Franchise Update Magazine - Issue IV, 2013

Now includes

FranchiseLAW

Franchise update|Q4 2013

BUSINESS INTELLIGENCE FOR GROWING FRANCHISORS

page 63

Lead!

Create a culture of executional excellence

Market!

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Grow!

Highlights from the15th

Annual Leadership & Development Conference

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ANNUAL FRANCHISE DEVELOPMENT REPORT The latest in franchise sales and performance

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Franchise update|Q4 BUSINESS

INTELLIGENCE FOR GROWING FRANCHISORS

4 From the Editor’s Desk Reflections on October’s Leadership & Development Conference

Lead 5.

6 CEO Profile: Catherine Monson Leading and inspiring at 25-year-old FastSigns 10 CEO Profile: Wan Kim Smoothie King’s young owner retools, expands globally 14 Feature: Anatomy of a Brand Taking the dream from concept to reality at f2o 16 The Focused CEO Getting the whole team on the same page 18 Human Resources Are your direct reports “keepers”?

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Market 19.

22 CMO Q&A Paul Macaluso is on a marketing mission at Moe’s Southwest Grill 27 CMO Roundtable “What are some of the ways you measure the effectiveness of your brand’s consumer marketing efforts?”

28 Millennials This generation is more loyal than you might think 30 Consumer Data Alternative payment methods continue to grow 32 Connecting with Customers Word of mouth can deliver exponential growth

Grow 33.

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22

2

34 Feature: 2014 AFDR Highlights from the Annual Franchise Development Report 38 Feature: 15th Annual Leadership & Development Conference Fast Times!

42 Feature: Mystery Shopper Survey Franchise development still needs improvement 46 Feature: STAR Awards The STARs come out to shine in Atlanta 50 Q&A: FCI’s Tom Wood on what makes a world-class sales team 52 Challenge the Pros “How do you set standards and measure performance in your brand’s sales and development department?”

54 Sales Smarts Want to increase sales? Answer the #$*@ phone!

56 Market Trends New coding system aims to improve SBA lending for franchises 58 It’s Closing Time Escape from drowning in a sea of sameness 60 International Overseas expansion expected to continue in 2014

63.

Franchiseupdate Is s u e IV, 2 0 1 3

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Enabling Smarter Business

From the editor’s desk

BY Kerry Pipes

I

The Results Say It All

f you attended the recent Franchise Update Leadership & Development Conference in Atlanta you probably can still hear the buzz generated by attendees, both in the sessions and in the hallways of the InterContinental Hotel Buckhead in Atlanta. There was record attendance. Reviews and comments from attendees were overwhelmingly positive. The content of the sessions was both timely and topical. The speakers, panelists, and keynoters were engaging and knowledgeable. And the networking opportunities were, as always, abundant.

Every year the brightest and best in franchise sales and development convene at the conference to gather tips, uncover strategies, and explore ideas that will help them create a better sales process at their brands. CEOs and sales execs had ample opportunity to explore areas such as assembling a great sales team, developing successful prospect profiles, using technology to automate and streamline the sales process, and of course, good old-fashioned phone and face-to-face contact with candidates in making the sale. However you slice it and whatever you may be looking for, the conference always has lots in store.

In this issue of Franchise Update, you’ll be able to sample some of the events and information from the conference. We present highlights from the 2014 Annual Franchise Development Report; review the good, the bad, and the ugly of the annual Mystery Shopper survey, which measures franchise sales team performance on the phone and online; and see who we recognized as this year’s STAR Award winners—franchise organi-

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Franchiseupdate Iss u e IV, 2 0 1 3

zations that are best in class in franchise recruitment, sales, and development.

When it comes right down to it, franchise sales really is a numbers game— with an all-important human touch. The variables are who is on your sales and development team, who your prospects are, where you find them, and how you get them on board. We asked Tom Wood, this year’s Conference Chair, how he does it as president of Floor Coverings International (page 50). Maintaining human touch in a growing world of technology tools can be a tricky proposition. At his company, he says, “Marketing automation tools are only used to facilitate contacts and to pass very basic information along.

Nothing replaces personal contact!”

I also was struck by a comment Franchise Update’s President Steve Olson made at a session during the conference.

“People want a ‘business’ opportunity, not a ‘franchise’ opportunity.” Are you delivering that, loud and clear, to your prospects and candidates?

That’s a critical aspect of franchise sales and development. It’s a magical blend of the right product or service, a smoothly running sales process, a sales team that can communicate the brand’s proposition and opportunity, measuring the effectiveness of your marketing spend, and having the right franchisees delivering quality products and services to loyal returning customers.

Is your brand communicating all that to prospects? It should be, because for serious candidates looking for a business opportunity in franchising, your results—and those of your current franchisees—say it all. n

Franchise update|Q4 CHAIRMAN Gary Gardner CEO Therese Thilgen President Steve Olson Vice President Operations Sue Logan Vice President Business Development Barbara Yelmene Business Development Executives Jeff Katis Judy Reichman Executive Editor Kerry Pipes Managing Editor Eddy Goldberg ART DIRECTOR Franchise Update media group Samantha Calden DESIGN & PRODUCTION FRANCHISE UPDATE MAGAZINE www.petertucker.com Internet Content Manager Benjamin Foley Sales and Subscription Department, Office Manager Sharon Wilkinson Project Manager, Media and Business Development Christa Pulling Contributing Editors William Edwards Tom Epstein Jeff Fromm Keith Gerson Darrell Johnson Marc Kiekenapp Jack Mackey Steve Olson Bill Wagner CONTRIBUTING WRITERS Debbie Selinsky Helen Bond Advertising and Editorial Offices Franchise Update Media Group 634 N. Santa Cruz Ave., Suite 200 Los Gatos, CA 95030 Tel: 800-289-4232 Fax: 408-402-5738 Send manuscripts and queries about story assignments to: editorial@fumgmail.com franchising.com franchiseupdatemedia.com franchiseupdate.com mufranchisee.com Franchise UPDATE magazine is published four times annually.

Annual subscription rate is $39.95 (U.S.) For subscriptions email sharonw@franchiseupdatemedia.com or call (408) 997-7795 For reprint information contact Foster Printing at 800-382-0808 www.fosterprinting.com

Lead

Franchise leadership and management

6 CEO Profile: Catherine Monson

6

Leading and inspiring at 25-year-old FastSigns

10 CEO Profile: Wan Kim

10

Smoothie King’s young owner retools, expands globally

14 Feature: Anatomy of a Brand

Taking the dream from concept to reality at f2o

16 The Focused CEO

14

Getting the whole team on the same page

18 Human Resources

Are your direct reports “keepers”?

Franchiseupdate I s s u e I V, 2013

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Grow Market Lead

CEO profile: Leading by Example Catherine Monson shows the way at FastSigns

By Kerry Pipes

I

n the eyes of Catherine Monson, the most important role of a CEO is leading and inspiring. “It’s critical for the leader to communicate a clear, compelling vision and align the different departments or teams with the company’s priorities,” says Monson, CEO

of FastSigns. “I set the vision, goals, and standards and then work through my team to achieve them.”

When Monson took over the 25-yearold brand in early 2009, she put this approach right to work. First on her agenda was clearing up a communication

gap between corporate and franchisees.

Some franchisees were unhappy with the lack of support they felt they were receiving from corporate, resulting in stalled brand growth.

Monson created a sales incentive program and instituted monthly company meetings for sales updates, program developments, company announcements, and praise for departments on their projects and efforts. She even began making regular “Connect with Catherine” calls with the franchise system to provide updates and answer questions. Since implementing these programs, franchisee satisfaction has improved and the company’s growth has picked up.

It’s all part of the management and leadership approach for the franchise printing industry veteran. Before arriving at FastSigns, Monson spent more than two decades with Sir Speedy and PIP Printing in numerous leadership positions. She has a history of inspiring, transforming, and growing brands. But perhaps most important is her dedication to leading by example.

LEADERSHIP What is your role as CEO? If I had to

boil it down to the single most important role, it is to lead and inspire both our corporate franchisor team as well as our 540 franchise partners and their team members.

There actually are several additional skill sets I believe are required to be an outstanding leader. The first is vision, the strategic focus. It’s critical for the leader to communicate a clear, compelling vision and align the different deName: Catherine Monson Title: CEO Company: FastSigns International Units: 540 Family: Formerly married with no children.

I have several nieces and nephews I enjoy spending time with.

Years in franchising: More than 20 Years in current position: 5 in January

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Describe your leadership style. I set

the vision, goals, and standards and then work through my team to achieve them.

I refrain from micromanaging, except in those rare situations when I have a team member who is underperforming.

In those cases, in addition to giving specific feedback and coaching on how to improve, I will be micromanaging for a time to ensure the business unit attains its goals. Thankfully, I rarely have to partake in micromanaging. I do, however, have a solid grasp of the important details of the business. I don’t see understanding the details as a negative in any way.

What has inspired your leadership style? I do believe, to some extent,

that most successful leaders possess a similar behavioral or personality profile. Therefore, to some degree, I would say that I was born with leadership characteristics or that it developed during my childhood. My behavioral profile is more dominant than accepting, more independent than compliant, more driving than relaxed, and more analytical than sociable. With that as the backdrop, it has been my practice, since first getting into business, to seek out successful leaders and learn from them. Sometimes it is in a mentee role.

Other times in listening to them speak

or reading their books. One of the most significant mentors in my career has been Don Lowe, CEO of the multibrand franchising company Franchise Services, Inc. What is your biggest leadership challenge? Learning to focus on the most

important three or four drivers of the business, saying “no” or “not right now” to many other good ideas or initiatives, and keeping my team focused on implementing or effecting those same three or four key drivers. Concentrating resources, essentially my people’s time and money, on the few most-significant drivers of the business is important to maximizing the success of the company, while at the same time remaining open to new opportunities. In short, there are always a thousand competing ideas, but if you spread yourself too thin, you’re not going to achieve as much as you would if you remain focused on the important few key drivers of the business.

How do you transmit your culture from your office to front-line employees? Once the vision is set and

the company’s key strategic objectives are determined and the desired resultsoriented culture is defined, my job is to reinforce, focus, and cheerlead the team. I begin every meeting, whether with my team members or franchise partners and their employees, with a review or discussion of FastSigns’ four key strategic objectives, which outline our mission. By my personal example and reinforcing their importance, the entire team comes to understand that this is what FastSigns International is all about. These four key strategic objectives are: 1) to increase franchise partner profitability; 2) to increase average unit volume; 3) to increase the value of the FastSigns brand; and 4) to further improve franchise partner satisfaction. We have specific metrics for each of these strategic objectives and ensure that every team member understands their role in fulfilling them.

I also believe that language is critically important. A simple change, such as using the term “franchise partner,” rather than “franchisee,” has resulted in subtle

improvements in our culture.

Where is the best place to prepare for leadership: an MBA school or OTJ?

Since I don’t have an MBA, I would have to say on-the-job training. An MBA teaches you principles and educates you about business and finance. You cannot develop your leadership skills unless you’re leading people. Of course, it is also essential to be confident in regard to your business. Therefore, having an MBA—which would increase your confidence in regard to your business principles and finance—would never hurt. But it’s by actually leading people and learning through experience that you truly develop your leadership skills.

Grow Market Lead

partments or teams with the company’s priorities. Another skill or competency is driving results. The successful leader knows that it’s not about activity; instead it is about producing results. A successful leader drives hard and takes charge to produce results, focusing on the things that are most important in moving the business forward and making the tough decisions.

Also important is building highperforming teams and acquiring and developing outstanding people. A strong leader also leads and manages change, acting as a catalyst of change to improve the business. Last is leading through personal excellence and example. I set very high standards for myself, work very hard to lead consistently by example, and strive for continuous learning and personal development.

Are tough decisions best taken by one person? How do you make tough decisions? I believe it’s important to

gather the facts and understand the implications and ramifications of decisions. This is often best accomplished by involving and discussing decisions with my key management team members. The benefits of understanding other perspectives is important to making the best decision. At the same time, the toughest decisions are ultimately made by me.

Do you want to be liked or respected?

Optimally, both. But given the choice, I’ll take respect over being liked. The CEO’s job is not to run a popularity contest. The CEO’s job is to drive the business forward. If done well, it will result in respect.

Advice to CEO wannabes: Several

key qualities are required to be a successful leader or a CEO. These include confidence in your business, management, and leadership skills, as well as your commitment to your business.

True commitment inspires and attracts others. Similarly, people will believe in you only if you believe in your cause.

Initiative is another key quality for a successful CEO. Success is connected to actions. Focus is also important, which means understanding how to set priorities as well as the ability to concentrate.

Developing a positive mental attitude

Franchiseupdate Is s u e I V, 2013

7

Grow Market Lead

is a prerequisite for success of a CEO. Self-motivation and self-discipline are also required. And, of course, passion is important. Passion is demonstrated in the enthusiasm and excitement you have about your business, your brand, and your organization. You can’t start a fire in your organization unless there is one burning inside you.

exceeding your company’s plans. It’s defined as winning in the marketplace. It’s defined as becoming the preeminent brand. I wake up every morning wanting to win.

ees notes: I often send employees notes

PERSONAL

BOTTOM LINE

What time do you like to be at your desk? I believe in leading by example.

What are your long-term goals for the company? To triple system-wide

MANAGEMENT

I choose to be at my desk before our opening hours of 8 a.m. and I am often the last one out the door at night.

sales, double the number of locations, and maintain our high franchise partner satisfaction.

Exercise in the morning? Wine with lunch? Since I’m not a morning person

How has the economy changed your goals for your company? I took over

the helm as CEO in January 2009.

While the economy I encountered has not changed my goals for the company, it did delay achieving them a bit.

What does your management team look like? My senior management team

and I want to be at my desk before we open for business at 8 a.m., I exercise at the end of the day. And, there’s no wine at lunch for me. If there were, you would find me asleep at my desk in the afternoon!

is made up of knowledgeable, confident, passionate, driven leaders committed to the FastSigns brand.

Do you socialize with your team after work/outside the office? While

How does your management team help you lead? My management team

it may be a shortcoming, I don’t spend a lot of time socializing with my team outside of work.

level economics and extremely high level of franchise partner success, we are one of 30 select brands that are part of Franchise America Finance’s SBA loan program. We have $5 million in financing reserved for approved FastSigns franchise partners.

Describe your management style.

Setting the vision, setting objectives, involving the team in the development of the tactics to achieve the objectives, and allowing the outstanding people on my team to implement those tactics to achieve the set objectives.

is made up of high-caliber people, knowledgeable in their area of the business, and whose advice and counsel I respect and welcome. They are willing and able to disagree with me and give me a different perspective. As an executive team, we meet regularly to review the business, focused on excellence in operations and execution. In addition to helping in decision making, they also lead and motivate their teams effectively.

8

Last two books read: I am currently

reading Traction: Get a Grip on Your Business by Gino Wickman. Next on my list is Sheryl Sandberg’s book Lean In. What technology do you take on the road? I always take my laptop, iPad, and

iPhone. At night, in my hotel room, I prefer my laptop over my iPad for ease in responding to emails. During the day, I use my iPad to stay connected.

Favorite management gurus: Do you read management books? I read a lot.

How do you relax/balance life and work? I am not an example of work/life

Some of my all-time favorites include: Good to Great by Jim Collins; The 21 Irrefutable Laws of Leadership by John Maxwell; Endurance: Shackleton’s Incredible Voyage by Alfred Lansing; On Becoming a Leader by Warren Bennis; Wooden on Leadership by John Wooden; and Leadership by Rudy Giuliani.

balance. Most people would consider me a workaholic. I love what I do and am satisfied and fulfilled at the end of the day. To relax, I like to go on a long run, spend time with friends, have dinner parties, or travel.

Favorite vacation destinations: Africa

What makes you say, “Yes, now that’s why I do what I do!” I’m com-

for a camera safari, Europe for sightseeing and history, as well as horseback riding holidays.

petitive. I love winning. In business, winning is defined as meeting or

Favorite occasions to send employ-

Franchiseupdate Iss u e IV, 2 0 1 3

for a job well done, on their company anniversary with a specific thank-you for the things they do well, and on their birthday.

Where can capital be found these days? Because of our outstanding unit-

How do you measure success? By

meeting or achieving the high goals that I set for the company and myself.

What has been your greatest success? Achieving the confidence of the

FastSigns franchise partners after being selected to replace the beloved founder after his 23 years as CEO. Any regrets? I don’t believe having

regrets is healthy. I believe in taking personal responsibility, learning from mistakes and experiences, and taking action with what was learned.

What can we expect from your company in the next 12 to 18 months?

We will continue fulfilling our “More Than” brand promise and increasing average unit volume with our expanded products and services, as well as growing the number of FastSigns locations in the United States and internationally. n

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Grow Market Lead

CEO profile: New Smoothie King Wan Kim is reshaping the 40-year-old brand

By Kerry Pipes

W

an Kim is a quick study.

After graduating from Boston University with a degree in international management, he began his MBA studies at the University of California–Irvine at the crest of the investment-heavy dotcom boom of the late ’90s/early 2000s.

“I left school to go back to South Korea and chase the bubble,” he says.

“But I discovered there’s no such thing as easy money.” It was a career move that

left him thinking hard about what kind of business was sustainable.

Kim says he knew people had to eat, and he liked what he saw in the franchise business model. But he wasn’t interested in less healthy choices like burgers and pizza. “I had been a regular customer at Smoothie King when I was in college in America,” he says. “I thought I could make the concept work here in Korea.” He was right, but he had a tough road ahead when he signed on with the

brand in 2003.

“Nobody in South Korea even knew what a smoothie was, much less had heard of the Smoothie King brand,” he says.

But that didn’t stop the hard-driving Kim. As the master franchisee in South Korea, he created awareness, assembled a great team, and built the brand to 130 units in less than a decade.

Operating all those franchise locations in his native South Korea wasn’t enough, however. In 2008, he began to think seriously about buying the brand.

He approached Smoothie King founder Steve Kuhnau several times over the next four years about his willingness to sell. In the summer of 2012, Kuhnau was finally ready. (For a pre-sale profile of Kuhnau, see Franchise Update, Issue I, 2012). Kim secured $59 million in capital from Standard Chartered Private Equity and South Korea’s National Pension Fund and inked the deal.

“I thought I could take the brand and replicate some of the successes I had experienced in South Korea,” he says. For example, he says, the AUV for Smoothie King units in South Korea was $800,000, while in the U.S. it was just $390,000.

Kim hired someone to take over the South Korean operation and headed back to the U.S. to take over as CEO of the brand. As you might expect, his plans are big.

“First up, I’m trying to create a brand culture that is experienced from the top to the bottom,” he says. “It’s centered around a concept of ‘a healthy and active lifestyle.’” He’s pushing this culture with a new logo, new store design, and new training tools.

Of course, continued growth and expansion are a part of the recipe. “I Name: Wan Kim Title: Global CEO Company: Smoothie King Units: More than 600 units in 32 states, the Cayman Islands, Singapore, and the Republic of Korea Age: 41 Family: Married with two daughters and a son Years in franchising: Almost 10 Years in current position: 18 months

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someone’s respect or make them like you. I just try to show people who I am and from there it’s up to them to choose whether they like or respect me.

LEADERSHIP

passionate and driven.

What are your long-term goals for the company? To add 1,000 new franchised

What is your role as CEO? To put

How does your management team help you lead? When my team works hard

and corporate locations domestically over the next 5 years. Even with more than 500 locations in the U.S., the brand still has extensive franchise opportunities available in the Southeast, Mid-Atlantic, Northeast, and Texas. Smoothie King also continues to expand internationally through both master franchise and corporate stores in South Korea, Singapore, and the Cayman Islands, and is focusing on identifying partners in several key countries in Asia and the Middle East.

the right people in the right places to achieve our goals.

Advice to CEO wannabes: Lead by

where. My family and I love to explore new places.

leadership and have strong beliefs. If you don’t believe in anything, your people won’t believe in you.

Favorite occasions to send employees notes: I don’t write notes, but I do

MANAGEMENT

make it a priority to take members of my team to lunch.

Describe your management style: I’m

Favorite company product/service:

direct, goal-oriented, and driven.

High Protein Banana Smoothie.

What does your management team look like? Our management team is

BOTTOM LINE

toward our goals, it drives me harder, as I don’t want to waste their efforts.

Describe your leadership style. I pre-

fer to be direct, motivational, and lead by example.

What has inspired your leadership style? My experience: my failures, suc-

Favorite management gurus: Do you read management books? Managing

in the Next Society and Concept of the Corporation, both by Peter Drucker.

cesses, and challenges.

What makes you say, “Yes, now that’s why I do what I do!” My team. When

What is your biggest leadership challenge? Ensuring my team is set up for

they are proud of their achievements, it makes me proud.

PERSONAL

How has the economy changed your goals for your company? It hasn’t.

What time do you like to be at your desk? When it is necessary.

Where can capital be found these days? There is money to be found, but

success.

How do you transmit your culture from your office to front-line employees?

We are trying to build our culture as one that is focused on health and an active lifestyle through training, company stores, and our franchise community.

Where is the best place to prepare for leadership: an MBA school or OTJ?

A combination of both, but nothing replaces on-the-job experience.

Are tough decisions best taken by one person? How do you make tough decisions? I listen to many people that

Favorite vacation destinations: Every-

Exercise in the morning? Wine with lunch? I prefer to exercise in the after-

the lenders are cautious.

How do you measure success? The

noon. No wine at lunch.

bottom line.

Do you socialize with your team after work/outside the office? Yes, I socialize

What has been your greatest success? Achieving my goal of purchasing

with my team and want to do more of it.

Smoothie King.

Last books read: The most recent book

Any regrets? No regrets. We make the

I trust and respect. I take their opinions into consideration when ultimately making my final decision.

I read was Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers by Alexander Osterwalder and Yves Pigneur. Great book about the concept and structure of business.

Do you want to be liked or respected? Neither. I don’t think you can earn

What technology do you take on the road? iPhone.

Grow Market Lead

How do you relax/balance life and work? Travel with my family.

expect us to open 30 more stores in the U.S. by the end of this year, and I’d like to see us at 1,500 U.S. locations in the next 4 years,” he says.

Then there’s the international component. Kim says the brand opened in Singapore in late 2012. He expects to follow with stores in Malaysia, Indonesia, and Thailand.

For Kim, leadership can be boiled down to some basic essentials. “A founder or leader’s vision, beliefs, and culture should always be clearly stated and then communicated to the entire team. That is when it becomes powerful and a business thrives.”

decision and move forward.

What can we expect from your company in the next 12 to 18 months? We

are finalizing our new brand identification, which includes our store design and marketing elements. We are also working on our product pipeline. n

Franchiseupdate Is s u e I V, 2013

11

Transforming A Company

Can It Be thIs easy?

Fast-Fix Jewelry and Watch Repairs “Expert Repairs While You Shop” ow many times have you heard or read how challenging it can be to bring change to a corporation to maintain its competitive edge, improve its position in the marketplace, or revamp its customer experience? One company, Fast-Fix Jewelry and Watch Repairs, Inc. has met this challenge head on, and its experienced management team has transformed the company and its brand in an amazingly short period of time.

“Franchising is about transforming people’s lives, and helping them achieve their wants, needs and desires,” states Russ Cooper, Head of Franchising for Fast-Fix. “We provide a tremendous business opportunity for individuals who are looking for a terrific investment while providing them a rewarding day-to-day upscale retail business with highly satisfied customers.”

“We work with individuals from all walks of life and business backgrounds,” says Cooper, and “with

our simple operating model, we help them transition to a highly profitable and attractive service business repairing jewelry, watches, smartphones, engraving and retail items in our regional mall and shopping center locations.”

Mike Meyers, CEO of Fast-Fix, says it concisely, “we studied the company, industry and competitive landscape for nearly a year before making the decision to acquire the company. We invested in Fast-Fix because we saw an enormous opportunity for further development of the brand, expanding the store base and increasing market share.

During our first year, we focused on building a solid foundation to support our growth plans and expanded our menu of services to attract an even broader customer base. What’s very unique about the Fast-Fix concept is that unlike most retail venues, our service offerings appeal to every shopper in every mall and shopping center, everyday. Literally every shopper

has a watch, ring, earring, necklace, bracelet or a smartphone that we can service. Very few retailers can make the claim like we can, that every shopper is in fact a potential customer. What a great opportunity that provides us. We also are privileged with the opportunity to service every customer twice; a retail sale and a service sale. This is why our average transaction, gross margin and average unit volume are above the norm for most specialty retailers.”

Mike Meyers and Russ Cooper pinpointed all the enhancements to the Fast Fix concept and brand, and the transformation has been impressive when you consider that today’s Fast Fix features: • A new, more appealing, inviting Flagship store has been designed and is now being expanded into several new Fast Fix locations; • A new, comprehensive, integrated brand strategy and identity

has been put in place for a cleaner, classier look to the brand that resonates with shoppers for quality, trust and consumer confidence; • A new, in-store marketing program has taken hold where franchisees now anxiously look forward to receiving their new in-store marketing support and promotional materials; • A new, Local Store Marketing Manual featuring new TV commercials, print media, direct mail and preapproved uses to advertise the brand has been developed that encourages franchisees to invest in proven marketing ideas to drive sales and traffic into their locations; • A new mobile app is now available that offers features that e nhance the customer experience.

One example is the ability to make an appointment in a store of your choosing with a watchmaker, jeweler, smartphone technician or jewelry appraiser.

• A new training website has been introduced that offers technical training as well as training on customer service and sales building.

• A new custom, centralized website has been established that allows franchisees to order branded Fast Fix items on-line, such as approved graphics and Fast-Fix logo apparel.

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• A new national expansion program is underway to expand with existing franchisees and identify qualified franchise candidates to bring Fast Fix to new upscale shopping centers and malls across the U.S. Retail Services,

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Franchisee Testimonials Michael Barrett Franchisee Since 2000 Franchisor has made significant improvements in making FASTFIX a World Class Brand. They have made improvements in the design of the stores, increased the number of vendors available to us, improvements in the website and created a FAST-FIX mobile app.

Peter Le Cody Franchisee Since 1987 Franchisor has recently improved the company brand significantly, such as, the new FAST-FIX website, mobile app and overall the dynamics of the business.

Chris Franklin Franchisee Since 1995 Franchisor has improved all branding significantly. Now, when someone sees a FAST-FIX they will identify the brand and recognize the services we provide.

Mr. Cooper and Mr. Meyers are understandably enthusiastic about the brand’s future and having a great group of franchisee’s on board as they move the company from a survivor to an industry winner.

Mike Meyers, a 30 plus year retail go-getter, who led retail giant GNC from 900 locations to over 6,000 stores, says it like it is, “Frankly, a little over a year ago when we bought into the Fast-Fix concept, we were impressed by the success of the near 30 year proven operating system. At the same time, we saw tremendous opportunity to take the company and brand to the next level. Regardless of how well our company is performing, we are focused on never being satisfied.

That leads to complacency and as owners and leaders, our franchisees count on us to constantly bring new programs and growth opportunities to the company.” Russ Cooper, a 30 plus year franchising veteran who has helped three national brands expand through franchising, has a similar mindset by stating, “It’s great to see the beginning of something that’s set to really take off.

When you’ve put lightening in the bottle before, you always want to do it again.”

With Russ and Mike at the growth and leadership controls, it’s easy to see how the transformation and growth of Fast-Fix will only continue. It makes Fast-Fix a dynamic business to watch grow and a hot new franchisee even if the brand has been around for almost 30 years.

For more information go to FastFixFranchise.com or call us at 800.359.0407

Grow Market Lead

Doing

Anatomy of a Brand

By Pierre Panos

What It Takes Moving the concept from dream to reality

I

n my previous guest column, I discussed how I came up with the idea for a restaurant concept that fused the speed and inherent benefits of fast casual with the flavors, ingredient quality, and service level of fine dining. I learned from the best and prepared to enter franchising. But there were two more important pieces I knew had to be in place.

years. Franchisees have truly embraced Fresh To Order, and our franchise-tocorporate unit mix is 50/50.

It did take some time to get here, however. We opened our first restaurant in Atlanta’s midtown neighborhood in 2006, followed by six more by 2008.

And then the recession hit. While our loyal diners continued to join us for lunch and dinner, franchisees were either hesitant to invest in a new concept that stood alone in its category or fear1) Stay true to your vision I was convinced of two things when I ful to take a risk on our revolutionary started conceptualizing Fresh To Order. dining concept—understandably so, as First, I truly believed there was a way to financing had all but dried up.

As a result, we took a hard look take the fine dining flavor profile and within.

There’s an old song from an service level and bring it to guests in animated children’s show that sums up 10 minutes or less for under $10. Secour process.

The show features two little ond, I knew accomplishing this would toys planning a big move. They sing, require patience. together, “You hope, and I’ll hurry.”

Over time, both of these ideas bore “Hope” and “hurry” are what our fruit. We have delivered on our initeam did through the retial brand promise, with cession—and that is my guests who dine at Fresh recommendation for anyTo Order two and three one trying to launch a times a week—sometimes concept, particularly one even twice a day—and apthat creates a unique niche preciate the concept. We in its industry. currently have eight loI could have changed cations, are set to open the concept. At that point, three or four additional Americans were embracing units in 2013, and are on fast casual dining. Brands track to grow to about 40 Pierre Panos such as Chipotle and Paneto 50 units in the next 3

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Franchiseupdate Iss u e IV, 2 0 1 3

ra Bread were yielding remarkable profits for investors and stockholders and adding hundreds of restaurants per year. But my vision was not just to increase the quality of fast food, it was to deliver the fine dining experience quickly at an affordable price.

I stayed true to that vision with a passion and commitment, which allowed me to focus on the hard work that needed to be done: attracting loyal investors, employees, and franchisees to take the journey with me.

2) Do what it takes to get it right

We also did a whole lot of hurrying. In 2006, together with my business partners and a group of loyal employees, we looked at everything our brand was offering both guests and franchisees.

The menu worked: we had guests lining up for lunch and dinner even during the long years of the recession.

What needed reengineering was our unit economics. Given the tight reins held by banks for franchise loans, we had to make our business above reproach.

Further, we wanted to deliver a big

reward to our franchisees for taking a larger risk with our concept.

The restaurant business is very simple, but it is simple like rocket science, in that thousands of details must be reviewed, modified, and improved.

So we looked at every number on our spreadsheet, every line item, and every possible place to improve ROI, with the goal of creating incredible units with incredible volume.

As a result, our chain now boasts one of the best sales-to-investment ratios in the business. With an average buildout cost of $550,000 (after landlord/ tenant improvement) and with average unit sales of $1.7 million, we offer franchisees a 3:1 sales-to-investment ratio. When compared with most restaurant franchises, which usually offer a 2:1 ratio at best, we think Fresh To Order is a strong and differentiated investment opportunity.

Today, as we continue expansion, we keep the span of control very tight through a robust franchise infrastructure. Unlike other restaurant brands that keep their franchisee support team small, with one person often overseeing 30 or 40 units and multiple franchisees, Fresh To Order has created a team that allows for one franchisee support person for every 10 restaurants. We call it

“concierge support,” and it does mean a bigger overhead. To our brand, however, this additional expenditure is critical to keeping our unit economics high and our brand promise consistent across all restaurants, markets, and franchisees.

We’ve also created a system that allows us to constantly analyze and compare profit-and-loss statements for both corporate and franchise units in a consistent manner, so we can quickly identify outliers if we have concerns about costs or opportunities for further improvement.

While we “hurried” to create incredible unit economics, we took a little more time readying our concept for growth.

We realized early on that acceptance of our brand would take more time than our fast casual colleagues. Our average menu items are priced comparably, but slightly higher than some of the fast casual leaders. For example, our average ticket price is about $1 more than Panera Bread. The superior service, however, and the flavors, freshness, and quality of the food more than make up for that extra dollar—but it took time for diners to understand the value. I’d like to say that for $1 more the customer gets $3 to $4 more in perceived value.

We are pacing our rate of growth

(6 to 8 units in various stages of development each year) because we want to make certain that we deliver on our brand promise at every new opening.

More important, this rate of growth assures the success of our franchisees, who are never rushed to the point of failure. Our franchise agreement is pretty standard (most franchisees agree

to build at least three restaurants in a market), but we are flexible with opening milestones and will “wait for great” so as not to place undue pressure on our franchisees to open new stores if all the necessary elements of success are not present.

Some brands do fall into the trap of signing agreements that never come to fruition. To avoid this trap, we’ve made the conscious decision to pace ourselves and “right-size” our growth projections for the concept and our franchisees.

Since our growth goal is about a 50/50 mix of corporate and franchise locations, franchisees are our partners, not our

customers. We want restaurants to be built solidly, and we want a long-term, positive relationship with our franchisees, to the benefit of all.

In the end, the route we took to build and grow Fresh To Order was inspired by something a trusted mentor once told me: “Get into what you really love and stay in it until you become the best at it. It’s at the intersection of those two points when you’ll make a lot of money.” n Pierre Panos, a South African native of Greek descent, has founded three restaurant concepts in his nearly 30-year career in the industry, including a fast food mobile vending concept in South Africa at the age of 24, and Stoney River Legendary Steaks.

Today he owns Brookwood Grill and is one of the largest Papa John’s franchisees in the U.S. He founded Fresh To Order in 2006, positioned to grow to 50 corporate and franchised locations by 2015. He lives in Atlanta with his wife and three children.

Franchiseupdate Is s u e I V, 2013

15

Grow Market Lead

The focused ceo

By Keith Gerson

Where’s Your Focus?

And does anybody else know about it?

Keith Gerson has spent more than 35 years in franchising in many different sales, development, and leadership positions. Now at FranConnect as president of global operations, he has agreed to combine his personal experience with FranConnect’s franchising database to write about franchisor/franchisee relations, growth, culture, technology, and more in an ongoing column.

A

s we approach the new year, many of us are finalizing our strategic plans and budgets.

We’ve spent countless hours ensuring that every ounce of discipline, creativity, and resources has gone into the effort. Yet, despite an ever-improving economy, too many CEOs will not have achieved the top-line revenue growth they budgeted for 2013. In a CEO survey conducted by FranConnect, 58 percent reported that they were not achieving their financial goals. So what will make 2014 any different?

Common wisdom suggests that a slowdown in top-line revenue growth says it’s time to rexamine your strategy.

But assuming that revenue shortfalls are indicative of a flawed plan is, more times than not, erroneous.

In a key study of organizational change, the global management consulting firm Bain & Company reported these findings: • About 65 percent of initiatives required significant behavioral change on the part of front-line employees— something that franchisees and managers often fail to consider or plan for.

• Only 15 percent could name even one of the top three goals their leaders had identified. The other 85 percent named what they thought were the goals, but that often didn’t remotely resemble what their leaders had said.

• Only 51 percent could say they

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were passionate about the team’s goal, leaving almost half the team simply going through the motions.

• A staggering 81 percent of those surveyed said they were not held accountable for regular progress on the organization’s goals; and that the goals were not translated into specific actions (87 percent had no clear idea what they should be doing to achieve the goals).

No wonder execution is so inconsistent.

In short, people weren’t sure what the goals were, were not committed to them, didn’t know what to do specifically to achieve them, and weren’t being held accountable for them.

We see evidence that these same trends are occuring in franchising. Consider that in our CEO survey, 46 percent of respondents acknowledged that they did not have their strategic plans in writing and shared with their management teams; and 25 percent of respondents did not have a clear vision/mission statement in writing and shared. An additional 25 percent did not have clear core values used for hiring, reviewing, rewarding, and terminating. Each of these is a critical step in getting everyone aligned without wasting sales or operational energies on activites not useful to the business.

Another critical metric from our CEO survey that can contribute to issues in engagement and execution of strategies is that 25 percent did not have detailed job descriptions. Also, 38 percent did not have a formal evaluation method.

It’s all about performance

Achieving engagement and execution of strategic plans boils down to learning how change in human behavior is accomplished by having closed-loop mechanisms and by holding people accountable. At the end of the day, it’s all

about performance. Here are several behavior-modifying best practices for making 2014 your best year ever (with a nod to the business book The Four Disciplines of Execution.)

• Focus on the one or two goals that will make all the difference, instead of giving mediocre effort to dozens of goals.

• In determining your most critical goals, don’t ask, “What’s most important?” Instead, begin by asking, “If every other area of our operation remained at its current level of performance, what is the area where change would have the greatest impact?”

• Identify and track data on leading measures (those that are predictive of achieving your goals) that make a difference, instead of on lagging measures (which tend to occur too late to do anything to influence the outcome).

• People play differently when they keep their own score and have the results tracked on a compelling and visible scorecard—to remind, motivate, and create accountability.

• Get in the habit of meeting regularly—and frequently—with any team that owns or has a stake in the one or two critical goals you’re focused on. Have these meetings no less than weekly, but keep them short. These meetings are about accountability for results.

• At the very least, meet with your team and your franchisees, asking each individual one simple question: “What is the one thing you can do this week that would have the most impact on the scorecard?”

Great teams know at every moment whether or not they are winning. They must know—otherwise they wouldn’t know what to do be winning.

At the end of the day, strategic planning is the ante. The ultimate aim is not just to get results, but to create a culture of executional excellence. n Keith Gerson is president of global operations for FranConnect, a provider of franchise management systems. FranConnect has more than 500 franchise brand clients and more than 70,000 franchise locations on its cloud-based platform. Contact him at keith@ franconnect.com or 703-390-9300 x159.

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Grow Market Lead

Human resources

By Bill Wagner

Stressed Out? It could be time to reassess your direct reports

H

ow many direct reports do you have? Consider these four scenarios.

1) All of your direct reports have just submitted their resignations. You can either accept their resignations or keep them on.

Based purely on their performance, how many of your direct reports are absolute keepers? If it’s not 100 percent, you may have issues.

2) Imagine you’ve just started at a new position in the same industry, just a short distance away. You have no moral, legal, or ethical obligations and you can take as many of your direct reports with you to the new company as you want, occupying the same positions.

How many will you take? Again, if not 100 percent, you have issues.

3) As a franchisor, imagine you have a “do-over” and can re-select your franchisee base. How many of your franchisees would you keep? We already know the answer to this one.

4) As a franchisee, think about your staff. How many of them are absolute keepers? This should be a no-brainer, since your customer retention is determined by employees earning the least amount of money—and it’s your frontfacing employees who have the greatest impact on your customers.

The first two questions should be asked periodically about your direct reports. Whenever you get to the point where you are willing to accept a resignation or not take someone to your new opportunity, you need to address this. If they are no longer the right person for that seat on your bus, you need to provide them with the necessary or

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additional skills, cognitive coaching, or possibly move them to a different position.

I’ve asked these questions to thousands of CEOs, and I’m always amazed at how few of their direct reports are keepers. That’s right! Sometimes the answers are plausible, such as the direct report is too new in their position to know, and sometimes they are too old,

You can always change employees, but with franchisees you’ll have to live with your choices for 10 years or more. meaning they are planning on retiring in the next several years. Regardless, when anything less than 100 percent of your direct reports are keepers, the responsibility falls on your shoulders and you need to take action.

Over-stretched?

Consider this question: How many days a week when you go home are you emotionally or mentally tired? The more days a week you are drained indicates that 1) you are doing things that either go against your natural grain, or 2) you are compensating for things your direct reports are unable or unwilling to do.

In the first case, you are likely stretching your personality to compensate for what is not your natural style. For example, imagine that you have a relaxed, methodical, calm, and patient style. “Stretching” would involve being more driving, putting more pressure on yourself and others, and being forced to make snap decisions and move things along more quickly than you’d do naturally. This requires a high level of energy. Energy is a consumable, and when you’re out of energy you slow down, become drained, and eventually may become sick. Another example is having an accommodating, agreeable nature—which is great for a team member, but holding others more accountable and pushing for results requires a great deal of energy. When you’re out of energy, it leaves you exhausted.

So there actually are two messages here. The first is about employee selection. When you have the right people in the right seats on the proverbial bus, you get the right results. However, when you’ve selected or promoted the wrong person, their failure causes you to pick up the slack, and this is exhausting. It’s important to know that this exhaustion is normal for what you are going through. It becomes pathological only when you don’t understand the cause.

The second message is about franchisee selection. This is far more critical—and more difficult—than dealing with employees. You can always change employees, but with franchisees you’ll have to live with your choices for 10 years or more. Since my introduction to franchising some 15 years ago I have benchmarked the behavioral requirements for hundreds of franchisors. To receive a copy of a benchmark study on franchisee selection, drop an email to the address below with “franchisee” in the subject line. n Bill Wagner is CEO and co-founder of Accord Management Systems in Westlake Village, Calif. The firm works with franchisors and other franchising professionals to get the people side of the business right through behavioral assessments. Contact him at 805-230-2100 or info@accordsyst.com.

Market Consumer marketing initiatives

22 CMO Q&A

Paul Macaluso is on a marketing mission at

Moe’s Southwest Grill

22

27 CMO Roundtable

“What are some of the ways you measure the

effectiveness of your brand’s consumer

marketing efforts?”

27

28 Millennials

This generation is more loyal than you might think

30 Consumer Data

Alternative payment methods continue to grow

32 Connecting with Customers

Word of mouth can deliver exponential growth

Franchiseupdate I s s u e I V, 2013

19

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Grow Market Lead

By Kerry Pipes

Moe-mentum!

Paul Macaluso is on a marketing mission

A

t Moe’s Southwest Grill, Paul Macaluso carries a unique distinction: he’s the brand’s first chief marketing officer.

He’s hit the ground running in a role that began earlier this year, and his restaurant experience and insights into consumer thinking have helped him ramp up marketing efforts at the brand.

He’s no stranger to Moe’s. After serving as vice president of marketing for a year and a half at the fast-casual chain, Macaluso was named chief marketing officer in January 2013. The newly created role has charged him with overseeing the brand’s marketing and public relations functions, as well as catering and creative services. He says ongoing technology advances and rapid brand growth have posed marketing challenges that he has fully embraced.

Macaluso has a great franchising pedigree. Before joining Moe’s, he spent more than two decades in restaurant marketing. At Taco Bell, he was deeply involved with HR, operations, and numerous marketing positions. At Burger King, he served as director of product marketing. And at Sonic Drive-In he was vice president of day part and product marketing.

new program. At Moe’s, some additional challenges I face are staffing and developing the marketing team to support such a rapidly growing brand. Also, it is a challenge to steward such growth and remain collaborative with our expanding franchise partner community.

What are the 3 most important keys to being an effective CMO leader today? The first is to estab-

lish clear, powerful, and differentiated brand positioning and ensure there is alignment behind it throughout the

Describe your role as CMO.

I am responsible for leading the department and overseeing the strategy for driving profitable same-store sales growth for our 500-plus restaurants.

What’s the most challenging part of being a CMO today? The rapid

change and continual advancements in technology are a challenge in terms of staying abreast of options and determining the right time to commit to a

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internal organization and franchise community. The second is to develop a culture within the marketing team where talented and driven professionals work well together and challenge each other to grow. The third key is to stay focused on only two to three important goals to drive your growth.

How do you prepare a marketing plan and execute the strategies?

Our planning process is fairly straightforward, which begins with the standard SWOT analysis and an honest and transparent review of the current year’s initiatives. We had the opportunity to go through a sharpening of our brand positioning about 18 months ago, so a brief review of that information was helpful. This year we also conducted a customer segmentation analysis, which gave us more focus and quantifiable goals than before. At Moe’s, the most notable part of our planning process is that we finalize everything at a two-day retreat that includes several members of our franchise community who serve on a marketing committee.

That group, along with several members of the marketing department and other crossfunctional department heads, completes the marketing plan.

It’s an extremely collaborative process and one that has led to much better alignment and execution throughout the year. With regard to executing our strategies, the entire company recently transitioned to the 4DX model of execution, which I highly recommend.

It is based on establishing a few, clear, important goals, identifying and acting on lead measures, creating a scoreboard to track progress, and finally, establishing a regular cadence of accountability.

How do you measure marketing results and effectiveness? Again,

our number-one objective is driving same-store sales growth. So we have a weekly check-in on our performance and also include regular industry benchmarking. We also dig deeper into the

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Grow Market Lead

components of that growth, and review it related to the specific marketing tactics of the promotional period.

For example, if we are merchandising one of our premium ingredients, like our all-natural steak, we will monitor for increases in average check and mix shifts from chicken to steak. Another measure of effectiveness is our quarterly brand tracker, measuring all the fundamental customer awareness and perception indicators. We also track our database growth, both in terms of social media and internal lists, like our email and mobile ordering databases.

Discuss your core consumer marketing strategies and objectives.

Our core strategies revolve around three key areas: 1) highlighting the awesome quality of our core ingredients, which is known as our “food mission”; 2) introducing “craveable” new products that showcase phenomenal flavors on our menu; and 3) creating “shareable experiences” for our guests, both in terms of visits to our restaurants and through their digital experiences. Our objectives are very straightforward, and consist of growing same-store sales.

Describe your marketing team and the role each plays. The marketing

department is currently organized into four main areas: brand, field, creative services, and catering. The brand team oversees the development and execution of the brand strategies, promotional calendar, and all of the programs. It also oversees all media (including social), internal and external communication, and PR. The field marketing team is responsible for working with the co-ops of our franchise partners to develop and execute local media and promotional programs in conjunction with the national marketing and promotional plan. Our creative services group is full service, including all TV, digital, radio, OOH, and local store marketing creative development.

Finally, our catering group is responsible for developing programming and initiatives for growing our catering business, including standardization, training, and marketing.

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Why is it so important for the marketing department to have a “personal touch” when it comes to helping the brand connect with prospects? Seeing the success of the

brand on paper is one thing, but prospects need to put a face to the name and see that you are genuinely interested in collaboration and joint success. At Moe’s, I meet every prospective franchise partner for an hour and take them through our brand, marketing plan, marketing committee structure, and answer any questions that they have.

“Seeing the success of the brand on paper is one thing, but prospects need to put a face to the name and see that you are genuinely interested in collaboration and joint success.”

How does this help your franchise development effort? I think it goes

a long way. We are currently making a big effort to sell to franchisees in new markets, so these prospects need to see that we are committed to helping them be successful and that they won’t be on an island.

What ways/tools do you rely on to do this? Aside from the face-to-face

meetings I mentioned above, we have a marketing resource dedicated to new franchise partners. The grand opening manager oversees all of the marketing plans and execution from 90 days before opening to 30 days after. The grand opening manager then hands over the relationship to one of our field marketing managers, who serves as an ongoing resource for driving sales. We will open 65 new restaurants this year and have plans to open 105 next year. I’ll be bringing on a second grand opening

manager toward the end of next year to support this growth.

Do today’s prospects expect more from the franchise marketing department? What, and how do you provide it? That is certainly the case

for Moe’s. We have just passed the 500 restaurant count and are now attracting the highest level of franchisee prospect.

These are individuals who have restaurants with other top 10 restaurant brands. Those brands have 30 to 50 years of brand and marketing experience, and those marketing departments have resources 10 times ours. So the expectations are high and we are energized to exceed them.

How is technology changing the way franchise marketing is done in terms of one-on-one contact?

We have been able to establish a profile of the types of franchisee prospects that we would like to target and speak to about our brand. Our franchise sales team is all about one-on-one contact, and this targeting has helped the efficiency and effectiveness of their efforts.

How are you assisting your existing franchisees with more contact and transparency? What are their immediate needs? Aside from

involving them with the annual marketing planning process, we also have full transparency with our national ad fund. It’s a wonderful arrangement that eliminates unnecessary suspicion and distractions. We also conduct a series of three regional meetings every year, designed to teach, recognize, and collaborate with our franchise partners and restaurant general managers.

How do you work with other internal departments and does technology help? The marketing

department works with every other internal department at Moe’s. We are still a fairly lean organization, so we get a lot of face-to-face time together.

For the 25 percent of our team that is field based, we have relied more on webinars and video conferencing to stay connected.

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Grow Market Lead

How do you manage costs and budgets for the marketing department? We establish our market-

ing budget in September for the next calendar year. This process involves establishing line-by-line budgets for each of the initiatives and programs to support the promotional calendar. The budget is reviewed and reconciled on a monthly basis and adjusted for variations in revenue. We also keep a portion of the budget in a contingency bucket to capitalize on unforeseen opportunities or address unplanned issues.

We’ve been scrappy, and thankfully the positioning of the brand has been a nice fit with social media.

media. We’ve been scrappy, and thankfully the positioning of the brand has been a nice fit with social media. We are now dipping our toes in the water with national cable advertising, but the most effective campaigns are those that will continue to leverage all facets of the media mix and are inherently sharable and organic.

vendor partners we do business with.

Do you see vendors as business partners? Why/why not? Abso-

How have marketing strategies/ tools changed over the past decade? How have you adapted?

lutely. We have to. We need vendor partners who understand our current scale, and that also see our industryleading growth trajectory. That way, when we grow, they grow. It took us 13 years to get to 500 restaurants. We are on track to get to 1,000 in only 4 more. That’s attractive for a lot of the

Social and digital media are the two biggest areas of change we have used and benefited from. Because Moe’s is only 13 years old, we have just recently grown our national budget to a place where we can scale traditional national media. Everything we have done to this point has been through PR and social

How is your marketing/branding strategy developed, and how does it flow through the system? Our

brand strategy is developed collaboratively with several members of the Moe’s executive leadership team and franchise advisory council. We used an outside facilitator to help us shepherd this process. Once the strategy is developed, we follow a thorough communication plan to both the internal organization and the franchise partner system. Some of the most effective communication channels have been regional roadshows and a restaurant-level education video. n

The Wall Street Journal is #1 in delivering the affluent with personal income $200,000+, and liquid assets averaging nearly $1 million.

Showcase your franchise every Thursday in Marketplace and online every day at WSJ.com/Franchising.

For more information contact Andy Johnson at 214.640.7820 or andy.johnson@wsj.com.

Source: 2012 MMR Affluent Survey, HHI $100K+ #1 in personal income $200K+ among all reported titles.

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Franchiseupdate Iss u e IV, 2 0 1 3

What are some of the ways you measure the effectiveness of your brand’s consumer marketing efforts?

Jason Smylie CMO Capriotti’s Sandwich Shop

One of the most widely influential business thinkers, Peter Drucker, once said, “What gets measured, gets managed.”

This sage advice applies to every field, but often is tricky for marketers. With so many variables affecting customer traffic, how are we to know whether it is a marketing campaign that is making a difference or something as simple as a sunny day?

Operators too often analyze a marketing campaign’s success by how it felt, rather than looking at data. This is a dangerous line of thinking that leads to undisciplined planning, missed opportunities, and wasteful spending.

Some important questions to consider include: • What were last year’s sales compared with the period you are analyzing?

• What else is going on that might be affecting sales?

• How might operations be affecting your marketing efforts?

• Was the promotion executed as planned?

• Have all costs been considered?

What hidden costs may have been overlooked?

At Capriotti’s, we look at different measures, depending on the market dynamics. In newer markets we measure trial, market penetration, and overall customer satisfaction. Our guests are randomly surveyed and asked if they’ve been to Capriotti’s before. It is vital to know our trial rates when we are running promotions to bring new customers

into our shops. We also ask questions about customer satisfaction to see if there are opportunities to improve our guest service and taste of food, especially for a new shop.

In our more developed markets, we track frequency (visits per month) and transaction size to see if our promotions and programs change our customers’ behavior. Most important, we measure ROI for each of our promotions by analyzing sales lift compared with costs.

In this day and age it is also vital to measure social media marketing efforts. We focus primarily on social media channels such as Facebook and Twitter to listen for chatter about our programs, and to analyze key metrics such as fan growth and engagement. We integrate all our marketing campaigns into social media and, where possible, measure the incremental sales that are a direct result of our efforts online.

Douglas J. Poppen Director of Marketing Bojangles’ Restaurants

Bojangles’ has one of the highest average unit (sales) volumes in the quick-serve restaurant industry, driven by strength across all three primary day parts. We have a large number of very loyal customers, but the breakfast customer on Monday can be very different than the lunch customer on Sunday. So we’ve profiled each of our customer “segments” to understand how and why they behave, and are working to incorporate these segment views into all our measurement efforts.

In terms of what we measure, we try

to understand within a given geographic area the degree to which consumers are aware of Bojangles’, have tried Bojangles’ (ever or recently), and their frequency of recent visits. We also measure how all our paid, earned, and owned media are affecting these trial and frequency rates. To that end, we evaluate the effectiveness of our broadcast media investments and allocations, the engagement rates and direct and indirect sales impacts of digital and social media, and the impressions and media value generated by various partnership marketing and PR efforts, including the annual Bojangles’ Southern 500.

We measure these things in a variety of ways using a combination of proven methods and emerging tools. Syndicated research sources help us understand our share of restaurant units and advertising spending in each metro area where we operate, as well as the media consumption habits and social interests of our target customers in these areas.

We also have relationships with a small number of marketing services firms that assist us with monitoring and optimizing new product development opportunities, existing product pricing, local rating and review sites, and our customer care channels. Additionally, we are testing several new methods for monitoring and engaging in the increasing number of outlets consumers have to express themselves through social media. And we use internal or proprietary systems to evaluate the results of promotional events, limited time offers, and product or pricing tests.

In 2013, Bojangles’ began to implement a new point-of-sale system that will make our direct and loyalty marketing efforts more effective, and more important, more customer-friendly.

Coinciding with that deployment is the launch of our first-ever guest satisfaction survey program, where we will allow customers to tell us about their most recent visit in exchange for a compelling incentive to return.

Bojangles’ is far from conquering the “big data” challenge, but our ability to generate unique insights and use data and knowledge to make decisions has never been greater. n

Franchiseupdate Is s u e iv, 2013

Grow Market Lead

CMO roundtable:

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Grow Market Lead 28

Millennials

By Jeff Fromm

Generation Loyal?

W

More than you might think!

hy is it that we always hear about Millennials being the least brandloyal generation of consumers ever? Take one look outside of a Chipotle at lunchtime and the line out the door will tell you different. When considering Millennial consumers, you have to remember that you are dealing with the most savvy group of consumers ever. This group is not only looking for the best deals, they are actively searching for brands with values that align with their own.

Understand that Millennials have certain expectations with brands they are loyal to regardless of the category.

Their favorite brands set the bar for their expectations with other brands.

In that regard, we can learn a lot from restaurants that are winning with Millennials.

Let’s define brand value in today’s Millennial-inspired Participation Economy matrix. Depending on the category within the restaurant industry that your brand competes in, the definition of brand value probably looks a lot like this: Brand value = food quality + unique flavor profiles + alcohol + transparency + customer service + “effective” use of new technology (before/during/post meal) + consumer participation opportunities divided by price. The coefficient in front of each dependent variable will vary based on your brand DNA and the customer segment you choose to serve.

Let’s examine each variable.

• Food quality. You ain’t nothin’ if you don’t have great food: 60 percent of Millennials consider this the most important criterion for choosing a restaurant. However, Millennial loyalty goes only so deep, so consider great food as your “table stakes,” and pardon the pun. From there, look at other important considerations such as Franchiseupdate Iss u e IV, 2 0 1 3

good value, order accuracy, and other key basics that are “price of admission” factors but rarely differentiating.

• Unique flavor profiles. Millennials have a hankering for affordable adventures, tasting, and sampling. Barkley’s research with The Boston Consulting Group and Service Management Group found that 77 percent of Millennials enjoy eating a variety of different ethnic cuisines, which gives restaurants ample opportunities for appealing to the Millennial palate. This doesn’t apply only to exotic flavors. For example, Millennials love chicken wings. After all, the variety of different dipping sauces with every order is almost as exciting as the actual wing.

• Cocktails and beverages. We know Millennials enjoy a craft beer from time to time. They also enjoy a wide range of other adult beverages according to a recent research report from Scarborough. Add to this the fact that Millennials are far more likely than other age groups to view eating out as an opportunity for socializing with family and friends. With alcohol on the menu next to good food, you have a party waiting and available for them.

• Transparency and authenticity.

One of my favorite dives is Big Truck Tacos in Oklahoma City. Big Truck is home to The Fifth Amendment taco. Ask the staff what’s on it and they’ll plead the Fifth—you have to love that! You’ll find out the next day, the fun twist in the transparency represented by nutritional information on restaurant menu boards.

Chipotle and McDonald’s are betterknown brands that have done a good job of letting consumers know more about the food products and practices of their growers. Recently, Chipotle added an “Ingredients Statement” to its online menu, flagging which ingredients are local and organic, as well as those

containing GMOs, hydrogenated oils, and preservatives.

• Customer service. Millennials place a high value on restaurants getting their orders right every time. They also value responsive and friendly employees. Quick transactions and food preparation make their experience worthwhile and memorable. Of course, this is important to customers of all ages, so improvements in these areas are winning across the board.

• Technology. Restaurants can take advantage of many great emerging tech tools that give them the opportunity to showcase their menus and reward customers for their business.

Forkly is an app that shows “what’s good” at various restaurants. Rather than offering restaurant reviews, it highlights menu items. Traveling to a city with great dives, this app provides ease and trust. I’m fond of saying, “useful is the new cool,” and this is both!

ChowNow is a service that allows restaurants to offer online ordering using a website, app, or Facebook. Its product is focused on the brand’s and operator’s needs and provides enhanced consumer functionality.

Front Flip takes the place of loyalty cards with a scan-and-scratch app that customers can download for a chance to win prizes at their favorite restaurants.

Millennials love a little adventure, and Front Flip ensures that with every visit.

In summary, Millennials love dining out. It’s a social event that often involves friends. However, they generally prefer to skip the “fuss” that older generations enjoyed when they went out to dinner in favor of the convenience, ease, and accessibility offered by technology. Restaurants that have historically targeted families with special “family-size offers” and “kid toys” will need to rethink their approach to Millennials.n Jeff Fromm is executive vice president at Barkley, a “fiercely independent advertising agency.” He is co-author of Marketing to Millennials, lead editor of the blog MillennialMarketing.com, and founder of Share.

Like.Buy, a conference about marketing to Millennials. Contact him at jfromm@barkleyus.com or 816-423-6195.

Grow Market Lead

Consumer data

By Tom Epstein

Alternative Payments Are Expanding

T

New developments are changing how customers pay

here has never been a time where the nature of commerce is changing as rapidly as it is today. Technology is moving at blazing speed, not only around mobile payments and tabletbased POS systems, but also in the very payment types now available. No longer is it just cash, check, or charge. A quick look at our data and projections about those payment types points to a 10-year trend showing major shifts since 2006 (all numbers are in billions of transactions):

2006 2016 +/Credit, debit, prepaid, EBT 56 115 +104% Cash 49 47 –3.4% Check 25 9 –61% New players such as PayPal, Google, Bitcoin, and Apple are changing the landscape. Let’s examine these to see if we can expect a change in consumer behavior, and an opportunity for franchising to gain a competitive edge in the marketplace.

PayPal

PayPal is pushing extremely hard to gain acceptance in the brick-and-mortar space. For instance, did you know that you can pay at Home Depot with your PayPal account? Earlier this year, PayPal also did a deal to enable any merchant that accepts Discover cards at the POS to also accept PayPal. However, in the case of deals like Home Depot it is almost strictly just a marketing ploy, as usage has been minimal at best. In the case of Discover, there has been a lot of pushback from the processors, who are saying they don’t want to al-

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Technology is moving at blazing speed, not only around mobile payments and tablet-based POS systems, but also in the very payment types now available. low that, even though it is technically possible; and even if they did want to, the hardware would have to be programed to allow a customer to choose PayPal or Discover once the card is swiped. PayPal’s new wallet has been integrated with Apple’s Passport, which may give them and Apple something to work on. And paired with PayPal’s Beacon device, a consumer could check in and make payments hands-free.

PayPal’s publicly stated goal to get to 1 percent of the total brick-and-mortar transaction volume seems small—until you think about how much that really is. The next challenge will be getting consumers to care. If you have a PayPal account, watch your mail: you will likely be getting a PayPal “credit card” soon, if you have not already.

Google

I am not really sure Google has discovered what they really want to be in the payments space yet. To give them credit, they seem to have a strategy of shutting down tactics very quickly when they realize they’re not working, rather than putting a ton of money into something that may never take off. An example of this is abruptly shutting down their gift and loyalty function in Google Wallet in August.

Bitcoin

There has been a lot of press about Bitcoin (an online virtual currency), but what is it really, and why should anyone care? You purchase Bitcoins with pretty much any currency, which is converted to Bitcoins. My take on this is that Bitcoin is a just a geek’s cash. It is electronic, which is cool and geeky, and has all the attractive attributes consumers and merchants want from cash: it’s cheap to use, all sales are final (no chargebacks), and it’s anonymous. Once a transaction takes place there is no record of the identity of the paying or receiving parties.

It’s that last one—anonymity—that may be Bitcoin’s downfall. Bad guys selling drugs, porn, and even terrorist organizations have adopted Bitcoin as a way to transact business. This has put Bitcoin in the crosshairs of many governments. But think of the advantages to governments as well. They can have a currency that does not cost anything to mint (no more physical coins) and won’t need to print more paper money as it wears out. The saving would be in the billions just on this alone.

This trend will be fun to watch. I am starting see Bitcoin “ATMs” popping up in a few major cities. Can POS be that far behind?

Apple

I still think Apple is the one with the right tricks up its sleeve. They seem to be easing into the payments space without much notice. With every new iPhone launch come rumors about whether or not it will have NFC in it.

And when it doesn’t, competitors let

Apple is the one with the right tricks up its sleeve.

They seem to be easing into the payments space without much notice.

With every new iPhone launch come rumors about whether or not it will have NFC in it.

phones—no email, no text. AirDrop just drops my photo or video right onto another person’s iPhone as long as we are close. You have to enable it to work, and you have to accept an incoming photo, but can payments with this technology be very far behind?

Why couldn’t I just AirDrop an iTunes credit from my account to yours, or to a merchant’s? And just because I may not like the iPhone, I could still have an iTunes account and use my fingerprint to pay at a POS. Maybe this solves BitCoin’s problem too…. n

Grow Market Lead

out a deep breath and think they are okay until the next release.

Well, I am not so sure they are off the hook this time. What about the fingerprint ID on the iPhone 5s? Most people tell me they think it is kind of cool, but not really worth upgrading their phone for. But guess what? Now when you buy something from iTunes on that phone, you no longer have to enter a password; you just use your fingerprint. How many of us have iTunes accounts and are now paying with our fingerprint? Now imagine no credit cards at the POS—just a fingerprint scan and you’ve paid through iTunes.

If I were Google Wallet or PayPal, I would be more than just a little worried about this.

Did you notice something else that is pretty cool on the new iPhone (as well as for anyone who upgrades to iOS 7) called AirDrop? I was amazing my friends at an event recently by AirDropping photos directly to their

Tom Epstein is CEO and founder of Franchise Payments Network, an electronic payments processing company dedicated to helping franchisors and their franchisees improve system performance, increase revenue, and reduce expenses. Contact him at tomepstein@franchisepayments.net or 866-420-4613 x1103.

Franchiseupdate Is s u e I V, 2013

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Grow Market Lead 32

Connecting with customers

By Jack Mackey

Just Say the Word

Here’s an inexpensive way to drive exponential growth

A

McKinsey Quarterly Report shows that positive word of mouth has more than twice the impact of traditional advertising. For example, research by McKinsey showed that just one (free) episode of positive word of mouth can generate $200 in additional sales at a restaurant. It also turns out that personal recommendation is the primary factor behind 20 to 50 percent of all purchasing decisions—and that its influence is greatest when consumers are buying a product for the first time.

There are two reasons word of mouth is so much more powerful than paid advertising. The first is trust. We tend to believe recommendations from people we know. We trust friends, acquaintances, and colleagues not just because we know them, but because they have no financial incentive or ulterior motive to try to influence us.

The same can’t be said about traditional advertising.

We know advertisers are trying to sell us something, and we know “let the buyer beware.” When we are making buying decisions, people we know who have made similar buying decisions before us are a much safer, more reliable, and more credible source of information. We are more likely to act on their recommendations than on paid marketing.

The second reason word of mouth is so powerful comes from the targeting effect. Your customers associate with lots of people who are like them—your target customer demographic or psychographic. People your customers hang out with and talk to are quite likely to want, need, and buy similar products and services. When your current customers tell their friends

Franchiseupdate Iss u e IV, 2 0 1 3

positive stories about doing business with you, their audience is more targeted to your offer than a mass market audience that you reach with traditional promotions.

This according to Jonah Berger, a marketing professor at Wharton, who recently spoke to 100 multi-unit operators at SMG’s Power User Exchange about the findings in his new book, Contagious, which is about why ideas, products, and brands catch on.

There is a lot of excitement today about the potential for word of mouth to go viral. But wait! The truth, says Berger, is that only about 7 percent of word of mouth occurs on social media. And even then, specific online channels come and go. Several years ago, MySpace was the next big thing; now it’s not. In 2010 there was huge buzz about Foursquare, in 2012 Instagram, and today Pinterest. Facebook has been steadily growing, but that’s no guarantee it will be here forever.

What has remained constant for 100 years is that consumers’ direct experience accounts for most wordof-mouth advertising—regardless of whether it happens online, on the phone, in print, or in face-to-face conversations.

Rather than over-focusing on social media or any other single channel of communication, the most important issue is to understand why people talk positively about your business.

Because when customers love you, they often express it. “When people care, they share” is how Berger puts it in Contagious.

With all the popularity around Net Promoter Score (NPS) it’s important to note that being “willing to recommend” and actually talking positively about the brand are two

different things.

How do you make your customers care and share? Multi-unit franchisees accomplish this by focusing on two things: 1) operational excellence, so you always give people what you promised, and 2) delighting customers, which includes being different in any way that tickles customers and is “remark-able.”

For example, In-N-Out Burger is a concept with a great reputation for freshness and quality, an uncomplicated menu, and a fanatically loyal customer base. Since the brand almost never offers any new products, what’s to talk about? Have you heard of In-N-Out’s secret menu? When I googled it, I got 77 million hits; in other words, 77 million examples of other people talking and writing about In-N-Out! Find a way to give your customers something to talk about. Something to share. Literally.

Customer service expert John DiJulius, also the founder of John Robert’s Spa, gives two gift certificates to each of his best customers around the yearend holidays: one to use and one to give away. The first is inscribed with the customer’s name as the recipient; the second is inscribed as “From” the customer’s name.

That’s the genius of marketing to your current customers. You are helping them be better ambassadors for you. It’s also the most disruptive marketing factor. Word of mouth can influence a consumer to try you in a way that more advertising spending simply cannot.

Finally, it’s critical to remember that word of mouth is not just a onehit wonder. If each current customer brought you just one new customer, your business would grow indefinitely.

If each customer brought you just two more customers, your business would grow exponentially. n SMG Vice President Jack Mackey helps multi-unit operators improve customer loyalty and drive growth. Contact him at 816-448-4556 or jmackey@smg.com.

34 Feature: 2014 AFDR

Grow

Highlights from the Annual Franchise Development Report

Franchise development intelligence

38 Feature: 15th Annual Leadership & Development Conference Fast Times!

42 Feature: Mystery Shopper Survey

Franchise development still needs improvement

46 Feature: STAR Awards

The STARs come out to shine in Atlanta

50 Q&A: FCI’s Tom Wood on what makes a world-class sales team 52 Challenge the Pros “How do you set standards

and measure performance in your brand’s sales and development department?”

54 Sales Smarts Want to increase sales? Answer the #$*@ phone!

56 Market Trends

New coding system aims to improve SBA lending for franchises

58 It’s Closing Time

Escape from drowning in a sea of sameness

60 International Overseas expansion expected to continue in 2014 Franchiseupdate I s s u e I V, 2013

33

Grow Market Lead

By Eddy Goldberg

Mixed Bag

Highlights from the 2014 AFDR

T

he findings from the 2014 Annual Franchise Development Report (AFDR) were unveiled this October at the 15th annual Franchise Leadership & Development Conference in Atlanta. In keeping with past years, Steve Olson, president of Franchise Update Media Group, presented the findings during the first general session of the conference. This year he was joined by Conference Chair Tom Wood, president of Floor Coverings International, and Greg Vojnovich, chief development officer at Popeyes Louisiana Kitchen for a discussion of the results.

This year’s AFDR is based on responses from 101 franchisors representing 34,509 units (31,047 franchised and 3,462 company-owned). The participants were franchisors who preregistered for the conference and completed an online survey in advance. Their responses were analyzed to provide an indepth look into the recruitment and development practices, budgets, and strategies of a wide cross-section of franchisors.

In sum, the data, with accompanying analysis, provide the basis of the 2014 AFDR. Growth plans for 2014 from the 101 franchisors target a total of 4,057 additional units from 2,526 franchisees. Last year, 106 franchisors aimed for 4,675 new units from 3,095 franchisees; and in 2012, 110 franchisors sought 8,262 new franchise units and 4,441 new franchisees.

Overall, respondents said the top five most important factors in franchise development success were: 1) franchisee validation, 2) unit economics, 3) quality leads, 4) sales person, and 5) sales process. What follows are selected highlights from the upcoming 2014 AFDR. (Ordering information is on page 37.)

• Recruitment budgets. Both average and median recruitment budgets for 2014 ($201,817 and $120,000, respectively) are down slightly from the previous year, although each is higher than in 2010 and 2011, and not significantly different from 2012 ($197,000 average, $125,000 median) and 2013 ($208,625 average, $125,000 median). This likely reflects the slow, steady post-recession shift from a focus on tightening opera-

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Franchiseupdate Iss u e IV, 2 0 1 3

tions to a cautious crawl back toward more of an emphasis on system growth.

• Where the money goes. No major changes here—which might itself be considered surprising with all the noise about social media. Overall, the distribution of development spending has remained fairly constant over the past 5-plus years.

Internet spending by respondents actually peaked in 2010 at 50 percent, gradually declining to 45 percent predicted for 2014. Planned spending for 2014—print at 15 percent, trade shows at 16 percent, public relations at 12 percent, and “other” also at 12 percent—pretty much mirrors spending in previous years, with just a minor uptick for trade shows.

• Top sales producers. No major changes from last year here either. The Internet—at 42 percent—continues to dominate as the top source for franchise sales, identical with last year. Referrals were second at 31 percent, down a point from 2012. Brokers, at 17 percent (up 1 point from last year); and “other” at 10 percent (up 3 percent from last year), accounted for the remainder of franchise sales in 2013.

• Top Internet sales producers. As noted above, the Internet accounted for about 4 of every 10 sales. Breaking it down by category, the biggest change from last year is the increase in sales from SEO (31 percent in 2012 to 49 percent in 2013), largely at the expense of online ad portals, which fell from 43 percent in 2012 to 28 percent in 2013. Pay-per click as a sales producer has yo-yo’d in the 5 to 10 percent range over the past four years (11 percent in 2010, 5 percent in 2011, zero in 2012, and 6 percent in 2013).

• Brokers. While fewer franchisors reported using brokers in the past 2 years (44 and 48 percent in in 2012 and 2013, respectively, compared with 57 and 56 percent in 2010 and 2011), the percentage who are closing deals through brokers has risen in the past 2 years, significantly so in 2013. In both 2010 and 2011, 67 percent of those using brokers closed deals through them; that figure rose to 70 percent in 2012, and jumped to 90 percent in 2013. The median broker compensation of $13,500 among this group was level with 2012, falling from $15,000 in both

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Fast Franchise Facts Franchising Since: Founded in 1936, franchising since 1952.

Total Franchise Operating Units: 109 Bob’s Big Boy Restaurants and 25 Frisch’s Big Boy Restaurants all operating in the US.

- Full Page listing with up to 3 images

Qualifications

Company Operating Units: 20 Bob’s Big Boy Restaurants

Bob’s Big Boy is seeking franchisees committed to the operations of their restaurants and an interest in multi-unit ownership. Business and restaurant experience preferred.

Financial requirements include a documented net worth of $500,000 and cash liquidity of $250,000.

Capital Investment: $600,000 – $3,000,000

Demographics

SC, NC, WV and MD

Preferred trade area criteria includes: - Population of 30,000 within 2 miles and 10,000 daytime pop.

- Heavy traffic with mix of economic generators e.g. quality retail, business, School, and hospitals.

and 96 Frisch’s Big Boy Restaurants all operating in the US. Franchise Fee (per unit): $40,000 Royalty Fee (per unit): 4% Advertising fee (per unit): 3% Earnings Claims: Yes Build-Out Options: Inline and Free Standing Available Territories: CA, AZ, TX, LA, NM, AL, MS, FL, GA,

Rankings & Awards Hot Concept 2007

Contact Steve Facione Vice President of Development (586) 755-8113 franchiseinfo@bigboy.com www.ownabigboy.com

MULTI-UNIT

If you enjoy working with the public in a fun retail environment, and have the ability to follow a well-defined successful program, Pet Supplies “Plus” is for you.

Bob’s Big Boy is a family casual dining restaurant, an iconic highly recognized Brand, and Home of the Original Double Deck hamburger. Bob’s is making Franchise Territories available to candidates who possess a passion toward restaurant service and creating the “It’s your Big Boy” guest experience.

Our in-depth training program and on-going operational support after your store opens will provide you with all the tools you need to become a successful Pet Supplies “Plus” owner.

OPPORTUNITY

Description

SITE LOCATION

Assistance

Be part of the growing $53 Billion Pet Supply Industry! Pet Supplies “Plus” is the largest franchised specialty pet supply retailer in the nation, with over 240 stores in 23 states.

Our smaller store sizes and lower operating costs allow our franchisees to be successful in a variety of retail climates. PSP stores offer a selection of items that rival that of our big-box competitors, in a much more convenient and pleasing shopping environment.

Bob’s Big Boy provides: - A site criteria review package.

- Support during design and construction, as well as, sources for equipment, millwork, smallwares, and food product.

- Training of your management team.

- Strategic marketing ideas.

- A Franchise Business Director assigned in a support role.

Demographics Trade areas for successful Pet Supplies “Plus” stores have a population base of 75,000 or greater. We target middle to upper-income shoppers, and prefer high retail traffic areas. Our smaller-sized stores are convenience oriented, so we can locate our stores closer to our customers homes than the larger big-box warehouse style competitors.

Contact

Owning a Big Boy® franchise is like owning a piece of history. For over 75 years people have flocked to Big Boy® to enjoy delicious meals. For more information on becoming a Big Boy® franchisee visit the virtual brochure below.

Marc Kiekenapp Direct (480) 664-0851 Mobile (480) 266-0169 mkiekenapp@petsuppliesplus.com

www.ownabigboy.com

www.petsuppliesplusfranchise.com

This is not an offer to sell a franchise. An offer can only be made through our Franchise Disclosure Document (FDD). ©2012 Big Boy International LLC. Bob’s Big Boy and Big Boy are registered trademark of Big Boy Restaurants International LLC.

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DON’T mISS ThIS aNNUaL OPPORTUNITY. Contact Sharon Wilkinson at 800.289.4232 ext 202 or email sales@franchiseupdatemedia.com

Franchisee candidates shouldhave a minimum net worth of $1 million and be able to make an equity contribution of no less than 50% of the total project cost.

FOOD

Fast Franchise Facts Franchising Since: 1989, founded 1988 Multi-Unit Franchisee Operating Units: 53%

TI-UNIT Buyer’MUL s Guide

Total Franchise Operating Units: 152 Company Operating Units: 92 Capital Investment: $650,000–$750,000

Demogra phics

®

Franchise Fee (per unit): $40,000 Royalty Fee (per unit): $3,000/mo +2.25% over OPPO $83,333/mo RTUN

Descript ion ITY

Advertising fee (per unit): 2,500 per month

Earnings Claims: No Fuddrucker ® s opera franc Build-Out Options: 8,000 to hises 10,000 squaretesfeet, and2nd SITE LOCATION restau rants that generation space, In-line orspeci Free-Standing alize in high qualit upsca y, hamb Available Territories: Single-leand multi-store urgers inareas availvariety of sizes Pet Supplies “Plus” will work able throught eastern and southern United States.aVisit www. that cooked are to order pspfranchise.com for detailed market availability. with you to secure the best . We use only the freshest sites in the best trade areas. ingredients and we give We can work with local real our guest the “pow s er estate brokers, if necessary. encourage of choice.” We guests to Franchisi Our demographic program their own garnish ng Since entrees can tell you not only how : 1984 by provid ing an array Multi-Uni many people live in a given t Fran of farmproduce Total Fran trade chise e Operatin and condi fresh types chise area, but what Our restau ments g Units : 65% Company of petsOpe rants sserve . theyratin own g and how Units USDA fresh, Operatin 100% : 122 much they never g spend Units:on them. premium frozen Capital 58 beef, and Investmen on-premise feature t: $250 Franchise ,000 to baker ies where 400,000 bread and Fee (per dessert unit): $50,0 Royalty baked fresh items are Fee (per 00 daily. unit): 5% Advertisin g Fee (per Earnings unit) Times Magazine: : 0.25% ClaimFranchise s: Yes Build-Out Consistently featured in the Options: “Top 200 Chains” Traditional FreeFranchising Standing, Venues ranking since End in 2006, and Cap, and Available NonTerritorie 2010 ranked as #119 in terms s: Territo ries availa of overall sales. ble throu ghout the U.S.

Assistance

Fast Fra nchise Facts

• Minim um popul ation 50,000 in a 3-mile of radius • Avera ge house hold incom of $55,0 e 00 and above • Predo minan and childr ce of families en • Conce ntration of office and/or s retail center s • Emplo yee popul ation 20,000 in a 3-mile radius • Traffic count cars a day s of 30,000+

Rankings & Awards

Contact

MULTI-UNIT BUYER’S GUIDE 2012

Keith Cole (800) 886-4 man | Vice President of Franc keith.colem 600 hise Devel an@fuddruc opment kers.com www.fuddr uckers.com

Qualifica tions

Potential Fuddrucker sees must s be comm franchito being itted hands-on owne operators and follow r/ through ing with requiremen all training financial ts. Minimum requir having liquid ements includ e resou rces of $250,000 to $400 K and a net worth of $750 ,000 to $1 millio n dollar s.

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Right Market. Greater Results.

Grow Market Lead 36

2010 and 2011. However, said Wood, “The starting point is $20,000 or higher to do deals.”

• One-to-one marketing. Calling this “today’s newest recruiting source” for franchisors, Olson reported that 36 of the 101 franchisors surveyed have used one-to-one local marketing to recruit franchisees. Twenty-two, or 61 percent of those franchisors have generated sales using this strategy, he said.

• Referrals. Again, no significant change here in the number of respondents using this relatively low-cost method of recruiting leads (59 percent, compared with 58 percent last year) and those providing incentives to franchisees who refer prospects that result in sales (60 percent this year, 61 percent last year). The median referral fee, however, rose significantly, from $3,500 last year to $4,500 this year; and 15 percent said they pay $10,000 or more for successful referrals, most likely reflecting franchisors’ increasing appreciation of the value of referrals in making new sales.

• Social media sales. The number of franchise sales from social media sources has steadily increased over the years and is certain to continue. Fifteen of this year’s respondents reported making 123 sales through social media, nearly tripling last year’s total of 46 sales through social media sources by 14 companies.

This year’s numbers break down as follows: 52 through blogging; 49 through LinkedIn; 10 through Facebook; 7 through Craigslist; and 5 through YouTube.

• Overall closing ratios. Something’s getting better here.

While the numbers for 2013 matched those of the previous year exactly—leads to sales at 2 percent, applications to sales at 13.5 percent, and discovery days to sales at 75 percent—they were up significantly from 2010 and 2011. Clearly franchisors are making more of their opportunities, but it could also be they are choosing candidates more carefully.

• Profiling tools. Improved profiling tools, as well as better use of them, also contributed to the increase in closing ratios: two out three (68 percent) of franchisors said their use of profiling tools has helped to increase the quality of their new franchisees, up from 48 percent last year, and 20 to 30 percent in previous years. One in five (19 percent) said they are using profiling tools but don’t yet know if that is improving the quality of their candidates; and one in seven (13 percent) said profiling tools have not done so.

• Measuring costs. Tracking costs for lead generation and cost per sale has been a sore point for years—as in, why don’t more franchisors do it? The news this year showed slight improvement, with 72 percent of respondents tracking their cost per lead, up from 69 percent the year before. Sixty percent tracked cost per sale, down from 65 percent the previous year.

That means 3 out of 10 respondents still don’t track cost per lead, and 4 out of 10 don’t track cost per sale, the all-important measure of franchise system growth. The median cost per lead of $55 rose $5 from the previous year, but is still lower than the $60 reported the year before that. The median cost per sale was $8,000, down significantly from $9,452 last year.

• Mobile prospect explosion. It should come as no surprise Franchiseupdate Iss u e IV, 2 0 1 3

that more prospects are using their mobile devices to research and contact franchise brands. According to Landmark Interactive, that number doubled from August 2012 to August 2013, rising from 18 percent (10 percent phones, 8 percent tablets in 2012) to 36 percent (23 percent phones, 12 percent tablets in 2013). Desktop usage in this area dropped from 83 percent in 2012 to 65 percent this year. “There is a huge movement toward mobile,” said Olson, adding that the financial qualifications of mobile users are higher than for those using desktops to research franchise brands. The message clearly is that franchisors must adapt their website franchise development sites to these mobile devices.

For ordering information on the 2014 Annual Franchise Development Report, see facing page. n

Key Findings • Communicating “on the go” is exploding. The percentage of prospects using mobile phones to research franchisors doubled from the previous year. Franchisors must adapt their technology to handle the growing use of cellular devices and tablets or be at a competitive disadvantage.

• Social media is for more than just finding friends.

An estimated 87 percent of franchisors have a Facebook link on their website, and 73 percent have a Google+ corporate page. However, franchisors still must learn how to use social media better to make it work as part of their development strategy.

• Profiling tools are powerful. Two out of 3 (68 percent) of franchisors believe profiling tools increase the quality of new franchisees.

• “Who you know” still rules. When it comes to getting the deal done, 6 in 10 (59 percent) of franchisors say referrals have the highest close ratio of all lead generation sources.

Some good news: Franchisors are working harder to align the efforts of their various departments. Olson says research shows that franchisors are “breaking down the silos” to come together to build a better overall system.

“There is lots of reciprocity between all the disciplines in the company,” says Olson. He also recommended leadership at the top must continue to identify performance gaps and make sure they are monitoring and hiring the right sales people.

Looking ahead, the franchisors who are most successful in exceeding their goals will continue to be the brands that use multiple sources—and use them well—to promote their brand. Those who don’t should heed this cautionary note from Tom Wood: “The stronger franchisors are going to eat your lunch.”

— Helen Bond

Top Lead-Generation Sources for Achieving Growth in 2014

Franchise Update’s 2014 Annual Franchise Development Report is the only franchise sales and lead generation benchmark report available in franchising.

Order now

contact Sharon Wilkinson: (800) 289-4232 ext. 202, sales@franchiseupdatemedia.com

Presented by:

Grow Market Lead

By Kerry Pipes

Fast Times at

Franchise High 15th Leadership & Development C

Conference earns an “A-plus”

lass was in session at this year’s annual Franchise Leadership & Development Conference, held at Atlanta’s InterContinental Buckhead Hotel October 9–11. This year’s theme was “Fast Times at Franchise High” and the goal, as always, was an indepth examination of franchise development and growth. This year’s “students,” some of the brightest in franchising, had a chance to learn from some of the best “teachers” in the business. Courses were rigorous, education was key, and by all accounts everyone graduated with honors to return to their brands and build better recruitment strategies and processes.

The numbers were impressive this year as 235 franchisor executives joined 130 suppliers and sponsors. Timely and topical sessions and panels were scheduled

2013 CONFERENCE NUMBERS

374

ATTENDEES

235

FRANCHISOR EXECUTIVES

130

SPONSOR ATTENDEES

9

OTHERS (FRANCHISEES/ ATTORNEYS)

around world-class keynote speakers and an Exhibit Hall that made for great networking and strategizing opportunities.

Tom Wood, CEO and president of Floor Coverings International, served as the event’s first-ever conference chair.

Satmetrix was the Platinum Sponsor and Bill.com was the Gold Sponsor for the event.

First period

Class was called into session on Wednesday morning, the start of a full curriculum for attendees. Franchise CEOs and presidents gathered for an all-day CEO Summit. A promise of confidentiality encouraged openness among the executives, and discussions were lively and frank. The “curriculum” focused on building a strong corporate culture and implementing it, and Tom Wood, John Rotche, Shelly Sun, Don Fox, John Longstreet

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Franchiseupdate Iss u e IV, 2 0 1 3

Judge Reinhold, Tom Wood

the day included several group exercises and presentations. Relationships formed that the executives plan to continue well into the future.

Elsewhere that day, the focus was on franchise sales. An all-morning session on “Mastering Franchise Sales Fundamentals” was led by Grant Kreutzer, director of franchise licensing and recruitment at Jack in the Box. Kreutzer led a panel that included Steve Dunn (Denny’s), Scott Nichols (Sears Hometown & Outlet Stores), Brian Sommers (Jersey Mike’s Subs), and Marc Kiekenapp (Kiekenapp & Associates). Topics ranged from franchise offerings to development agreements and much more. One key message: franchisors should be ready for large, sophisticated multi-unit operators. They are looking at your brand, they wield a lot of power, and they make great partners.

Other sessions delved into topics such as creating compelling content and capturing more franchise buyers; achieving high-performance sales management; and building first-class programs for multiunit franchise growth. The moderators, panelists, and audience dug into the nuts and bolts of franchise brand development

Jordan Belfort, keynote speaker

and the associated struggles and successes.

Martin Greenbaum, president of Greenbaum Marketing, said, “You have to get your prospects to picture themselves operating your store.” Steve Olson, president of Franchise Update Media Group, added, “Make sure your message has facts, not just fluff.”

The first day of “school” concluded with a “pep rally,” otherwise known as the opening of the Exhibit Hall. Sponsors and suppliers leaned heavily toward technology-based solutions, with products and services ranging from lead generation and prospect management systems to marketing, advertising, and financial offerings.

Midterms

Jerry Darnell

The second day began with the school “cafeteria” (Exhibit Hall) opening for breakfast and an early-morning opportunity for attendees to continue discussions begun the previous evening and to start fresh talks with additional exhibitors.

The opening bell drew everyone into the first general assembly of the event.

Conference Chair Tom Wood opened with a lively wake-up exercise asking

Grow Market Lead

Fast Times at Franchise High

attendees to define selling—and for attendees to cheer or heckle the responses.

Then it was time to get down to business.

Darrell Johnson, president of FRANdata, took the stage to deliver his latest “State of Franchising” report. “We should continue to see modest growth ahead,” he said. Picking up on a theme that has been a part of his recent reports, Johnson urged franchisors to present financial institutions with “more than just unit economics for your brand. Give them information on your overall system and how it performs.” Lenders, he said, are financing older, established brands and established multi-unit operators.

Scott Nichols, Steve Dunn, Brian Sommers

Next up was a keynote talk by Jordan Belfort, former Wall Street mogul and New York Times best-selling author. The “Wolf of Wall Street” (his story will soon be presented on the silver screen) detailed his rise and fall from grace as a Wall Street trader, and his fast-talking approach and salty language lent an authenticity to his tale. Today he has rebounded and helps companies worldwide by teaching his Straight Line Sales Method. Belfort said that a great salesperson must be “an ex-

Franchiseupdate Is s u e I V, 2013

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Grow Market Lead

Fast Times at Franchise High

pert, have enthusiasm, control the sale, get people to trust him, and work for a good company.”

Franchise Update’s Olson then took the stage to present an overview of the 2013 Annual Franchise Development Report (AFDR) and Mystery Shopping survey results (see story on page 42). This year he was joined by Tom Wood and Greg Vojnovic, chief development officer at Popeyes. As the slides were displayed, the three discussed their interpretations of the data and made suggestions on what might be learned from the results.

After the general session, it was time to head back to the classroom for more sessions and breakouts. Topics ranged from leveraging recruitment technology to attracting quality candidates.

Lunch was served in the Exhibit Hall where suppliers and franchise executives

had a final chance to conduct business.

An afternoon general assembly featured a panel of CEOs discussing “Building Recruitment from All Sides.” Once again Tom Wood was at the helm and directed John Longstreet (CEO, Quaker Steak & Lube), John Rotche (president, Title Boxing Club), Shelley Sun (CEO, BrightStar Care), and Don Fox (CEO, Firehouse Subs), through an informative discussion. The panel fielded questions from Wood, giving their perspective on topics such as the role the CEO plays in franchise development, if and how the CEO is involved in the brand’s discovery day, and where they find great prospects.

More afternoon breakouts followed before the day’s sessions ended with a

candid and entertaining appearance by actor Judge Reinhold, who appeared in the 1982 teen movie classic Fast Times at Ridgemont High, which inspired this year’s conference theme. The Hollywood performer has been at it for 30 years now and has appeared in 75 films. “Not all of them were great,” he quipped. Reinhold shared stories of movie sets and fellow actors and came across as genuine and affable.

On the final evening of the conference, a dinner was held to announce and celebrate this year’s STAR Award winners (see story on page 46), with Reinhold presenting the awards as his 9-monthold daughter crawled across the floor in front of the stage.

STAR Awards See story page 46.

Sport Clips FirstLight HomeCare

Franchise Update “All-Stars”

Molly Maid

Kona Ice

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Wild Birds Unlimited

Franchiseupdate Iss u e IV, 2 0 1 3

Denny’s

BrightStar Care

Grow Market Lead

Fast Times at Franchise High

Finals

The last day of the event featured a light breakfast followed by two morning sessions. The first offered an assessment of the capital market led by Darrell Johnson and featuring Tom Epstein (CEO, Franchise Payments Network), Joanne Jolin (vice president and business development officer, Atlantic Coast Bank), and Mike Rozman (co-president and chief strategy officer, BoeFly.com). The panelists discussed brand performance, ways to reduce

risk, alternative financing, and answered questions from attendees.

The last presentation was a forum featuring three successful multi-unit franchisees—Jack Hough (85 concepts), Mark Rinna (Popeyes), and Abid Khutliwala (Checkers, AT&T and AIO Wireless)— who shared their experiences working with different franchisors over the years.

Assessments were across the board, with some brands working very closely in a mutually beneficial way while others not

so much. Key takeaways: franchisees and franchisors must be willing to negotiate more; and good, solid franchisees are underutilized resources for franchise brands.

And with that, class was dismissed until next year.

Visit www.franchisedevelopmentconference.com for more on this year’s event and to find out about registering for next year’s conference, which will return to the InterContinental Hotel in Atlanta, October 15–17, 2014. n

Franchiseupdate Is s u e I V, 2013

41

Grow Market Lead

By Helen Bond

The Song Remains the Same Franchise brands still failing to respond

W

hen it comes to franchise sales, it seems the more things change, the more the development practices of many franchisors remain the same. This was a key finding of Franchise Update Media Group’s annual Mystery Shopping survey, unveiled at the 15th annual Franchise Leadership & Development Conference in Atlanta in October.

Across the board, our expert team of mystery shoppers found that, despite technological advances that make it easier than ever to connect with qualified prospects, franchise sales and development teams don’t always pursue promising prospects with the fervor, immediacy, and persistence they would in a world of best practices.

“The constant frustration in the mystery shopping results is the failure of franchisors to respond to qualified inquiries,” says Steve Olson, president of Franchise Update.

“There is an epidemic. It’s just not happening.”

This year’s survey of 101 franchisors, representing 34,509 units (31,047 franchised units and 3,462 company-owned units), is an annual conference extra for franchise brands that pre-register. A team of franchising specialists posed as qualified candidates to “shop” franchisors by phone and online.

The secret shoppers evaluated lead generation and recruiting practices for ease of access, response time, and follow-up.

The phone survey revealed some dismal findings: • a paltry 11 percent of sales staff were available to respond to the mystery shoppers’ first telephone call, down from 22 percent the previous year; • 72 percent of calls resulted in messages on voicemail or with a receptionist; • 32 percent of sales staff never returned the call; and • 11 percent had a wrong phone number or no phone number on their site.

Online performance didn’t fare much better, despite the fact that a brand’s website is the most crucial tool in a franchisor’s development arsenal. While 23 percent of franchisors responded to a website inquiry within a day, more than half (52 percent) did not follow up with the qualified

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Franchiseupdate Iss u e IV, 2 0 1 3

prospect. Additionally, 22 percent failed to email the prospect, and 15 percent did not email or call. Researchers also found that many franchisors are not equipped to handle the sales leads they generate.

This poor response rate is costly to franchisors, says Olson. “The average cost per lead is $55 across all industries, so you are basically burning $55 every time you don’t respond to a qualified lead.”

There is some good news. Mystery shoppers reported that franchisors who did engage with candidates are savvier at closing the deal, says Tom Wood, president of Floor Coverings International, and who also served as 2014 Conference Chair. “Closing rates are climbing,” he says. “Franchisors are becoming better and smarter at engaging well with candidates.”

Website Response Jeff Sturgis, Chief Development Officer, McAlister’s Deli (Note: This mystery shopping was conducted when Sturgis was still with Franchise System Advisors.)

I

submitted leads for 94 franchisors by entering information into their website lead forms. I then engaged in one phone call with each franchisor representative who contacted me and evaluated them for their effectiveness in how they handled this first call.

Similar to previous years, the number of franchisors that called me after I submitted a request for franchise information was disappointing. This year, of the 94 leads submitted, I received calls from only 45 franchisors. Of the franchisors I did speak with, most did a good or better job of handling the first call. Most responded within 24 hours; most asked me a series of questions to gauge my interest and qualifications; and most of the calls lasted between 5 and 8 minutes, an appropriate amount of time for a first call. But again, fewer than 50 percent of the franchisors I shopped called me.

I didn’t notice any significant changes from the previous 3 years I have done this. There does seem to be a bit less

reliance on using virtual brochures to deliver information.

In general, most sales reps treated the first call as more of a fact-finding mission and less as a time to start building rapport. This is reflected in the continued insistence that the next step in the process be my completing an application, rather than having a second conversation. Overall, the speed of response by franchisors was pretty good. The same franchisors seem to be the ones doing well each year.

Recommendation: First, call your leads! Second, follow up after the first conversation. Anecdotally, I would say fewer than 50 percent of the franchisors that I spoke with called me again—even though we had a generally productive first call. I think franchisors rely too much on candidates completing an application after one phone call.

Telephone Response Marc Kiekenapp, Kiekenapp & Associates

O

ur project was to visit the website, search for the franchise development phone number, and call the franchisor to request information. Most phones rang at the front desk or went into an electronic voicemail system. If we did not make contact on the first attempt, we left information and waited for a return call.

Almost all franchisors’ telephone systems are not set up for user-friendly messaging or reaching the individual who can help them. If prospects are pushed into voicemail, quality leads are being lost. This is very similar to my past years of mystery shopping.

I did not see any difference from last year in the lack of rapport-building. I did notice financial qualification questions being asked more; in about half the conversations it was very direct, rather than conversational. It seemed the development teams and qualifiers pushed much harder on this than in previous years. Teams should take the time to warm up the phone call and take an interest in the candidate (most franchisors were more interested in gathering information at the expense of a relationship).

In general, brands that had qualifiers seemed to take more of an interest in the candidate during the initial call than concepts without qualifiers, which were not organized or did not have a trained person to gather information.

The teams we reached seemed to be knowledgeable about the concept and knew how to deliver the two-minute elevator speech and create some interest in the concept.

Recommendation: Mystery shop your franchise development teams, check phone numbers, and test your development websites to make sure everything is working correctly. Take the time to build rapport to get “good” information from candidates. Implement an ongoing training program to monitor and improve systems.

Franchisee Satisfaction Michelle Rowan, Franchise Business Review

O

ur franchisee satisfaction survey was available at no cost to all franchisors that pre-registered for the event. This year we surveyed 66 companies (7,598 franchisees responded), compared with 60 companies in 2012 (5,747 responses). We sent our standard survey questions to all open and operating franchisees by email and collected data on each brand.

Franchisees were questioned using a standard satisfaction evaluation that asks them to rate their systems in the areas of financial opportunities, training and support, leadership, operations and product development, core values, general satisfaction, and the franchisee community. Using the compiled data, each participating franchisor received a Franchise Satisfaction Index (FSI) score along with the average FSI score in their industry.

Our survey found that the FSI benchmark of participating conference attendees was 67.4, 3 points lower than our overall industry benchmark over the past 12 months.

Overall, we have seen our benchmark FSI improve in the last year by 3.3 points (68.8 in August 2013, compared with 65.5 in August 2012). The benchmark from attendees saw an increase of only 0.58 (68.11, compared with 67.53 in 2012).

Transparency in the development process has improved.

The Internet has somewhat forced the issue, but the end result is that the brands with the support to back up what they are selling are rising to the top of the pile. Along these lines, we’ve seen brands getting better at setting realistic expectations for candidates. Franchise sales is less about painting a rosy picture and more about managing expectations so franchisees know what they’re getting going in, and as a result, are more satisfied/less disappointed overall.

Still, there continues to be a disconnect between the development and operations teams. There is an opportunity to tie their goals (and/or compensation) together, with everyone setting the same expectations and delivering on them.

Recommendation: Franchisors should continue to set expectations up front in the sales process. And, if possible, provide markers for them to hit in the first six months, year, etc., so they can make sure they are on track with the best of the best.

Grow Market Lead

Mystery Shoppers

Social Media Jon Carlston, Process Peak

W

e surveyed more than 150 brands with questions about their corporate website presence, including how they are doing in the mobile space and how they are monitoring and managing their reputation online. We found a wide disparity in how franchisors are using social, Franchiseupdate Is s u e I V, 2013

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Grow Market Lead

Mystery Shoppers local, and mobile technologies (SoLoMo) to connect with and further engage prospective candidates and customers for their franchisees. With a 125 percent increase in mobile usage over the past year, SoLoMo is important if you want to be found online.

We found that 66 percent of respondents provide microsites to their franchisees, 87 percent have integrated a Facebook link, and 73 percent have a Google+ corporate page; however, only 33 percent use plug-ins on their microsites, and only 20 percent have integrated a Google+ link on their main site. When you see that 87 percent of franchisors have a Facebook link on their website and 73 percent have a Google+ corporate page, it is clear these things have reached the mainstream. Yet, there is not a great understanding of how to use these tools. Having the presence is essential, but it is really just the first step.

One of the most surprising things we discovered is that fewer than 5 percent of franchisors have responded to negative reviews or comments in a public way. It could be they just aren’t sure how. There is a conversation going on out there, and you need to give your brand a voice.

You can’t afford to let the discussion around your brand be run by detractors.

Recommendation: We suggest that brands take incremental steps into this SoLoMo realm. If you haven’t claimed your franchisees’ listings on Facebook and Google+, that is job number one, because that gets you on the map (literally). Then you’re in position to take the next step and further the engagement with your fans—and prospects who want to know more about your concept.

Social media has become mainstream. You can’t afford to ignore it. Take small steps and wade in. Your brand will thank you for it.

Mobile Response Michael Alston, Landmark Interactive

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e studied franchise recruitment trends in more than 25 million visits since 2010 across our network of franchise portals (Franchise.com, FranchiseOpportunities.com, FranchiseSolutions.com, FranchiseGator.com, and BusinessBroker.net). We analyzed how people connected to the Internet (mobile phones, tablets, laptops, desktops), how many submitted investment inquiries, and how much available capital the prospects had.

For the second year in a row, mobile phones and tablets doubled their share of investment leads submitted by prospective franchise buyers. More than one-third of investment inquiries now come from mobile devices: 37.9 percent of all visitors to the network of portals, and 34.7

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Franchiseupdate Iss u e IV, 2 0 1 3

percent of all qualified investment inquiries to franchisors. This is a hefty new marketing channel, not a fad.

We were surprised to see that leads from mobile phones are growing at a faster rate than from tablets, with phones’ share up 130 percent (a factor of 2.3 times) in just 12 months. That is a significant change from last year, when tablets showed the fastest growth.

One thing that hasn’t changed: tablet users are highvalue prospects and were 10.7 percent more likely to request information on brands requiring an investment of $100,000 or more.

Recommendation: Franchisors must make sure their recruitment efforts are represented well on several kinds of smartphones, as well as on tablets and desktop computers. Portals are one way to do that, but franchisors’ websites should be mobile-friendly as well.

Fast Response by Franchisors Joel Gooch, eMaximation

W

e found that more franchisors are dedicating resources to reviving older prospects, and in some cases with great success. (Some of this may be attributed to our emphasizing this in marketing strategy discussions with our clients, but we’ve also seen many franchise marketers, without prompting, become savvier and more creative in maximizing the leads they already have.) Despite this uptick, we feel that most companies are still failing to take full advantage of their lead list to mine for prospects who had previously cooled, but whose interest may have renewed.

We’ve seen an increase in the priority placed on the quality of corporate websites to generate leads; however, many franchise marketers are struggling to create the content for websites, drip campaigns, and landing pages.

Franchisors that do have quality content to share are at a huge advantage and can fully leverage lead management systems to accelerate franchise sales.

Recommendation: It’s essential that franchisors adopt a lead management system to capture, distribute, nurture, and analyze their leads. Beyond that, we feel the next great opportunity for franchisors to grow their businesses is by incorporating a “prospect engagement platform” into their marketing. We recently launched a tool that allows a franchisor to lay out a candidate’s individual path to franchise ownership, track their activities, communicate with them inside the app, and unlock steps as they move through the qualifying process. This type of engagement marketing has yielded an 84 percent increase in franchise applications and is quickly gaining traction among our clients. n

2014 April 23-25th 13th Annual Multi-Unit Franchising Conference, Caesars Palace, Las Vegas, NV Attendees: Franchisors; Suppliers and Multi-Unit Franchisees

Grow Market Lead

By Debbie Selinsky

STAR Struck

Top performers in franchise recruitment recognized

F

ranchise Update mystery shoppers posing as qualified prospects identified a stellar group of franchise companies for best practices in lead generation, follow-up, recruitment, and franchisee satisfaction.

Scoring 152 registered companies on telephone response to prospects, and 127 franchisors on recruitment websites and response to website prospects, mystery shoppers judged how well—and how quickly—franchise sales and development staff replied to inquiries. In addition, online experts evaluated franchisors’ recruitment websites and their use of social media.

(See page 42, where this year’s mystery shoppers discuss their

BEST OVERALL PERFORMANCE 1. Sport Clips 2. Wild Birds Unlimited BEST TELEPHONE PROSPECT FOLLOW-UP 1. Denny’s 2. Huddle House BEST RECRUITMENT WEBSITE 1. VooDoo BBQ & Grill 2. FirstLight HomeCare BEST WEBSITE PROSPECT FOLLOW-UP 1. BrightStar Care 2. Molly Maid BEST SOCIAL MEDIA IMPLEMENTATION 1. FirstLight HomeCare 2. Mr. Handyman International BEST FRANCHISEE SATISFACTION 1. Sotheby’s International Realty Affiliates 2. Kona Ice HALL OF FAME AWARD Individual: Steve Greenbaum (PostNet) Sponsor: Franchise Solutions

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methodology and experiences and make recommendations for improving performance.)

The resulting STAR Awards (Speaking To And Responding) were presented at a special dinner during the annual Franchise Update Leadership & Development Conference, which took place from Oct. 9–11 in Atlanta.

SPORT CLIPS Best Overall Performance

Pete Lindsey, vice president of franchising for Sport Clips, says the keys to the company’s Best Overall Performance STAR Award are shared excitement, having the right staff in place, and using a system that works.

“My team in franchising here is such a blessing to work with.

They’re great people and they share my excitement about the brand,” he says. “We want to ofPete Lindsey fer the Sport Clips opportunity to people who are interested when they’re interested, when their excitement is high. We’ve built a team that shares this philosophy, and we’re executing well.”

A call center is the focal point of recruitment efforts at Sport Clips, which has 1,117 units spread across 50 states. “Some franchises don’t follow up on all their leads, but we focus on being very efficient with our web leads and our phone calls.

Our trigger response time is 2 hours, and many times it’s just 30 minutes,” he says. The Sport Clips website and its use of social media are also important, but both are designed ultimately to send people to the call center, says Lindsey.

“We don’t make assumptions—we want to talk with people.

We prefer to qualify with live voice rather than technology,” he says. “Once we get them on the phone, we don’t want to waste their time. We want to qualify them with regard to general profile to see if they’re good candidates. If they are, we immediately schedule them an appointment with one of our area developers or a staff member.”

Even if a prospect doesn’t qualify or decides not to pursue the brand, Sport Clips staff still spend time talking with them, he says. “It’s all about relationships. They may still be a client of our stores, and we want to treat them respectfully and well.”

In this era of breakneck-paced technology and social media, it’s easy to underestimate the value of phone conversations, says Doug Wong, senior director of global franchise recruitment for Denny’s, which has 1,700 restaurants in 50 states and 13 countries. “In Denny’s case, most of our prospects, who are often Denny’s consumers who love the brand and Doug Wong want to become franchisees, call in. That’s their comfort zone. Anytime someone picks up the phone to call you, there’s interest. Our job is to take that interest and move it to intent. It’s our responsibility to respond to them quickly and to see what we can do to move things forward.”

Also key to Denny’s success, he says, is to have the right people in place. “Our philosophy is to treat folks calling as consumers interested in franchising the same way we treat our customers in our restaurants. We want that experience to be the same. For that to happen, our folks have to buy into the process.”

Wong describes the brand’s best prospects as “a little more sophisticated because our financial and background requirements and standards are higher than at some other franchises,” he says. “Some prospects may be younger and still have the experience and financial standing, so we also have to speak their language. Their comfort zone is to go to the website and social media. We have to address all tools to make sure it resonates with whoever is reaching out.”

VOODOO BBQ & GRILL Best Recruitment Website

“Three years ago, when we began working to build our brand to a regional and national concept, we could see that our franchise opportunity website was horrible. Like any young franchise, we needed a full overhaul,” says Chad Tramuta, senior director of franchise development.

“It was all about putting on relevant content and having everything accessible by pushing Chad Tramuta a button for people who don’t want to spend time waiting for a call or talking on the phone, where they feel like they have to hold back information.”

VooDoo, which today has 16 units in Louisiana and South

Carolina and has awarded 58 licenses in 6 states, reached outside to revamp the site, says Tramuta. “Thomas Scott and Joe Mathews [Franchise Performance Group] put together a website that told our story—all out in the open,” he says. “If you go there, you can see each step you’ll take through the journey. The site lays out who we are, what makes us different and what we’re looking for in a franchisee. It also lays out what type of investment a prospect can anticipate as well as what returns they can expect.”

When prospects reach out through the website, Tramuta gets back to them immediately. “Everything we’ve identified says that if you slow people down, you’ll lose them,” he says.

“My job is to make sure they have a good understanding of our business and to walk them through the back end of the process.” At the very end, prospects can also see a free franchise report, which covers in greater detail what they’ve seen online, he says. “This is what makes us unique.”

Grow Market Lead

DENNY’S Best Telephone Prospect Follow-Up

BRIGHTSTAR CARE Best Website Prospect Follow-Up

Sean Fitzgerald

“The growth of our system, today and in the future, relies on the quality of franchisees we bring in,” says Sean Fitzgerald, executive vice president of franchise development at the 9-yearold company founded by Shelly and JD Sun. “We’ve structured our lead generation, recruiting processes, and candidate requirements around finding and recruiting those we feel will be the most successful and will be

able to grow with us.”

BrightStar’s goal is to respond immediately to prospects from the website with an email directing them to their own e-tour of the franchise. “At the same time, when we receive a lead from the web, we are trying to contact that lead by phone as soon as possible. If you haven’t contacted a prospect within 24 hours, you risk losing that prospect to someone who has.

Most prospects aren’t just looking at one concept at a time,” says Fitzgerald.

BrightStar, which in 2005 became the first franchisor in the nation to specialize in both medical and non-medical care and healthcare staffing, currently has 160 franchisees with 260 locations in 38 states and Canada. “We utilize numerous avenues to find the best franchisees. SEO and PPC are going to help us position ourselves in front of people looking in our space. The way we have constructed our process gives them the flexibility to investigate anonymously and to have the ability to engage with us very quickly. Our response to their inquiry is just as important as what we put out on the website.”

Franchiseupdate Is s u e I V, 2013

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Grow Market Lead

FIRSTLIGHT HOMECARE Best Social Implementation

FirstLight HomeCare, a threeand-a-half-year-old brand with 82 franchisees in 118 markets across 25 states, entered the business with the realization that social media would be a key component of their messaging and communications, says Jeff Bevis, CEO and president. “Social media is a new tool, a new primary way to get in front of the targeted candiJeff Bevis date,” he says. “Whether it’s LinkedIn, Facebook, or Twitter, the undercurrent of our whole

Hall of Fame Award Winners Franchise Update also recognized one franchisor and one sponsor/supplier for their long records of attending and actively supporting the Franchise Leadership & Development Conference during its 15 years.

On the franchisor side, the award went to Steve Greenbaum, president of PostNet. Greenbaum said that while he was honored— and surprised—to receive the award, “I’ve actually received far more from attending these conferences over the years, so much more than I could have ever contribSteve Greenbaum uted.” Greenbaum, who thinks he’s missed only one conference in its 15 years, said the sharing of ideas and solutions that take place at the conference makes it a tremendous value, which is what keeps him coming back year after year.

On the sponsor side, the award went to Franchise Solutions. “We’re very excited to receive this award and truly appreciate the recognition by Franchise Update Media Group,” said Matt Alden, president. “In a marketplace where many suppliers, especially in the lead generation space, come and Matt Alden go, Franchise Solutions is proud of its tenure and innovation posture.”

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approach to recruitment is to incorporate social media.”

FirstLight has a staff member dedicated to social media for franchise development and services. “Since senior care is very much focused on the adult child making real decisions—usually females 48 to 64—our person is on Pinterest, Facebook, LinkedIn, and different targeted campaigns on Google+,” he says.

Bevis says this all-out social media approach has been measurably successful. “I’d said that if we can’t demonstrate ROI, we can’t do it. And we do measure it on a monthly basis, with our whole web scorecard pointing to new owners and candidates sourced from social media. As long as the ROI is there, it makes sense to apply more resources.”

He’s also happy to draw prospects from social media for another reason. “We’re trying to make sure our owners have a tech bent. We’re not looking for whiz kids, but our tech platform is the backbone of our business and enables a higher level of service,” he says.

Bevis sees more franchisors benefiting from social media implementation. “For many years, people said social media didn’t have any real metric to it—that it should be there but they couldn’t afford it. Not that we’re any smarter than anybody else, but we’ve taken lots of extra time to figure it out and we’ve seen how much it can mean.”

SOTHEBY’S INTERNATIONAL REALTY AFFILIATES Best Franchisee Satisfaction

Sotheby’s International Realty Affiliates was established in 2004 when Realogy Holdings Corp., a global real estate services company, entered into a long-term strategic alliance with Sotheby’s, the famed auction house. Today, the luxury real estate network has 13,000 sales associates in 670 offices in 49 countries and territories, says Philip White, president and CEO. Philip White “We are honored to receive this recognition as we believe quality service begins with how we work with our valued network of affiliates and filters to how they serve their clientele,” he says. “Our sales associates are some of the most talented and experienced real estate professionals today, and it is our mission to support them in their efforts through a host of operational, marketing, recruiting, educational, and business development resources.”

White says the company, based in Madison, N.J., recently completed a strategic initiative to enhance its service platform across Asia as the company continues to develop its brand in that region. “As we look to further our growth in key luxury real estate markets across the globe, we will continue to build on our talented team of support staff to ensure our worldwide network is receiving the highest level of service.” n

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Grow Market Lead

By Eddy Goldberg

Wood Words

always knows where they are against the business plan.

How do you measure development performance?

Do you mystery shop your sales team? Twice per year.

T

om Wood, president and CEO of Floor Coverings International (FCI), served as Conference Chair of the 2014 Franchise Leadership & Development Conference in October. Based in Atlanta, FCI has been franchising since 1989. We asked Wood for his own opinions on many of the topics that came up at the conference.

What are the most important factors and characteristics you look for in assembling a successful sales team? Sales peo-

ple who understand what they are doing in the role: “selling.”

While we are only looking for the best franchisee candidates, the right people will still need a sales professional to guide them through the process and keep the process on track. Characteristics include goal orientation; a realistic outlook on the business and a strong communication style to communicate it; and an ability to manage by the numbers.

How do measure the performance of your sales team? Three ways:

contact ratios with candidates, personal presentations and meetings, and qualified candidates to discovery days.

What are the most important things you measure? The most important

thing is meeting our quota of qualified new franchisees coming into the business and the system. In addition, the franchise sales staff is measured by how quickly the new franchisee gets started up and meets their business plan.

Do CRM systems and other marketing automation tools help you

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measure your sales team’s performance? They do, but I think that

they are even more valuable in helping us measure the progress a candidate is making. We use the automation tools to help us maintain better contact with our candidates and to ensure that information is provided to them on a near real-time basis.

Would you say your development team has a performance-based culture (KPIs?)

Do you use outside consultants to help assess your team’s performance? Not at this time.

How do you attract and retain top talent in your development department? I’ve been very fortunate

that I have not had very much turnover through the years. I think this is because we foster a strong team identity and workplace. Everyone is important and everyone is encouraged to be a part of other facets of the business.

For sure! We measure the numbers every week: leads, contact ratios, personal presentations, meetings in person, and discovery day candidates.

How do you balance marketing automation tools with face-toface interaction and maintaining a personal touch? Marketing

What are you doing to improve the speed and effectiveness of your responses to prospects?

Is there a way to measure the value of “personal touch” in franchise recruitment? Our closing ratios are

We always try to have contact with our prospects within hours of the initial lead coming to us. We define “contact” as either a call in person or an email discussion. It needs to be interactive.

How often do you assess and adjust your annual sales goals based on performance? Quarterly, though

adjustments (minor) are always made on the fly.

What kind of feedback do you provide to your sales team to improve their performance? How often? We have a weekly team meet-

ing and a weekly individual meeting.

In the team meeting the sales staff is encouraged to provide feedback to one another. In the personal meeting we review the candidates who are in the funnel as well as the KPIs. The team

automation tools are only used to facilitate contacts and to pass very basic information along. Nothing replaces personal contact!

much higher if we have had personal contact with the candidate!

What role does social media play in franchisee recruitment? Only as

a resource—no other purposes.

How do you measure the performance/effectiveness of your media spend on lead generation? Leads

to contacts, leads to meetings, leads to discovery day, and leads to close.

What role do current franchisees play in your development strategy?

They help us a ton with validation and with referrals. They do calls with our candidates and also participate in a web conference during our discovery days.

Do you/your team still fly out to meet with candidates? We do! This

is very helpful to us. n

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Grow Market Lead

Challenge the pros “How do you set standards and measure performance in your brand’s sales and development department?”

Taylor Wiederhorn Vice President Franchise Marketing & Development Fatburger

Fatburger sets development standards based on a variety of different types of target markets and development standards designed specifically for those markets. In domestic markets where Fatburger already has a footprint, the criteria are based on a calculation of factors including the existing number of units and how much room there is in that arena for new restaurants to develop.

In existing domestic markets, Fatburger allows single-store and multiunit operators to develop new units after determining that market’s ability to handle additional units. We also allow development of alternative venues in current markets, which in some cases allows for additional units in an already “full” market. The development standards in existing markets are based on the unit growth percentage that we believe can be achieved without oversaturating the market.

In areas where Fatburger has no footprint, the company will enter the market only after it finds the appropriate multi-unit franchisee to develop it.

Development standards for initial and new developments are not based on unit growth percentage, but instead on the number of total units determined by the franchise development team and the multi-unit franchisee.

Fatburger measures franchise sales performance using metrics based on the

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development of new units by existing franchisees, the development of new units by new franchisees, the number of new markets sold for development (domestic and international), the number of units sold for development (domestic and international), the number of co-branded units sold for development (domestic and international), and by revenue from the sale of franchises in domestic and international markets.

We also gauge sales performance by the type of unit sold (food court, freestanding, in-line, end-cap, drive-thru, airport, college, train station, etc.).

An additional way we quantify franchise sales performance is by comparing ourselves with the competition.

By measuring our franchise growth against the growth of direct and indirect competitors across the domestic burger markets, we are able to determine our own performance within the sector. Then, to obtain a broader view of Fatburger’s sales performance, we measure our franchise sales relative to the performance of franchise sales for the entire food and beverage industry.

Jeff Platt CEO Sky Zone Indoor Trampoline Park

We first pay close attention to our leads to determine how many we are driving and where they originate.

Most important, we evaluate the effectiveness of our marketing initiatives by conducting a comprehensive analysis of the results achieved in comparison with the amount of money spent. For

example, if we spent $100,000 on franchise marketing and closed 50 deals, that’s an average marketing cost of $2,000 per license sold. We compare last year’s marketing spend and cost per deal to ensure that we continue to improve on the efficiency and effectiveness of our marketing initiatives.

In terms of where we develop, we do not have one specific plan we use for saturating each market. Instead, we create a strategy for each market by analyzing the total population through a mapping program that uses address data provided by the customer.

Overall, we place a high importance on developing a strategy that focuses on target marketing that uses our candidate profile and, when appropriate, key geographical areas. This strategy allows us to effectively develop a lead generation marketing plan that provides the most return in terms of contributing to overall growth. We prefer to have higher-quality leads that equate to a higher probability of converting to a franchise sale. We use print and online publications that have a proven record of interaction with our typical candidate profile. We also have an active referral program for our current franchise partners, targeted digital campaigns, in-store information, website access, and multi-faceted public relations campaigns.

Conversions are reviewed within each of these avenues at various stages of the development process to evaluate the effectiveness of each initiative and help determine where we should continue spending marketing dollars.

Comparing year-over-year cost per deal data maintains consistency and allows for further analysis of our efforts. Our development process has checkpoints for following the system, aligning with our culture and brand, and providing opportunities for us to see if the franchisee is the right fit for a place within our system. We have high standards when awarding a franchise in order to maintain brand integrity and gain a franchise partner who is as excited and dedicated to the brand as each individual within the Sky Zone team. n

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Grow Market Lead 54

Sales smarts

By Marc Kiekenapp

Are You Out to Lunch?

What ever happened to answering your phone?

A

fter five years of mystery shopping, I’m frustrated.

The results never move up or down more than a few percentage points. What in the heck is so hard about answering your franchise development line? Or putting a phone number on your website? Or not telling callers that everyone is out to lunch, so please call back later? Or my favorite: being directed back to the website to fill out a form. When it comes to professional communication with incoming calls from candidates requesting franchise information, 70 percent of us are “out to lunch.”

I don’t know about the rest of you, but I’ve never granted a franchise to a candidate I didn’t talk with. (Let me know if I’m missing something, or if you’ve had a different experience.)

In my experience, incoming calls from a candidate are by far the most-qualified leads we receive. Yet many franchisors don’t seem to have a system in place to handle those inquiries. Instead, complicated voicemail systems direct callers from extension to extension, only to have them leave a message or end up back at the front desk.

But don’t listen to me rant. Pick up your phone and dial your franchise development number and try it for yourself. If you are satisfied with the result, you are one of the few.

Franchise Update conference workshops are a fantastic opportunity to learn and achieve better results that can be implemented on our return home to the office and reality! (See AFDR, page 34.) But I’m still puzzled that year after year we don’t implement the ideas and great information shared by speakers and our peers.

What ever happened to answering your phone? Calling candidates back who requested information quickly? Communicating with a person through words Franchiseupdate Iss u e IV, 2 0 1 3

that aren’t typed and emailed? Training the receptionist and office staff about the most important phone call of the day?

Enthusiasm and excitement with the candidate? Not having the first question out of your mouth to a candidate be, “How much money do you have?”

Last year, only eight franchisors called our office after the Leadership & Development Conference to receive the results of the mystery shopping phone survey!

Yes, only 8 franchisors out of 130 wanted to know how they scored! Were you one

Learn to communicate in person again.

Talk to people.

Stop writing and sending emails. of the eight? Interestingly, the franchisors that called all did fine on the survey.

Okay, enough about what’s wrong.

Here are some basics to help improve your responses to inquiries: 1. Get your phone system right.

This means having a dedicated line for franchise development; a system that someone answers live and who can take information from the candidate; and training the staff and backups to do this correctly and represent your brand professionally.

2. Call leads back in a timely manner.

This means within the hour (or sooner) if you didn’t answer the phone immediately.

Create a relationship with the candidate.

Don’t push for financial information on the first call. Give them an opportunity to learn about your franchise concept. Be enthusiastic and knowledgeable.

3. Lose the electronic clutter. Don’t rely on technology. Talk to someone. Be

excited. None of this can be communicated in writing by automated systems.

4. It’s not about you. Never forget that you are a representative of your franchise brand. Candidates don’t care how much you know until they know how much you care. Take an interest in them instead of making it about you and the brand with information overload on the first call. You must earn their trust, not ask for it, by showing mutual interest and exploration in discovery. And, most important, candidates buy from people they like. It’s hard to like someone who just won’t shut up!

The human solution

The first franchisor to reach out to the candidates has a tremendous advantage over competitors who don’t call at all or wait several days. Calling within minutes of a form fill can increase your contact rate by 300 percent. How much more effective can your advertising budget perform with that statistic on your side?

If you can get to callers quickly you will win more often. There are systems that can connect you directly with a candidate immediately upon a form fill to accomplish first contact. This has made a tremendous difference in increased sales. Imagine the candidate completes a form and you’re talking with them within minutes!

Talk to your phone system managers and come up with a plan for a “hotline” that must be answered by a live person.

Use a red light if necessary! And if the call doesn’t get answered, have a friendly, professional message asking for their information—and get back to them within 30 minutes.

The human solutions are much harder.

Learn to communicate in person again.

Talk to people. Stop writing and sending emails. Let them know you care!

This change in direction is harder than it sounds, and it will take a concerted effort to change the culture of electronics we’ve become more dependent on every year.

Technology should enhance our process, not be the process.

You still have time to make adjustments in your franchise development efforts before the end of the year and prepare for the first quarter of 2014.

Happy Selling, Marc

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Grow Market Lead 56

Market trends

By Darrell Johnson

What the FRUNS? New coding system aims to improve SBA franchise lending

A

s franchising has changed over the decades, new terms have entered our vocabulary. Some words that used to mean one thing now mean something else, or several things. We come across this often when reading an FDD. The variability of how brands describe an area development program is an example. A more critical and frequently misleading term is “unit failure.” It’s time we start bringing consistency and common sense to these terms.

Let’s start at the top, with what exactly a franchise is.

Business format franchising is pretty clear on this point, at least by definition. We have franchisors with multiple brands, programs within a brand, affiliates, parent companies, and so forth. It all seems fairly straightforward—until it starts getting applied in the real world.

We all know that SBA loan loss and failure data are inaccurate. One of the primary causes is confusion about which franchise brand, system, program, or entity to associate with a particular loan. With no “master list” of consistently defined franchise brands to allow lenders to properly code loans, the SBA turned to FRANdata to solve this problem.

The initiative grew out of the desire to improve the SBA loan loss data reported on every franchise whose franchisees receive SBA-guaranteed loans. Though the SBA itself recommends that lenders do not use their data for risk assessment, and even though far more accurate and complete tools exist to assist lenders in underwriting franchise loans (such as the Bank Credit Report), too many lenders still use this data as part of their credit policy.

The biggest challenge was to determine what was at the center of a franchise ecosystem. Was it the brand? The specific program within a brand? The brand’s legal owner? The franchisor? The parent company? Or was it some other identifiable thing that could be consistently applied? After mapping all the possibilities (I’ll spare you the complex diagram), it became clear that all things franchising emanated from a brand, not a legal entity. FRUNS was born.

FRUNS (FRANdata Unique Numbering System) is a coding system that uniquely identifies every brand in the U.S. associated with franchising. This is similar in concept to the DUNS numbering system provided by Dun & Bradstreet.

A FRUNS number replaces previous coding references to brands used by SBA lenders—and is now necessary for all SBA loans. Use of this coding system corrects several significant recurring errors in historical SBA franchise loan data, including the lack of a code for a brand, changes to brand names, and multiple codes issued for the same brand. Here’s Franchiseupdate Iss u e IV, 2 0 1 3

a “before and after” example:

Previous SBA Code Brand Name 16920 Choice Hotels International Inc. FRUNS Code 11228 13214 13490 10868 10922 12260 13058 13679 10684 10285

Brand Name Econo Lodge Rodeway Inn Sleep Inn/Sleep Inn & Suites Clarion Hotel Comfort/Comfort Inn & Suites/Comfort Suites Mainstay Suites Quality Inn/Quality Suites, Hotel, or Resort Suburban Extended Stay Hotel Cambria Suites Ascend Collection

FRUNS also benefits suppliers of all sorts. Relationships between franchise corporate entities can be confusing, not least because of naming conventions. As part of our database, FRANdata identifies and labels the various possible organizations that can be part of a franchise system (franchisor, sub-franchisor, master franchisee, area developers, area representatives, franchisees, affiliates, holding companies, equity investors, etc.). The FRUNS number identifies unique brand names, which serves as the linchpin for organizing one’s data.

How to get a FRUNS number

FRUNS numbers are given to franchisors when they are added to the FRANdata database. For a brand to be added, FRANdata must be able to verify that it is operational and a franchise. To do this, we must have valid contact information and some documentation about the franchise’s operations.

For business-format franchises, a recent FDD is required.

For product-format franchises and other forms of distribution models, agreements plus some basic information about operations is sufficient.

FRANdata adds franchises to its data from three main sources: 1) the franchisor, who completes a form on the Franchise Registry website; 2) a lender, who needs to ensure they are working with a valid franchise; and 3) our in-house franchise information collection processes.

Whenever possible, FRANdata alerts the franchisor by email that they have been added to the database and provides them with assistance to access their record and take advantage of the complimentary services available on the website.

FRUNS is the first of many terms for which FRANdata is bringing definitional consistency. If we all speak the same franchising language, we’ll have a much better understanding of this great business model. n Darrell Johnson is CEO of FRANdata, an independent research company supplying information and analysis for the franchising sector since 1989. He can be reached at 703-740-4700 or djohnson@frandata.com.

SAVETHEDATE!

[2014] MULTI-UNIT Conference Chairman Aziz Hashim, President & CEO National Restaurant Development

[2014] ADVISORY BOARD MEMBERS Robert Branca Jr., President, JLC Bob Chase, President Money Mailer Response Marketing Greg Cutchall, President & CEO Cutchall Management Rocco Fiorentino, President & CEO, Benetrends First Conference Chair Sean Falk, Owner WolFTeaM LLC, President, Nachogang LLC, 2013 Conference Chair Gary Grace, President, GG Enterprises 2009 Conference Chair David & Maureen Grimaud Grimaud Enterprises Inc. William G. Hall. President, William G. Hall & Company, 2008 Conference Chair

2014 Keynote Speaker Internationally Recognized Leadership Expert, Speaker, Coach & Best Selling Author, John C. Maxwell

John Hotchkiss, Partner, L&M Restaurant Group Ellen Hui, President, RMS, Inc. Michael Kulp, President & CEO, KBP Foods Tony Lutfi, President & CEO, Marlu Investment Group John Metz, President, RREMC Restaurants, LLC 2012 Conference Chair Glenn Mueller, RPM Pizza Guillermo Perales, President & CEO Sun Holdings LLC. David Ostrowe, President, O&M Restaurant Group Gary Robins, President, G&C Robins Co. Cheryl Robinson, Owner, Sapphire Ventures, Inc. Grant Simon, President, Simon Clips Charles Smithgall III, Chairman & CEO SEI/Aaron’s, Inc., 2011 Conference Chair Lloyd Sugarman, Owner, Rhode Rockets Inc., Rocaconn Inc.,CEO, Soupman, Inc. Ted Torres, President, Caerus Hospitality Partners Ricky Warman, CEO, Pizzerias, LLC / Mongoleria Eric Werner, President & CEO Texas Subs, DFW Tanning, Bench Mark Burgers Anil Yadav, President, JIB Management Inc.

Grow Market Lead

It’s closing time

BY STEVE OLSON

Escape from the Sea of Sameness Four tips to boost sales in 2014 “We provide state-of-the-art technology tools. Our support team provides excellent training. We’re with you every step of the way, so you can get off to a fast start.”

Blah, blah, blah…

In today’s fierce battle hunting for franchise prospects and more customers, everyone believes “content is king.”

Sadly, this perception is downright wrong. Why? Because “bad content” drives prospects into the arms of your competitors. “Good content” is the marketing victor that engages buyers to respond to your opportunity.

Based on auditing countless franchise websites since the Internet was born, it’s apparent that two-thirds of brands are still plagued by poor messaging. Canned copy won’t cut it with buyers in 2014.

How do you win your prospect’s attention? Stop lulling your franchise buyers into snooze mode! Capture the interests of the choice buyers you desire. Consider these proven remedies to cure your brand affliction from hohum content.

• What sets you apart from and above your competitors? Why spend costly time with buyers not suited for your business concept? For starters, drill narrow and deep to identify your specific target audience. Build messaging that zeroes in on their interests and goals. No one else matters, except for that sliver of ideal buyers born for your opportunity. Here are some examples from brands that prompt interest with their messaging (i.e., “good content”): around-the-clock access to our support hot-

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line the first three months of your start-up … while our competitors are sleeping we’ve said “Good morning” to up to 40 percent of our customers … rewarding outdoor franchise with holidays off for you and your family … average $232,360 NOI … achieve unit goals for your first location, and we’ll waive our franchise fee for your

How do you win your prospect’s attention?

Stop lulling your franchise buyers into snooze mode!

Capture the interests of the choice buyers you desire. next store … build a daytime business with weekends free … big savings on transportation costs through our company-owned trucks … we are adamant about growing the right franchisees in the right locations at the right times … $1 million incentive for exceptional new franchisees opening four or more units … there are no territory restrictions with your franchise, and you can operate your business from anywhere in the world with an Internet connection.

• Franchisees know best; ask them to confirm your owner benefits. Just when you think you know what your opportunity delivers, your operators

reveal special perks you didn’t think were a big deal! Express Employment Professionals didn’t realize just how strong their support services were until they surveyed their franchisees. Even struggling franchisees lauded the staff for going beyond the extra mile to help them. For It’s A Grind Coffee House owners, having flexible schedules to run errands, pick up their school kids, and see their soccer matches was a huge plus. Corporate didn’t have a clue this was such a huge benefit.

• Address five decision-making questions buyers want to know. Franchise prospects evaluating a possible purchase want answers to key opportunity factors. If you don’t provide the information they want, they’ll depend on online reviews, Facebook friends, their relatives, CPA, attorney, armchair advisors, and competitors’ comments!

For starters, your website and other materials must address these five most critical questions: 1) What is your opportunity? 2) Is there a market? 3) How will I benefit? 4) Are you credible? 5) How can I qualify? Provide relevant, documented content and you’ll trigger more prospects to investigate your franchise program.

• Create a first-class opportunity statement. Develop an engaging elevator pitch under 75 words for your senior executives to learn to present when asked, “What is your franchise opportunity?” Whether your colleagues are at a party, franchise show, chatting with a neighbor, or sitting next to a “talker” on the plane, this empowers them to respond effectively and accurately, and comfortably refer them to your sales team. Be prepared for these additional recruiting opportunities!

Get growing now. We’re closing in on the best buying season. Boost your content from ordinary to extraordinary—and escape from the sea of sameness! n This is an excerpt from my Amazon.com best-selling book, Grow to Greatness: How To Build a World-Class Franchise System Faster. For ordering information, go to www.growtogreatness.net.

Grow Market Lead

International

By BILL Edwards

Going Global

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Overseas growth for U.S. franchisors to continue in 2014

n 2013, U.S. franchisors of all sizes and from all sectors are “going global” with their brands. Is this a temporary trend, or a long-term strategy decision? Over the past several months, the IFA analyzed their franchisor members’ current and planned international development and found the following: • More than one-third of the units of the 200 largest U.S.-based franchisors are outside the U.S. • Predictions are that this share will increase to one-half by the end of this decade.

• International franchising, once limited to the largest franchisors, has now become part of the business plans of smaller franchisors.

• What was once thought of as reserved for food, car rental, and hospitality franchises now can be found across the full spectrum of industries.

• These trends seem likely to continue for the foreseeable future. In IFA surveys of its franchisor members, roughly 80 percent responded that they already do, are planning to begin, or will accelerate international franchising—and that it is important to the company’s future.

2014 outlook

With this in mind, let’s take a brief look at how 2014 looks as a year for global franchising by U.S. brands. Projected growth rates (see chart) are based on published sources plus a brief survey of franchise specialists around the world.

As a start, a recent World Bank study found a correlation between the growth rate of a country’s gross domestic product (GDP) and new investment in new businesses, i.e., if a country’s annual GDP growth rate exceeds 4 percent, that country will have new investment in new businesses. Countries with GDP growth rates between 2 and 3 percent are also good markets to seek international franchisees in 2014. Below that, not so much or none. In parts of Europe the GDP growth rate is actually negative.

Since a new international license for a U.S. franchisor means the start-up of a new business, we probably should focus on those countries with expected GDP growth of 4 percent or more in 2014.

Asia/Pacific

China, Indonesia, and the Philippines are seeing a high level of franchise activity and have high GDP growth projections for 2014. Other countries in this region

Projected 2014 GDP Growth Rates for Selected Franchise-Friendly Countries

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China

7.3%

South Africa

3.3%

Philippines

6.6%

New Zealand

3.3%

India

6.1%

U.S.A.

2.7%

Vietnam

5.5%

Australia

2.7%

Indonesia

5.4%

Brazil

2.5%

Saudi Arabia

5.1%

Canada

2.3%

Chile

4.9%

U.K.

2.1%

Turkey

4.6%

Japan

1.5%

Colombia

4.3%

Ireland

1.1%

Mexico

3.9%

Franchiseupdate Iss u e IV, 2 0 1 3

seeing good licensing activity are Australia, Japan, and New Zealand. Malaysia and South Korea have regulations that discourage foreign franchise brands from entering their countries. As China transitions from a government-owned enterprise economy to a consumer-spending economy, more and more consumers have discretionary income to spend at U.S. brands; and average wage increases of 20 percent a year are good for sales at U.S. brands.

Europe

The deep recession in Europe has brought unemployment rates of 20 to 25 percent, negative GDP growth rates, and little new investment. According to many published sources, these numbers will begin to improve in 2014. Already there is increased interest in U.S. franchises in Ireland, Spain, and the U.K. Latin America

The high level of U.S. franchises entering this region in 2013 will continue.

Particularly active are Chile, Colombia, Panama, and Peru. In recent years, Colombia and Peru have gone from poor economies to rapid growth countries with lots of construction cranes in their major cities and rapidly increasing consumer spending. In Brazil, increased barriers to entry are resulting in little new foreign franchise development. In Argentina, economic and legal problems are limiting development.

Middle East

Despite the turmoil in Egypt and Syria, this region remains very open to U.S. franchises. In particular, Kuwait, Qatar, Saudi Arabia, and the United Arab Emirates will continue to see new U.S. brands opening units in 2014. New franchise regulations have opened up Tunisia to U.S. franchises. The fastest growth of U.S. franchises in this region currently is in Saudi Arabia.

Other countries

Russia, South Africa, and Nigeria have seen new licenses granted for U.S. franchisors in 2013. This trend is expected to continue in 2014.

U.S. food and beverage brands continue to be the most desired in other countries. Educational franchises—especially for children—are greatly desired in the emerging markets. Retail brands with a well-established supply chain are finding licensees in both emerging markets and developed countries.

Service franchises are primarily franchising into developed countries.

As the world begins to see greatly increased population percentages over 60 years old, home care franchises are desired almost everywhere.

In summary, U.S. franchises can expect growth internationally to be at least as good in 2014

as in 2013. This new growth will be in all franchise sectors, with the emerging markets seeing the most new units opening. n

GlobalVue— Projected 2014 County Ranking

n = 1 (best) n=2 n=3 n=4

William G. Edwards, CEO of EGS, LLC, has 40 years of international business experience. He has lived in 7 countries and worked on projects in more than 60.

In addition to having been a master licensee in 5 countries and in charge of international operations and development for a U.S. franchise, he has advised more than 50 U.S. companies on their international development. Contact him at 949-375-1896, bedwards@egs-intl. com, or see his blog at edwardsglobal.com/blog.

Grow Market Lead

Preferred types of franchises

ISSUE 1 OF 2014 ADVERTISING

DEADLINE

January 13th, 2014 Call (800) 289-4232 ext. 202 - or email sales@franchiseupdatemedia.com to reserve your ad space!

Franchiseupdate Is s u e I V, 2013

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Fundamentals by Jim Sullivan: 1 Best-Selling Book.

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Over 80,000 copies sold. And also check out our companion bestseller: Multiunit Leadership: The 7 Stages of Building Successful Regions & Franchisees.

“Read it and reap.” –USA Today Available at:

See our entire training product catalog and more at Sullivision.com

Franchise LAW

BRINGING FRANCHISORS AND LEGAL SERVICES TOGETHER

Don’t Get Gamed!

Cheng Cohen

FLN

FLN FranchiseLAW

By Michael Daigle and Gina Malandrino

Don’t Get Gamed!

Tread carefully with lotteries, sweepstakes, and contests

M

odern technology, with all its advantages, has made it harder to capture consumers’ attention and easier for consumers to bypass advertising messages. Television viewers use DVRs and TiVo to fast-forward through commercials, while paid services like On Demand and XM/Sirius satellite radio eliminate commercials altogether. So how can a company effectively market its business in this modern media world?

The answer for many companies is social media, and for many, it’s pairing social media with contests and sweepstakes.

The possibilities are endless and run the gamut from traditional random sweepstakes drawings to popularity contests.

A system of doggy day care centers and boutiques might, for example, devise a Facebook promotion that allows people to submit pictures of their dogs. Each picture is added to the promotion’s page, and anyone who “likes” the page can vote on their favorites. At the close of voting, the picture with the most votes wins a prize. By requiring participants to “like” the Facebook page, the franchisor builds its database of people to whom it can directly market. Simple, perhaps. Low cost, definitely. But promotions like this are regulated and care must be taken to follow the applicable legal rules.

Lottery, sweepstakes, or contest?

To get the best intended result while not running afoul of applicable state and federal laws, promotions must be appropriately structured. Promotions like these typically fall into one of three categories, and the distinctions can be critical.

• Lotteries. Lotteries, which are reserved to the states, are generally characterized by requiring a payment for the chance to enter a random prize drawing. The “payment” component can be tricky.

For example, customers of the doggy day care system may be able to purchase

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products online and, while checking out, be prompted to enter the promotion.

Because the entry occurs at the time of sale, the franchisor risks the purchase being viewed as a payment to enter the drawing. One way to avoid being seen as a lottery might be to also clearly and conspicuously provide a way to enter the promotion without consideration, perhaps by mailing in an entry form or “liking” the promotion’s Facebook page.

• Sweepstakes. Sweepstakes are generally characterized by using random drawings to select the winners. Since winners are selected randomly, no consideration can be required to enter (and avoid being a lottery).

• Contests. Contests are generally characterized by selection of the prize winners based on the skill of the entrants.

Since winners are not selected randomly, consideration to enter might be required but could be counterproductive to the objective of the promotion.

Applicable regulations Sweepstakes and contests are heavily regulated. For national promotions, the laws of each state in which the promotion is available will be involved.

All promotions of this type must have official rules and privacy policies readily available. The official rules must include certain mandated disclosures.

Care should be taken to conform to the required disclosures and to anticipate and draft around how the promotion might be “gamed” by entrants. When participants will be submitting usergenerated content, the official rules should include a representation by each participant that they own the submitted content, that it does not infringe any third party’s intellectual property rights, and that they have obtained permission from third-party owners.

While most states do not require the promotion sponsor to file anything with the state, some do. For example, Florida, New York, and Rhode Island

regulate sweepstakes with prizes greater than a specified amount ($500 or $5,000 depending on the state), requiring the sponsor to pre-register the sweepstakes and post a bond. Some states require the sponsor to file the list of winners, while others have laws that regulate the use of direct mail to advertise the promotion (e.g., Colorado), or that restrict the ability to require the use of the winner’s name or likeness for advertising and promotional purposes (e.g., Tennessee).

Certain federal laws will likely apply as well. Where advertising the promotion by email, care must be taken not to violate the CAN-SPAM Act, which establishes requirements for commercial messages and gives recipients the right to opt out.

When the contest is conducted online, the sponsor must avoid unlawfully collecting information from minors in violation of the Children’s Online Privacy Protection Act. Advertising the promotion by direct mail calls into play the Deceptive Mail Prevention and Enforcement Act (the “Sweepstakes Law”), which is intended to stop direct mail pieces that give the impression that the recipient “is a winner,” or that the promotion is somehow connected to the U.S. government. Finally, IRS rules may require the sponsor to report winners and provide the recipient with a Form 1099.

Although compliance with all the applicable rules and regulations may seem tedious, more and more franchisors are “liking” the value that can be delivered by pairing contests with social media.

To win, however, they must be done properly from both a marketing and a legal perspective.

Cheng Cohen LLC is a full-service boutique law firm providing practical legal advice to franchise and distribution clients.

Contact Michael Daigle at michael. daigle@chengcohen.com or Gina Malandrino at gina.malandrino@chengcohen. com. To learn more about Cheng Cohen, visit www.chengcohen.com.

Sea of same, meet different.

In just a few years, Cheng Cohen has emerged as a leader in the franchise industry. Our uncompromising client service and sound, practical legal advice have set a new standard. In fact, we are ranked in Tier 1 for franchising nationwide by US News & World Report. And we are the only boutique franchise law ďŹ rm speciďŹ cally recommended for both Client Service and Commercial Awareness by Chambers & Partners USA.

Look for us to keep raising the bar the world over.

chengcohen.com

International | Franchise | Corporate | Litigation

Q3 2012 Franchise Law

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2014 ConferenCes

Don’t Just LeaD…InspIre.

April 23-25, 2014 13th Annual Multi-Unit franchising Conference, Caesars Palace, Las Vegas, nV Attendees: franchisors; suppliers and Multi-Unit franchisees

June 24-25, 2014

October 15-17, 2014

4th Annual franchise Consumer Marketing Conference, Intercontinental Hotel, Atlanta, GA Attendees: franchisors; Ceo’s, Presidents, Chief Marketing officers & Marketing Managers

16th Annual franchise Leadership & Development Conference Intercontinental Hotel, Atlanta, GA Attendees: franchisors; Ceo’s, Presidents & senior Development officers