association holds quarterly networking and educational meetings, bringing together franchisors, franchisees, and suppliers.
Read more about Tom here: https://www.spadealaw.com/attorney-profiles/tom-spadea
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If you’re considering selling your business or buying a business contact Franchise Growth Solutions.
We can help you sell you business quickly and at the highest possible price.
Contact: [email protected] and visit: www.franchisegrowthsolutions.com. We can help!

A Roger Lipton Update – Chicken Salad Chix

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A Roger Lipton Update – Roger is an investment professional with decades of experience specializing in chain restaurants and retailers, as well as macro-economic monetary developments. He turns his background, as restaurant operator and board member of growing brands, into strategic counsel for operators and perspective for investors.

By Roger Lipton -with Permission
An archive of his past articles can be found at RogerLipton.com.

Chicken Salad Chick, based in Auburn, Alabama, was formed in 2008, by Stacy Brown. Stacy was a stay-at-home mom and self-proclaimed connoisseur of chicken salad who began the business by selling chicken salad made from her home kitchen. She was eventually shuttered by the local health department for selling food from an un-approved facility. She then joined her future husband, Kevin, who left a career in software sales, to help build the foundation for multiple corporate locations and future franchise growth.

In terms of equity ownership, in early 2015, Eagle Merchant Partners (“EMP”), an Atlanta, GA based private equity firm, purchased the majority ownership of the company. Kevin Brown, tragically, succumbed to colon cancer in 2015 at the age of 40. Before his death however, Kevin was instrumental in negotiation of the PE transaction, and he also helped establish the Chicken Salad Chick Foundation, which raises funds for cancer research and feeding the hungry.

In conjunction with that transaction, Russ Umphenour and Scott Deviney become chairman and President/CEO, respectively. Both are highly respected industry veterans. Mr. Umphenour was the CEO of Focus Brands (parent of Moe’s, Auntie Anne’s Pretzels, and others), and before that ran RTM Restaurant Group, the Arby’s franchisee that he founded.

Mr. Deviney was CEO of SDZ (a multi-unit Wendy’s franchisee) and SVP with SunTrust Bank, specializing in the restaurant industry. Over the last several years, the management team has obviously been broadened further to support the ongoing rapid growth. Stacy Brown, the cultural creator of Chicken Salad Chick remains a prominent spokesperson and brand voice, as well as a shareholder.

Originally a drive-thru and takeout only operation, the menu was expanded and sit-down facilities were added as additional stores opened. With franchise operations beginning in 2012, 29 units were open by the end of 2014, with contracts for an additional 114 locations.

The comfortable family oriented decor is combined with a creative and modestly priced menu, featuring over a dozen varieties of made from scratch chicken salad plus pimento cheese and egg salad, as well as fresh sides, salads, soups and sandwiches.

The primary meal special called The Chick includes a scoop of sandwich of chicken salad with a choice of a fresh side, salad, soup or another scoop of chicken salad, egg salad or pimento cheese. All meals are accompanied by a pickle spear, wheat crackers, a selection of breads for sandwiches and a small cookie. The menu also offers chicken salad BLT and turkey club sandwiches, though over 85% of sales come from chicken salad, which is also sold in large and small grab’n go containers called Quick Chick. Upwards of 70 percent of guests are women and the chain prides itself on being “chick friendly.”

Chicken Salad Chick ended calendar 2018 with 104 locations operating—74 franchised and 30 company operated. There were 21 franchised locations and five company stores opened in 2018. When EMP purchased the business in May 201, there were 32 stores in the system, so growth has been dramatic over the last four years.

The 104 locations are now located within twelve states—ALA, GA, FLA, NC, SC, TN, MS, LA, TX, KY, AK, OK. It is expected that 45 locations will have opened in 2019, 13 of them being company operated. It has so far not been necessary to advertise for franchisees, as the curb appeal of the physical unit combined with the menu and employee culture, as well as attractive unit level economics have generated more than adequate franchise interest.

According to the most recen Franchise Disclosure Document: The stores are about 2750 square feet in size, generally located in strip malls, costing an average of about $450,000 in total to establish, including up front franchise fees.

Much of the franchise appeal is the operational simplicity, which in turn generates attractive unit level economics. The equipment package is basic, with a steamer to cook the chicken (everything is prepared daily in the restaurant), food processors, refrigerated sandwich tables, a walk-in cooler, reach-in freezer, water filtration system, toaster and Quick Chick refrigerated case.

The absence of fryers (which must be vented) reduces construction costs, creates site flexibility as well as relative desirability as a tenant. The entire package of furniture and fixtures cost around $120,000. The up front franchise fee is $50,000 per unit, the ongoing royalty is 5% of sales with an additional national advertising contribution of 1.5%.

Last twelve months’ AUV was $1.2M in 2018, growing by about 9% in 2016, 13% in 2017 and 11.2% in 2018. Same store sales were up 15% in 2016, 8% in 2017 and 4% in 2018. Traffic has also been up consistently, most recently up 2.9% in 2018. The sales improvement is especially impressive within a restaurant industry that has been challenged in this regard.

Cost of Goods Sold has averaged about 30.5% with fully loaded labor at roughly 25.0%. Stores are open from 10am to 6-8pm (depending on the market) and closed on Sundays, taking a page out of Chick fil-A’s playbook, and allowing operating management to “have a day for family life.”

It is noteworthy that only about 45% of sales are dine-in, the balance being takeout (25%) and catering. Dine-in and takeout sales combine to provide a ticket average of $14.82. Also important: Drive through locations generate 27% more sales than without. 31% of the current system has drive through windows, and 40% of the planned locations will have them.

While the company makes no unit level profitability claims, our analysis indicates that franchises are likely earning at least 15% EBITDA (after royalties) at the store level. With sales now running at about $1.2M per unit, that would generate a “cash on cash” return of $180,000, or 40% on the $450,000 investment including franchisee fee, among the best returns in the franchised food industry. We emphasize: this is our analysis, not their claim.

Chicken Salad Chick continues its smart and rapid growth with no obvious impediments. While still relatively small, with only 104 units system-wide, franchisees are “voting with their pocketbooks,” and opening stores at a rapid rate. The concept seems “defensible” in terms of product line differentiation, combined with an employee “culture” reflecting the “chick” founder, but an operational simplicity that allows for fairly rapid growth. We look forward to following this company’s future development.