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PEOPLE ■ INVESTMENT INSIGHTS ■ EXIT STRATEGIES

Multi-Unit

MULTI-UNIT FRANCHISEE

Franchisee ISSUE I 2017

99

MEGA M E G A 9 9

ALSO:

■ EXTERNAL THREATS 2017: Will the election make things better for franchising?

■ BUILDING SUCCESS How to scale your company’s infrastructure for expansion

■ MEGA 99

This year’s biggest U.S. franchisees

ISSUE I 2017

Al Bhakta, managing director of Chalak Mitra Group

LAS VEGAS

Sunday, April 23 – Wednesday, April 26

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©2016 Firehouse Subs

#1 America’s Most Loved Fast Food Restaurant Business Insider

#1 Top Sandwich Chains Restaurant Business

#1 Consumers’ Choice for Food Quality Technomic’s 2016 Consumers’ Choice Awards For Chain Restaurants (Fast Casual)

To own a franchise, visit FirehouseSubs.com/Franchising or call 877.887.8330.

A ST R AT EG IC INI T I AT I V E OF T HE IN T ER N AT ION A L FR A NCHISE A S SOCI AT ION

SINCE 19 91


Multi-Unit

Franchiseecontents I S S UE I, 2017

COVER STORY

Mega 99ers 12

These multi-unit franchisees—Al Bhakta, Eddie Rodriguez, Harry Rose, Sam Osborne, Zelly Wesson, Veronica and Tyler Jordan— show the path to success. BY KERRY PIPES and DANIELLE BUENROSTRO

LISTS

Mega 99 Rankings 46 The top U.S. franchisees ranked by total number of units

FEATURES

External Threats 54 Will a new year and new administration lift the burden of over-regulation? BY EDDY GOLDBERG

Building for Success 62 Infrastructure, infrastructure, infrastructure! BY HELEN BOND

First European Multi-Unit Conference 66 Franchise Update Media goes international in Florence, Italy

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MULTI-UNIT FRANCHISEE IS S UE I, III,2017 2009

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“How Arby’s (Yes Arby’s) Is Crushing It.” -FORTUNE

“Arby’s is stepping up its game…” - USA Today

“An Underdog Chain is Dominating the Industry” - Business Insider

› 8% System SSS growth in 2015* › 23 consecutive quarters of System SSS growth › Differentiated Brand positioning and Meatcraft™ marketing campaign › Newly enhanced, flexible Inspire building designs › Remodel program offering up to 100% financing (Domestically) › Attractive franchise growth incentives (Domestically) › Innovative menu and robust Fast Crafted® product pipeline featuring a blend of quick service and fast casual restaurant services

*Figures for 2015 as reported in our FDD issued March 31, 2016. 1,621 restaurants, or 50.4%, of all U.S. system restaurants attained or exceeded this average SSS growth during 2015. TM & © 2016 Arby’s IP Holder, LLC MN #F-5349. This advertisement is not an offering. An offering can only be made by a prospectus filed first with the Department of Law of the State of New York. Such filing does not constitute approval by the Department of Law.

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Departments CHAIRMAN’S NOTE

Welcome to 2017! 6 ONLINE

What’s online @ mufranchisee.com 8

Columns CUSTOMER SERVICE

“Where Are You From?” 68

Life lessons on customer engagement from a 13-year-old BY JOHN AND BO DIJULIUS

PEOPLE

The Gig Economy 70

Managing employees in a changing world just got easier BY JOCELYN MANGAN

TECHNOLOGY

Got EMV? 72

Why you should, and what’s ahead

Franchisee CHAIRMAN Gary Gardner CEO Therese Thilgen EXECUTIVE VICE PRESIDENT OPERATIONS Sue Logan EXECUTIVE VICE PRESIDENT Diane Phibbs VICE PRESIDENT BUSINESS DEVELOPMENT Barbara Yelmene BUSINESS DEVELOPMENT EXECUTIVES Jeff Katis Judy Reichman EXECUTIVE EDITOR Kerry Pipes MANAGING EDITOR Eddy Goldberg CREATIVE DIRECTOR Peter Tucker DIRECTOR OF TECHNOLOGY Benjamin Foley WEB DEVELOPER Don Rush WEB PRODUCTION ASSISTANT Esther Foley TECHNOLOGY PRODUCTION ASSISTANT Juliana Foley SENIOR SALES, EVENT & OPERATIONS SUPPORT MANAGER Sharon Wilkinson SENIOR PROJECT MANAGER, MEDIA AND BUSINESS DEVELOPMENT Christa Pulling

BY TOM EPSTEIN

MARKETING ASSISTANT, SPEAKER LIAISON Katy Geller

INVESTMENT INSIGHTS

FRANCHISEE LIAISON, SUPPORT COORDINATOR Leticia Pascal

Pursuit of Happiness 74

Recent elections put key economic decisions in play BY CAROL SCHLEIF

FINANCE

Performance Groups Rock 76

Peer pressure to do better will boost your bottom line! BY ROD BRISTOL

EXIT STRATEGIES

Franchise Consolidation Grows 78 Why the trend to “mega” is expanding to non-food industries BY DEAN ZUCCARELLO

FRANCHISE MARKET UPDATE

The Next Recession 80

What lessons can we learn—in advance— from previous downturns? BY DARRELL JOHNSON

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Multi-Unit

PROJECT COORDINATOR Joanne Parungao CREATIVE MANAGER Kevin Waterman MARKETING ASSOCIATE Cameron Gustafson VIDEO PRODUCTION MANAGER Wesley Deimling CONTRIBUTING EDITORS Rod Bristol John DiJulius Tom Epstein Darrell Johnson Jocelyn Mangan Carol Schleif Thomas J. Winninger Dean Zuccarello CONTRIBUTING WRITERS Helen Bond Danielle Buenrostro ADVERTISING AND EDITORIAL OFFICES Franchise Update Media 6489 Camden Avenue, Suite 204 San Jose, CA 95120 Telephone: 408-402-5681 Fax: 408-402-5738 SEND ARTICLE INQUIRIES TO: editorial@fumgmail.com MULTI-UNIT FRANCHISEE MAGAZINE IS PUBLISHED FOUR TIMES ANNUALLY. Annual subscription rate is $49.00 (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

MULTI-UNIT FRANCHISEE IS S UE I, 2017

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1/19/17 5:32 PM


Our commitment to providing an affordable investment with world-class support is the essence of our turnkey proven franchise concept. Snap Fitness is expanding and offering club openings in select key territories. Don’t miss this opportunity to own your local market.

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CONTACT US TODAY!

snapfitness.com

844.LIFTNOW

sales@liftbrands.com

*Based on Item 19 of the Snap Fitness 2016 Franchise Disclosure Document. This advertisement is not an offer for a franchise. Such an offer can only be made by the franchisor through its Franchise Disclosure Document. ©Lift Brands, Inc. 2411 Galpin Court, Suite 110, Chanhassen, MN 55317


Chairman’sNote

Welcome to 2017!

W

elcome to a new year, filled with possibilities and challenges, and hopefully heading to a better direction with the new presidency. Before elaborating on that, I warmly invite you to join me in Las Vegas in April for the 17th annual Multi-Unit Franchising Conference. On the recommendation of our board of advisors (multi-unit franchisees like you), we’ve shifted the days of this year’s conference to Sunday through Wednesday, April 23–26. The annual charity golf tournament, which raises many thousands of dollars for deserving causes, is on Sunday. We are repeating our franchisee-only “First-Timer Franchisee Meet & Greet” event that Sunday evening, from 6 to 7 p.m. at Carmine’s restaurant in The Forum Shops at Caesars Palace. Members of the advisory board will be on hand to welcome newcomers. The franchisee-only Opening Social follows from 7 to 9 p.m., providing an opportunity for franchisees to mingle while enjoying appetizers and drinks. The educational sessions, also designed with input from the advisory board, will include how to be the employer of choice in a tight job market, key items to look for in assessing a brand, how to scale your organization for growth, and many, many more. We also are bringing back the “Money Room,” an opportunity for operators to meet one-onone with franchise lenders. The “Law Room” offers similar opportunities to meet with legal experts. The recent legislative and regulatory threats to franchising, combined with the uncertainty created by a new administration in Washington, will be the focus of Wednesday morning’s closing session. The session will include the IFA’s @OurFranchise initiative to help franchisees learn how to educate their employees, customers, and legislators about franchising. While most expect the new administration will be more favorable to business, it will take time to overturn the actions of the previous administration on issues such as joint employer, overtime rules, the Affordable Care Act, predictive scheduling, and more. The nomination of Andy Puzder, CEO of CKE Restaurants, as Secretary of Labor is good news for franchising. If he is confirmed, franchising will have a friend in the White House. (See the story on these topics and more, beginning on page 54.)

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I’m excited about this year’s keynote speakers. I’m a big fan of Marcus Lemonis, star of the CNBC show “The Profit,” as well as an accomplished businessman, investor, and philanthropist. Along with many others, I’m looking forward to meeting him. As for those possibilities and challenges I mentioned, 2017 is shaping up to be a very exciting year for franchising. For the most part, we are able to control what happens inside our own organizations. But for those of us with brick-and-mortar locations, what happens inside our four walls is being affected more each year by external forces—from workplace rules to how we hire. And while financing has loosened, coping with increased paperwork, regulation, and state and local laws affecting how much we pay our employees, to delays in approvals for new sites is costing all of us time and money and affecting our bottom line. That’s all the more motivation for me to want to get together with my fellow multi-unit franchisees. No matter how large or small our organizations, we all must deal with the same issues. The educational sessions and networking opportunities are always helpful to me. And the chance to meet with brand representatives in the Exhibit Hall to explore new concepts, along with suppliers who can help me improve my organization and operations, is always rewarding. This year, I urge you not only to attend the conference in April, but to tell your franchisors about it and ask them to send their best operators to join us in Las Vegas. What feels different this year is not only the opportunities to improve our own companies, but the necessity of reaching out to the non-franchised world to educate them on the value of our small-business model. Because even with more than 700 units, all my business is still one store and one customer at a time. So please attend and pay special attention to our efforts to remind those outside forces about how many people we employ, how much we contribute to our local communities, and how much of that depends on the survival of the existing franchise business model. I look forward to seeing you. Please be sure to say hello and tell me what’s on your mind. See you in Vegas!

Guillermo Perales CEO/Founder, Sun Holdings 2017 Conference Chair

MULTI-UNIT FRANCHISEE IS S UE I, 2017

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2017

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LAS VEGAS Sunday, April 23 – Wednesday, April 26

✓ CONFERENCES 2017 Multi-Unit Franchising Conference Ahead!

It’s time to get planning to join more than 500 fellow franchisees at the 17th annual Multi-Unit Franchising Conference, this April 23–26* at Caesars Palace in Las Vegas. Attendees at the 2016 conference enthusiastically agreed it was a useful, worthwhile experience and plan to return this year. Total attendance, which topped 1,300, included more than 550 franchisees who collectively accounted for more than 12,000 operating units, $8.5 billion in annual revenue, and more than 100,000 jobs. This is a unique opportunity to attend the premier multiunit franchising event, meet and learn from the best in the business, explore new brands, and soak up invaluable expertise at the educational sessions. Need some inspiration? Check out the online brochure to see the speakers and review the educational sessions. And sign up to keep current on developments for this year at www. multiunitfranchisingconference.com. (*Note: This year the conference will be held Sunday to Wednesday.)

✓ONLINE Multi-Unit Community Grows Check out our community-based website for multi-unit operators. It’s your exclusive look into the world of multi-unit franchising, your one-stop shop to find: • New brand opportunities • Exclusive interviews • Networking opportunities • Operator profiles • Online edition and archives • Financing resources www.franchising.com/multiunitfranchisees

✓NEW ONLINE VIDEOS EmpireBuilders.tv Expands Great entrepreneurs build great organizations. They possess a knack for making smart business decisions, building great teams, and creating successful companies. But as we’ve learned from years of interviewing successful multi-unit franchisees, they’ve also struggled, doubted, and made more than a few mistakes—yet they’ve soldiered on, persevered, and ultimately come out on top. To provide a deeper sense of their journeys, insights, and personalities, we’re selecting

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franchisees from our most inspiring print interviews and creating a new series of online videos of these franchisee leaders. We call them Empire Builders.watch.franchising. com/empire-builders/

✓FRANCHISE OPPORTUNITIES Looking for your next franchise opportunity?

Have we got the tools for you! Find articles on companies, concepts, industries, trends, and profiles—and search our features. Find franchisors looking for multi-unit franchisees, area reps, and area developers. Search by top opportunities, alphabetically, investment level, industry, state, and more at www.franchising.com

✓RANKINGS Check out our annual rankings of top franchisees and their multi-unit brands and find out “Who’s on first.” For this year’s Mega 99 rankings, see page 46; for previous years visit www. franchising.com/multiunitfranchisees/mega99.html. For the Multi-Unit 50 rankings visit www.franchising.com/ multiunitfranchisees/mu50.html.

✓PUBLICATIONS

“Don’t just survive, thrive!”

Franchise Update Media’s 2017 Annual Franchise Development Report, and the best-selling book, Grow to Greatness by top franchise consultant Steve Olson, offer invaluable tips for franchise sales success and unit growth in today’s economy. To order, visit www.franchising.com/ franchisors/afdr.html and www.franchising.com/ franchisors/growtogreatness.html.

✓QUICKLINK For a one-click link to articles in this magazine and to past issues of Multi-Unit Franchisee magazine, visit www. franchising.com/multiunitfranchisees.

TCB! “What drives me is that every day is a new day, especially in fast food, and especially when you’re dealing with people. The best thing I learned from Dave Thomas is, ‘Take care of your business and your business will take care of you.’” — Eddie Rodriguez, CEO of JAE Group in Boca Raton, Fla., one of Wendy’s 10 largest franchisees (179)

MULTI-UNIT FRANCHISEE IS S UE I, 2017

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READY TO ADD MORE FLAVOR TO YOUR PORTFOLIO?

“FAST-CASUAL MEXICAN RESTAURANT BRAND OF THE YEAR” -Based on the 2016 Harris Poll Equitrend ® Equity Score

$1,252,653 AVERAGE TOTAL ANNUAL GROSS SALES 650+ RESTAURANTS AVERAGE EBITDA $191,760* (15.3%)

For more information, contact: 404.705.2051 • requests@moes.com *Figures reflect averages for 194 franchised restaurants that were in operation continuously for 3 or more years and that provided us with complete financial information for the full calendar year of 2015, as published in Item 19 of our April 2016 Franchise Disclosure Document. These averages are based on a 52-week annual period from January 1, 2015 through December 31, 2015. Of these 194 restaurants, 78 restaurants (or 40%) attained or exceeded the average total gross sales and 78 Restaurants (or 40%) attained or exceeded the average EBITDA. A new franchisee’s results may differ from the represented performance. There is no assurance that you will do as well and you must accept that risk. This offering is made by prospectus only. This information is not intended as an offer to sell a franchise. We will not offer you a franchise until we have complied with disclosure and registration requirements in your jurisdiction. Contact Moe’s Franchisor LLC, 5620 Glenridge Drive NE, Atlanta, Georgia 30342, to request a copy of our FDD. RESIDENTS OF NEW YORK: This advertisement is not an offering. An offering can only be made by a prospectus filed first with the Department of Law of the State of New York. Such filing does not constitute approval by the New York Department of Law. RESIDENTS OF MINNESOTA: MN Franchise Registration Number: F-5795.” ©2016 Moe’s Franchisor LLC

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⨀⨀倀爀漀昀椀琀 椀猀 䔀䈀䤀吀䐀䄀⸀ 倀愀渀攀爀愀 䈀爀攀愀搀 䄀瘀最⸀ 匀愀氀攀猀 愀渀搀 倀爀漀昀椀琀猀 戀愀猀攀搀 漀渀 椀渀昀漀爀洀愀琀椀漀渀 搀椀猀挀氀漀猀攀搀 椀渀 䤀琀攀洀 ㄀㤀 漀昀 ㌀⼀㈀㔀⼀㄀㘀 倀愀渀攀爀愀 䈀爀攀愀搀 䘀䐀䐀⸀ 圀攀 洀愀欀攀 渀漀 漀琀栀攀爀  爀攀瀀爀攀猀攀渀琀愀琀椀漀渀猀 愀戀漀甀琀Ⰰ 愀渀搀 搀漀 渀漀琀 瘀攀爀椀昀礀 愀渀礀 愀猀瀀攀挀琀 漀昀Ⰰ 倀愀渀攀爀愀 䈀爀攀愀搀 昀爀愀渀挀栀椀猀攀 漀昀昀攀爀椀渀最⸀ 䜀爀攀愀琀 䠀愀爀瘀攀猀琀 䄀瘀最⸀ 匀愀氀攀猀 愀渀搀 倀爀漀昀椀琀猀 爀攀昀氀攀挀琀 琀栀攀 愀挀琀甀愀氀  愀瘀攀爀愀最攀 愀渀渀甀愀氀 最爀漀猀猀 猀愀氀攀猀 愀渀搀 愀瘀攀爀愀最攀 愀渀渀甀愀氀 䔀䈀䤀吀䐀䄀 昀漀爀 琀栀攀 礀攀愀爀 ㈀ ㄀㔀 昀漀爀 㐀 昀爀愀渀挀栀椀猀攀搀 栀甀戀 戀愀欀攀爀礀 挀愀昀攀猀 愀渀搀 㔀 昀爀愀渀挀栀椀猀攀搀 猀瀀漀欀攀 挀愀昀攀猀 琀栀愀琀  漀瀀攀渀攀搀 漀渀 漀爀 戀攀昀漀爀攀 㘀⼀㈀㘀⼀㄀㘀⸀ 伀昀 琀栀攀 㐀 昀爀愀渀挀栀椀猀攀搀 栀甀戀 戀愀欀攀爀礀 挀愀昀攀猀Ⰰ ㌀ 漀昀 琀栀攀 㐀Ⰰ 攀砀挀攀攀搀攀搀 琀栀攀 愀瘀攀爀愀最攀 猀愀氀攀猀 瘀漀氀甀洀攀 漀昀 ␀㤀㔀㌀Ⰰ㜀㈀㜀⸀  伀昀 琀栀攀 㔀  昀爀愀渀挀栀椀猀攀搀 猀瀀漀欀攀 挀愀昀攀猀Ⰰ ㌀ 漀昀 琀栀攀 㔀Ⰰ 攀砀挀攀攀搀攀搀 琀栀攀 愀瘀攀爀愀最攀 漀昀 ␀㔀㔀㄀Ⰰ㈀㘀㠀⸀ 伀昀 琀栀攀 㐀 栀甀戀⼀猀瀀漀欀攀 瀀愀椀爀椀渀最猀 椀渀 漀甀爀 猀礀猀琀攀洀Ⰰ ㈀ 漀甀琀 漀昀 㐀 攀砀挀攀攀搀攀搀 愀瘀攀爀愀最攀  䔀䈀䤀吀䐀䄀 瀀攀爀昀漀爀洀愀渀挀攀 漀昀 ␀㈀㌀㤀Ⰰ  ㄀⸀ 䜀爀攀愀琀 䠀愀爀瘀攀猀琀 䔀䈀䤀吀䐀䄀 戀愀猀攀搀 甀瀀漀渀 琀栀攀 猀甀洀 漀昀 ㈀ 栀甀戀 愀渀搀 ㌀ 猀瀀漀欀攀 戀愀欀攀爀礀 挀愀昀攀猀⸀ 䘀漀爀 洀漀爀攀 搀攀琀愀椀氀猀Ⰰ 爀攀昀攀爀 琀漀  䤀琀攀洀 ㄀㤀 漀昀 漀甀爀 ㈀⼀㄀⼀㄀㘀 䜀爀攀愀琀 䠀愀爀瘀攀猀琀 䘀䐀䐀⸀  䄀 渀攀眀 昀爀愀渀挀栀椀猀攀攀ᤠ猀 爀攀猀甀氀琀猀 洀愀礀 搀椀昀昀攀爀 昀爀漀洀 琀栀攀 爀攀瀀爀攀猀攀渀琀攀搀 瀀攀爀昀漀爀洀愀渀挀攀⸀  吀栀攀爀攀 椀猀 渀漀  愀猀猀甀爀愀渀挀攀 琀栀愀琀 礀漀甀 眀椀氀氀 搀漀 愀猀 眀攀氀氀 愀渀搀 礀漀甀 洀甀猀琀 愀挀挀攀瀀琀 琀栀愀琀 爀椀猀欀⸀  吀栀椀猀 漀昀昀攀爀椀渀最 椀猀 洀愀搀攀 戀礀 瀀爀漀猀瀀攀挀琀甀猀 漀渀氀礀⸀ 

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BY KERRY PIPES AND EDDY GOLDBERG

It’s Mega Time!

W

Six great stories to start the year

e’re starting 2017 in our customary way: with our “Mega 99” list of the largest U.S. franchisees, ranked by total number of units. We also offer six stories of successful multi-unit operators—a half-dozen diverse profiles that highlight both modest and mammoth organizations. Together, they provide a broad spectrum of size, industries, and scope of operations. Perhaps more important, each has been successful in their own way and has a unique story to tell. Successful franchisees, from mega to mini, must become leaders who know how to make a deal work, hire the right people, and create a dedicated, hard-working team. With the right combination of ingredients, they’re able to build and sustain organizations that offer great products and services, serve customers, provide jobs in their communities, and build revenue and royalty streams. Once again we are privileged to have been granted a peek behind the scenes at six franchisees who have carved their own paths to success. These are highly personal stories of how they’ve climbed the ladder, overcome obstacles, and grown not only their organizations, but also their employees and themselves. It’s rewarding and inspiring for us—and we hope for you—to read their stories, which are far from complete. • Al Bhakta is managing director of Chalak Mitra Group, a diverse company that is both franchisee and franchisor. Operated by a group of seven friends who work and play hard together, the company operates and oversees 253 restaurants in 27 states with brands including KFC/Taco Bell, La Madeleine, Genghis Grill, Elephant Bar, Fireside Pies, Pepper Smash, and Ruby Tequila’s Mexican Grill. • Eddie Rodriguez, CEO of JAE Group in Boca Raton, is one of the nation’s 10 largest Wendy’s franchisees. With 179 Wendy’s in Florida, New Mexico, and Texas and 43 years of franchising under his belt, he is committed to a brand he believes in. As Dave Thomas once told him, “Take care of the business and the business will take care of you.” Rodriguez is living proof. Dave would be proud. • Harry Rose, who founded The Rose Group in

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1985, has continually earned honors from the franchisors lucky enough to attract his interest. Today The Rose Group operates 56 Applebee’s, 9 Corner Bakery Cafes, and 2 Shannon Rose Irish Pubs, employing 4,500 people across New Jersey, Pennsylvania, Maryland, and Delaware. Says Rose, “It’s all about hiring the right people and giving them the challenge to execute.” • We’ve also “Reconnected” with Sam Osborne, who has been on the move since we profiled him in early 2009. Osborne is the longest-running franchisee in the Tropical Smoothie Cafe system. When we last interviewed him he was busy building out his Florida territories as both an area developer and operator. Today he has 23 locations, with four more in development. He has also pioneered TSC’s newest concept, Island Wing Company, and has opened his first in Tallahassee. • K’Zell “Zelly” Wesson has been a professional basketball player for international teams for more than 17 years. He currently plays for a pro team in Turkey. At 39, the six-foot-seven-inch forward recognizes that there will be a lot of life after sports. So in 2013, he opened his first Workout Anytime fitness center in Stockbridge, Ga. He now has three units up and running and another being built. His unique story includes overseeing his franchise operation from 6,000 miles away while the season is under way. • New to our pages this year is a regular look at “Under 30” multi-unit operators. Veronica and Tyler Jordan both had 9-to-5 jobs before deciding to look for something more creative and profitable. After searching for 3 years, she responded to an ad for Wine & Design and they were on their way. She’s only 27 and he’s 28, but they already have three units open in Maryland—and bigger plans for the future. With two young children in tow, this young family is redefining on-the-go. Whether you have a single unit or dozens spread across several brands, you’re sure to find something interesting, educational, even entertaining in these six stories of hard-driving, successful multi-unit franchisees. This is our annual Mega 99 issue, so be sure to check out FRANdata’s list of the country’s largest multi-unit franchisee organizations, ranked by number of units, starting on page 46.

MULTI-UNIT FRANCHISEE IS S UE I, 2017

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f o z t Lo opportunity! h t w o r g 404-705-2051 2014, 2016

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#21 HOT CONCEPTS AWARD

– NATION’S RESTAURANT NEWS, 2016

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BY DANIELLE BUENROSTRO

Brotherhood of Friends A

Chalak Mitra Group spreads to 27 states

l Bhakta is proof that friends can be successful in business together. As managing director of the Dallas-based Chalak Mitra Group of Companies, Bhakta is one of seven longtime friends who have made wise business decisions together through the years. “We’ve got a good team of seven partners, we’re all best friends, and we’ve built a great network and a great company,” says the 38-year-old. “We look at opportunities first to see if

they will work for our culture and company. Money is the last piece. It always figures itself out.” Bhakta describes the company’s culture as a family-oriented, fun environment where they work hard and play hard. Outside of work they have regular family outings and often vacation together. “We think about everything and do it for the greater good of the company. We’ve been together for a long time,” he says. As the most experienced member of the group, Bhakta’s focus is on strategic partnerships and growing the company’s diverse portfolio. As both a franchisor and a franchisee, he’s found great success in diversifying the group’s portfolio by pursuing different brands at different times. Managing multiple brands across 27 states is no small task, but he says his shared services approach provides a brand-agnostic infrastructure able to support different brands and their different needs. The partners first became franchisees in 2001with the fledgling Genghis Grill brand. It took them 18 months of hard work and sweat equity to reach breakeven. Three years later they bought out the concept. Today the group operates 147 KFC/Taco Bells and 5 La Madeleine franchised units. It also is the franchisor of 79 Genghis Grills, 12 Elephant Bars, 5 Fireside Pies, 4 Ruby Tequila’s Mexican Kitchens, and 1 Pepper Smash. “Diversification hedges us against economic downturns when people are trading up or down, and it helps us with certain regions,” he says. Bhakta cited changes in technology and innovation as the biggest challenges facing the restaurant industry. New ways to deliver the end product to customers, the growth of delivery companies, and online ordering are compelling technologies companies must figure out and embrace to remain competitive. “The industry is shifting that way fast,” he says. “We’re not NAME: Al Bhakta TITLE: Managing director COMPANY: Chalak Mitra Group of Companies NO. OF UNITS: As a franchisee, 147 KFC/Taco Bell, 5 La Madeleine; as a franchisor, 79 Genghis Grill, 12 Elephant Bar, 5 Fireside Pies, 4 Ruby Tequila’s Mexican Grill, 1 Pepper Smash. AGE: 38 FAMILY: Wife and child YEARS IN FRANCHISING: 15 YEARS IN CURRENT POSITION: 15

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MULTI-UNIT FRANCHISEE IS S UE I, 2017

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on the forefront of any single innovation. We observe them all and see what works, see what’s not working, and take what’s the best in class. We want good ideas that rise above the rest.” Part of making it in the current franchise climate, he says, is understanding the Millennial customer. “They’ve basically grown up with technology in their hands at all times. They are an informed consumer with information at their fingertips. We have to deliver what they want.” Millennials, he says, are looking for constant stimulation, which could have a big impact on how often a restaurant changes its menu or remodels. Internally, when it comes to providing growth opportunities for people in the

PERSONAL First job: Stock boy at a grocery store. Key accomplishments: 2011 Top Executive to Watch Nation’s Restaurant News; 2012 Entrepreneur of the Year Nominee Ernst & Young; 40 Under 40 Honoree, Dallas Business Journal. Biggest current challenge: Navigating through competitive intrusions in the restaurant industry. Next big goal: Understanding the Millennial. First turning point in your career: Deciding to raise outside capital for an acquisition. Best business decision: Partnering with my best friends. Hardest lesson learned: Hire people who can do what you can’t. Work week: 7 days. Exercise/workout: High-intensity interval training and yoga. Best advice you ever got: Surround yourself with people smarter than you. What’s your passion in business? Seeing people evolve in their careers and roles. How do you balance life and work? I don’t. Guilty pleasure: Ice cream and pizza. Favorite movie: The Godfather. Pet peeve: Drama and dishonesty. What did you want to be when you grew up? Doctor or architect. Last vacation: St. Kitts. Person I’d most like to have lunch with: Abraham Lincoln.

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“Be prepared to work hard. It can’t be part-time. It has to be 120 percent.” group, Bhakta is always looking to “fill his boat,” by which he means constantly adding qualified talent to rise within the company as it grows. With more than 8,500 employees and a track record of solid growth, that’s a big boat to keep full. Looking ahead to 2017, Bhakta says the company’s goals are to grow the La Madeleine franchise with new development, to grow KFC with new development and acquisitions, and to expand the Fireside Pies brand with new development.

MANAGEMENT Business philosophy: Fill the boat. Management method or style: Inclusive and collaborative. Greatest challenge: Finding the right talent. How do others describe you? Loud, personable, and passionate. One thing I’m looking to do better: Work/life balance. How I give my team room to innovate and experiment: Listen. How close are you to operations? Not as close as I should be. What are the two most important things you rely on from your franchisor? Innovation and brand standards. What I need from vendors: To have a partnership mindset. Have you changed your marketing strategy in response to the economy? How? Yes, more targeted messaging. How is social media affecting your business? More on high alert. How do you hire and fire? Hire slow and fire fast. How do you train and retain? Systems, processes, and culture. How do you deal with problem employees? Coach them and/or let them go. Fastest way into my doghouse: Dishonesty.

As he tries to move closer to operations and better understand the changing customer base, Bhakta plans to travel the country and get to the group’s restaurants more often. “We’ve got a great team of operators right down to the general managers who are running things well. I don’t need to be there, but I learn every time I’m in the stores,” he says. He estimates that he visits more than 40 restaurants a year. His advice to future generations of restaurant franchisees is to roll up their sleeves and get their hands dirty. “Be prepared to work hard in the restaurant space. It can’t be part-time. It has to be 120 percent. If not, it will lead to failure.”

BOTTOM LINE Annual revenue: NA. 2017 goals: To grow the La Madeleine franchise with new development, grow KFC with new development and acquisitions, and to expand the Fireside Pies franchise with new development. Growth meter: How do you measure growth? Same store sales, year-over-year traffic, and increased revenue. Are you experiencing economic growth in your market? Yes, certain markets like the Mid-Atlantic, Midwest, and Texas outside the oil markets. How do changes in the economy affect the way you do business? We need to be constantly nimble. How do you forecast for your business? Annual planning with quarterly adjustments. What are the best sources for capital expansion? Banks, family offices, and private equity. Experience with private equity, local banks, national banks, other institutions? Why/why not? Yes, overall good experiences. There’s lots of capital in the market. What are you doing to take care of your employees? Trying to stay ahead of the curve with 401(k) plans, technology, creative bonus programs, etc. How are you handling rising employee costs (payroll, minimum wage, healthcare, etc.)? Price and mix. How do you reward/recognize topperforming employees? Aggressive bonus plans.

MULTI-UNIT FRANCHISEE IS S UE I, 2017

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THERE’S STRENGTH IN NUMBERS! JOIN US AND BE PART OF THE SUCCESS. TropicalSmoothieFranchise.com | 800-204-0680

*Top 50% of Cafes. Based on calendar year 2015, 77 of 359, or 21.4%, of the Cafes gained or surpassed this sales level. This information appears in Item 19 of our Franchise Disclosure Document. Your results may differ. There is no assurance that you will do as well. This information is not intended as an offer to sell or the solicitation of an offer to buy a franchise. It is for information purposes only. The offering is by prospectus only. Currently, the following states regulate the offer and sale of franchises: California, Hawaii, Illinois, Indiana, Maryland, Michigan, Minnesota (File No. F-4953), New York, North Dakota, Oregon, Rhode Island, South Dakota, Virginia, Washington and Wisconsin. If you are a resident of or want to locate a franchise in one of these states, we will not offer you a franchise unless and until we have complied with applicable pre-sale registration and disclosure requirements in your state. New York State Disclaimer: This advertisement is not an offering. An offering can only be made by prospectus filed first with the Department of Law of the State of New York. Such filing does not constitute approval by the Department of Law. CALIFORNIA DISCLAIMER: THESE FRANCHISES HAVE BEEN REGISTERED UNDER THE FRANCHISE INVESTMENT LAW OF THE STATE OF CALIFORNIA. SUCH REGISTRATION DOES NOT CONSTITUTE APPROVAL, RECOMMENDATION OR ENDORSEMENT BY THE COMMISSIONER OF CORPORATIONS NOR A FINDING BY THE COMMISSIONER THAT THE INFORMATION PROVIDED HEREIN IS TRUE, COMPLETE AND NOT MISLEADING. © 2017 Tropical Smoothie Cafe, LLC. Tropical Smoothie Cafe, LLC 1117 Perimeter Center West, Suite W200 Atlanta, GA 30338.


BY DANIELLE BUENROSTRO

Channeling Dave (Thomas) E

JAE soars from 13 to 179 Wendy’s

ddie Rodriguez, one of the 10 largest Wendy’s franchisees, says he has never worked a day in his life. After 43 years in franchising, Rodriguez continues his relentless dedication to growing a brand he believes in—and in expanding it beyond his company’s

179 Wendy’s locations in Florida, New Mexico, and Texas. “I always practice the philosophy that if you find something you love to do, you never work a day in your life,” says Rodriguez, CEO of the JAE Restaurant Group in Boca Raton. “What drives me is that

every day is a new day, especially in fast food, and especially when you’re dealing with people,” he says. “The best thing I learned from Dave Thomas is, ‘Take care of your business and your business will take care of you.’” Rodriguez also believes in creating a culture that flows throughout the entire organization and its more than 5,400 employees. “The DNA you create has to be one that can be sustained even when you’re not there. It creates commitment, rather than compliance,” he says. “Dave was a very simple man with five values: 1) Quality is our recipe; 2) Treat people with respect; 3) Give something back; 4) Profit isn’t a dirty word; and 5) Do the right thing. And we still live by them. It’s a team effort with a lot of moving parts, and it takes a lot of commitment.” JAE, which opened its first Wendy’s in 1993, has grown through merging with and acquiring Wendy’s restaurants from other operators and from corporate. In September JAE announced it had added 97 restaurants in South Florida through Wendy’s refranchising program. “I thought about where I wanted my NAME: Eddie Rodriguez TITLE: CEO COMPANY: JAE Restaurant Group NO. OF UNITS: 179 Wendy’s AGE: 61 FAMILY: Wife Laurie, a son, a

daughter, and four grandkids, 1½ to 5 YEARS IN FRANCHISING: 43 YEARS IN CURRENT POSITION: 23

as a franchisee

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We’ve got multiple reasons to franchise multiple stores. Not only are we a global icon, 7‑Eleven® offers a turnkey business model, the latest technology, a fast and easy application process, and plenty of room to grow. And of course, there’s more cash flow. If you have a vision for franchising multiple stores, take a closer look at 7‑Eleven. To learn more, visit Franchise.7-Eleven.com

© 2016 7‑Eleven Inc. All rights reserved. This is not an offer to sell a franchise. An offer can only be made in applicable states with authorized documentation. 7‑Eleven Inc.; P.O. Box 711, Dallas, TX 75221‑0711

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PERSONAL First job: Assistant manager trainee for Burger King. Formative influences/events: Attending public speaking classes, hearing presidents give speeches, and attending The Wharton School. Key accomplishments: Sharing success with family and friends, building one of the biggest Wendy’s franchisee systems, and becoming one of the 10 biggest Wendy’s franchisees. Biggest current challenge: Creating stability in the company so team members can achieve long-term success. Next big goal: Transition the business to the next generation. First turning point in your career: When I left Burger King in 1988. Since then, I tell everyone I couldn’t pay for the education I received there. It put me where I am today. Best business decision: To expand the Wendy’s brand in 2013. Since then I went from 13 units to 179. Hardest lesson learned: That you can’t dictate the needs of team members or customers. Exercise/workout: I try to do 45 minutes on the treadmill every day, and play racquetball. Best advice you ever got: From my father: Whatever you do, be the best at it. What’s your passion in business? People development, being able to give back and pave the road for team members to be successful and grow into management. How do you balance life and work? It’s very hard. I try to stay positive and laugh as much as I can. Guilty pleasure: Eating a cannoli every night. Favorite book: How To Win Friends and Influence People by Dale Carnegie. Favorite movie: “Men of Honor.” What do most people not know about you? I give back a lot in a quiet way without acknowledgement. I sit on the board of directors for the Boys & Girls Clubs of Broward County, an organization near and dear to my heart. Pet peeve: When people disrespect others. No matter your opinion, you should respect the feelings of everyone. What did you want to be when you grew up? To provide more for my family than my parents could provide for me. Last vacation: Mediterranean cruise. Person I’d most like to have lunch with: My brother.

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“I always practice the philosophy that if you find something you love to do, you never work a day in your life.” family to be,” says Rodriguez. “My son, who is a part of the business, embraced the idea of growing and was ready to take it to the next level.” Part of his growth strategy was to create an “A-Team” of top talent experienced in mergers and acquisitions. “We acquired poor operators and bought them at the right price, which put us in a position where lenders could help when the company decided to sell markets, and we got to pay less for broken stores to fix them with Dave’s DNA and culture,” he says. “I couldn’t have done it without investing in a great CFO, COO, and president.

MANAGEMENT Business philosophy: To create a strong DNA and culture that resonates with internal, external, and outside partners’ expectations. Management method or style: Everyone is born with a brain free of charge. Let them use it. Greatest challenge: Adapting to changes in today’s society and understanding employees and customers and their needs. How do others describe you? Passionate, determined, sincere, and influential. One thing I’m looking to do better: Continue to become a better leader and a better listener. How I give my team room to innovate and experiment: I give them a long rope, only pulling it back before they drown, if necessary. How close are you to operations? Extremely close. Whenever I judge progress, all I do is go to restaurants and talk to managers and employees. What are the most important things you rely on from your franchisor? Strengthening of the brand, transparency, and improving the economic model. What I need from vendors: Strong partnership and dependability. Have you changed your marketing strategy in response to the economy? How? Yes, we’ve had to create value and update restaurants to cater to Millennials and new generations. How is social media affecting your business? We’ve had to transition traditional ways of marketing to staying up-to-date on social media, which is growing faster than TV and radio. How do you hire and fire? We have a hire-for-life mindset and fire only if they are jeopardizing the brand or the company. How do you train and retain? By creating a very strong culture that fosters growth. These go hand in hand. We commit to training to develop team members’ skills. How do you deal with problem employees? A lot of coaching and outside development such as classes and sometimes counseling. Fastest way into my doghouse: To be insensitive to others.

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I built a team that had a lot of corporate memory,” he says. JAE President Ed Austin had spent 39 years at Wendy’s, leaving as SVP when he joined JAE in 2015. COO Ben Mansoor had been a regional vice president for Wendy’s for Latin America and the Caribbean. Jim Christopherson, who served as CFO for 2 years until this past October, had worked with Rodriguez previously at Burger King (where Rodriguez began his career in fast food) and became wellversed in restaurant acquisitions during his 20 years at The Cypress Group. Rodriguez says he relies on his franchisor to strengthen the brand responsibly. Part of that strategy includes closing or selling unsuccessful units to top operators to improve and protect the brand. “The franchisor makes money from the top line and the franchisee makes money from the bottom line. Both need to be successful for the economic model to work,” he says. “That’s why you can’t overbuild.” Successful brands also need to have a good procurement program, he says. A fatal mistake some franchisors make is getting caught up in confidentiality and creating decisions in a tunnel. “I see franchisee owners as little CEOs, and they need the opportunity to give feedback [to the franchisor] because they’re on the firing lines with the customer every day,” he says. “Together, companies can make better and stronger decisions.” Rodriguez says his greatest challenge today is adapting to changes in society and appealing to the next generation. “This is the biggest dynamic cultural change I’ve ever seen. I’m a Baby Boomer, but the next generation thinks differently. They want to be part of something big, and they want to give to organizations like the Dave Thomas Foundation for Adoption. They are all about being more inclusive and helping their communities,” he says. “Gen X is different. They believe in constant growth. So we’ve added self-serve kiosks and wi-fi bars to appeal to the customers of tomorrow. Any company that doesn’t adapt to the younger generation won’t have dominance in their market. If you’re green, you’re growing. If you’re brown, you’re dead.” In the next 10 years, Rodriguez will be considering his exit strategy. He would love to see his family carry on the business, but even if they don’t he knows he has options. “If you’re a great franchisee with a great company, there’s always de-

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“Any company that doesn’t adapt to the younger generation won’t have dominance in their market. If you’re green, you’re growing. If you’re brown, you’re dead.”

mand for your business. You can sell to another franchisee or you can sell to the company,” he says. “How many people can go into a business knowing you’ll come out stronger than when you started?” Rodriguez believes JAE’s growth is proof that Dave Thomas really did have the best advice: to take care of your business and it will take care of you. And it has. JAE (named for Co-Chairs Jhonny Mercado and Andres Garcia, and CEO Eddie Rodriguez) has been recognized for its achievements with the Wendy’s Award for Best Operator in 2002, the Dave Thomas Award for Best Overall Franchisee in 2003 and 2012, and Rodriguez was recently inducted into the Wendy’s Hall of Fame.

BOTTOM LINE Annual revenue: $280 million. 2017 goals: To grow the company organically with 10 new restaurants per year. Growth meter: How do you measure your growth? One restaurant at a time. Vision meter: Where do you want to be in 5 years? 10 years? In 5 years, I want to be retired and on executive boards to help build better companies. In 10 years, I want to be traveling, watching the next generation grow the business, and making sure the DNA of the company stays true to its values. How is the economy in your regions affecting you, your employees, and your customers? Competitive, but most of our market is a gateway to Latin America, so it’s healthy and robust with lots of opportunities. Are you experiencing economic growth in your market? Absolutely. Miami and Fort Lauderdale have so much to offer in terms of growth from Latin America. How do changes in the economy affect the way you do business? We do more research on customers and employees in order to be effective and have more flexibility. How do you forecast for your business? We monitor the business daily, weekly, and monthly. Although we have a budget, we monitor it daily. What are the best sources for capital expansion? Internal cash flow; 30 to 40 percent of cash flow should be used for capital reinvestment. Experience with private equity,

local banks, national banks, other institutions? Why/why not? Absolutely. In today’s business environment, you need to have relationships with a number of financial institutions. You also must have a great management team and not just invest for today, but invest for tomorrow. It’s not about what you want, it’s about where the company is going to go. What are you doing to take care of your employees? We host a big holiday party every year in every market. We’ve increased vacation time (four weeks after 10 years) and we’ve tried to create an environment that enforces happiness by giving lots of recognition for hard work. How are you handling rising employee costs (payroll, minimum wage, healthcare, etc.)? We look at this as a cost of doing business. While it does affect the bottom line, we provide our employees with the best healthcare insurance and 401(k) plan, and we pay top dollar for great talent. Although costs are rising, we stay ahead and make sure we are paying better than the competition. How do you reward/recognize topperforming employees? We give monthly recognition of the employee of the month at the office, parking spots, holiday parties, and hold GM rallies twice a year where we bring all the GMs together and give rewards based on performance, sales profiles, and people development. What kind of exit strategy do you have in place? I plan on turning the business over to the family by creating value and creating demand for the business. If you have a successful business, you will always have an exit strategy and never have to worry about it.

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BY DANIELLE BUENROSTRO

First Prize Rose H

Harry Rose shows how it’s done

arry Rose, founder and chairman of The Rose Group, is a winner. In 2016, for the second year in a row, Applebee’s named Rose its Franchisee of the Year. He also knows how to hire: also for the second year in a row, Bonnie Lippincott, his COO, was named Applebee’s Operator of the Year. He’s not doing too badly with Corner Bakery Cafe either. The brand named The Rose Group its 2015 Franchise Developer of the Year,

and individual locations and team members were recognized by the brand for their outstanding achievements that year. “It’s an incredible recognition,” says Rose, 72. “It’s all about hiring the right people and giving them the challenge to execute. They carry on the culture I established 31 years ago.” And that’s just the tip of the iceberg of the long list of honors bestowed on the company, which began with five Roy

Rogers in 1985. Today The Rose Group operates 56 Applebee’s, 9 Corner Bakery Cafes, and 2 Shannon Rose Irish Pubs, employing 4,500 people across New Jersey, Pennsylvania, Maryland, and Delaware. Before becoming a franchisee, Rose spent 20 years with Marriott Corp. Starting in Marriott’s finance training program, he moved on to work in property management, legal, real estate, and finance. He then became controller for Roy Rogers, the fast food chain founded by Marriott in 1968, and was promoted to chief financial officer. In 1982, he moved to Philadelphia to head up the mid-Atlantic market, which included 27 Roy Rogers restaurants in Pennsylvania and southern New Jersey. During that time, Marriott bought the 300-plus-unit Gino’s restaurant chain and Rose was placed in charge of converting them all to Roy Rogers restaurants. After two-and-a-half years, Rose had taken Roy Rogers from 27 to 156 locations. Although he helped the company achieve great success, his heart was in the operations side of the business. When he bought those five Roy Rogers restaurants in 1985, he’d been looking to buy 25. “I wanted to create something,” says Rose. “This was the beginning of my career in NAME: Harry T. Rose TITLE: Founder, chairman COMPANY: The Rose Group NO. OF UNITS: 56 Applebee’s

Grill & Bars, 9 Corner Bakery Cafes, 2 Shannon Rose Irish Pubs AGE: 72 FAMILY: Wife Carol Rose, two

sons, four grandchildren YEARS IN FRANCHISING: 31 YEARS IN CURRENT POSITION: 31

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franchising.” In early 1990, Roy Rogers was acquired by Hardee’s, and Rose read the handwriting on the wall. Hardee’s featured Roy Rogers’ most successful item, fried chicken, in its fast food burger model, but it didn’t work. “Hardee’s had tried to enter several Roy Rogers markets in the past and it failed every time,” says Rose. When the restaurants started changing their name to Hardee’s in the Washington, D.C., area sales dropped 25 to 30 percent. The company tried switching from Hardee’s back to Roy Rogers, but by that time customers were so confused it didn’t work, he says. “I didn’t do the switch with my locations, but they stopped advertising in the whole Northeast and our volume began to drop. We were up against Burger King and McDonald’s, who were advertising like crazy. Our revenue was slipping, so it was obvious we needed to do something.” What he did was start looking at other concepts, and in 1994 signed on with Boston Market and Applebee’s. He built

In 2016, for the second year in a row, Applebee’s named Rose its Franchisee of the Year. 16 Boston Markets in 6 counties in New Jersey, and 16 Applebee’s in Baltimore. Rose says Applebee’s in Baltimore was a challenge because the brand had pretty much penetrated the whole country— except for the Baltimore area, because of liquor license restrictions. “Independent operators were trying to keep chains out, so we decided to fight. We opened and tried to lobby to get more liquor licenses, and we won,” says Rose. By 1996, The Rose Group had built the highest-volume Boston Market locations in the country, earning recognition

as the franchise’s top operator. Corporate was so impressed they bought back the 16 locations and asked Rose to develop their new brand, Einstein Bros. Bagels, founded the year before. Within 18 months, Rose had built 21 Einstein Bros. units in the Philadelphia area with high volume and solid operations. He says the concept worked because they had the right locations and the right demographic to support a convenient breakfast concept. In early 2007, The Rose Group became the first franchisee of Corner Bakery Cafe, opening in a shopping mall in Horsham, Pa. He bought three more locations in Philadelphia and (guess what?) became the brand’s top operator. Although Rose has stepped back from day-to-day operations to spend more time with family (and work on his golf handicap), he’s staying on top of industry trends like fast casual pizza and healthy food concepts, and looking to steer his company toward even greater success in the years ahead.

PERSONAL First job: Working for my father’s business driving a beer truck. He was a beer distributor for local brands in Minersville, Pa. Formative influences/events: I joined Marriott right out of college. The year I started they were closing out their year-end in June as a $99 million company. What I learned at Marriott over the next 20 years shaped me and how I run our company. Some of the attributes I learned were discipline, detail to operations, and above all, customer satisfaction. Key accomplishments: Over 30 years we have built more than 100 restaurants including Roy Rogers, Boston Market, Einstein Bros. Bagels, Johnny Carino’s, Applebee’s, and Corner Bakery Cafe. We have always been leaders within the franchise concepts we operate because we assembled the best management team in the industry. Biggest current challenge: How to differentiate ourselves from our competitors within the segments we operate. This being such a difficult time for restaurants, we need to focus on being the best operators in the neighborhoods we are in, regardless of the concept. Next big goal: To continue the leadership that we have in the concepts we operate, and to work hard at beating our competition. First turning point in your career: When I decided to leave Marriott and purchase restaurants from them after 20 years of service. The initial purchase was for five Roy Rogers, which was the beginning of my career in franchising. Best business decision: To hire Jeff Warden as my area director for those first five Roy Rogers restaurants. Since that time, Jeff and I have worked hand in hand on making The Rose Group what it is today. Hardest lesson learned: Earlier on in Roy Rogers when I saw that the concept was not going to survive, I didn’t move fast enough to develop other options for the sites we had at the time. Work week: Not what it was when I was president and CEO. At that

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time my work week started with reviewing all the financial numbers in each restaurant, and then most of my time was spent figuring out how I was going to continue to grow our company. Today as chairman I still look at the financials every day, but I am not involved in the day-to-day activity. I leave that up to our President and CEO—Jeff Warden. Exercise/workout: I enjoy golf and work out with a trainer three days a week. Best advice you ever got: Someone once told me that if you want to be a leader, make sure you lead by example—not by what you say, but by what you say and do. What’s your passion in business? My passion is for all of my employees and their welfare, as well as for the guest experience in our restaurants. How do you balance life and work? Today as chairman my life is more balanced than it has ever been. I am able to spend more personal time now supporting the charitable causes I’m passionate about. Guilty pleasure: I love food and wine. Favorite book: John Adams by David McCullough. Favorite movie: “Saving Private Ryan.” What do most people not know about you? I have a soft spot for people who are less fortunate than I am. Pet peeve: Trash and debris in the parking lots of our restaurants. What did you want to be when you grew up? When I was delivering beer as a young adult I was always fascinated with the restaurant industry and wanted to own my own. Last vacation: Burgundy, France. Person I’d most like to have lunch with: Warren Buffett.

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Visit owncheckersfranchise.com/update or Call 888-913-9135 © 2017 Checkers Drive-In Restaurants, Inc. 4300 W. Cypress St., Suite 600, Tampa, FL 33607. 1. Per Item 19 in Checkers & Rally’s 2016 Franchise Disclosure Document. Same-store sales results are measured by combining 2016 FDD and 2015 FDD data. 2. Per Yahoo!.com Fast Food French Fries Taste Test Winner Gets an Asterisk article 3.Per Franchise Business Review 2015 Top Multi-Unit Franchises Report. Written substantiation will be provided on request. This advertisement is not intended as an offer to sell, or the solicitation of an offer to buy, a franchise. It is for information purposes only. The franchisor, Checkers Drive-In Restaurants, Inc. is located at 4300 West Cypress Street, Suite 600, Tampa, Florida 33607, and is registered as file number F-4351 in the state of Minnesota. In New York, an offering can only be made by a prospectus filed first with the Department of Law, and such filing does not constitute approval by that Department. 20170024

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“Our company is constantly training our new management as well as our existing team. We are proud to acknowledge one of the lowest turnover rates in the industry.” MANAGEMENT Business philosophy: Always be the best and never give up. Management method or style: Define objectives and nurture people to help them achieve their goals. Greatest challenge: To ensure that all of the right people are in the right places to help the organization continue to move forward. How do others describe you? As an entrepreneur with a vision and an incredible desire to succeed. One thing I’m looking to do better: Improve my golf handicap. How I give my team room to innovate and experiment: I encourage them to look at different ideas as alternatives to the status quo. How close are you to operations? In my current role, I am more supportive than I am in the detail of our operations. What are the two most important things you rely on from your franchisor? A clear vision of the direction for the brand and the development of food that is relevant to our guest. What I need from vendors: We look for partners that are interested in the success of our business, not only their own. We have been fortunate to have long-standing relationships with vendors that have grown through the system with us, and have not only prospered from our success but helped us reach our goals. Have you changed your marketing strategy in response to the economy? How? Yes. We needed to take a deep look into how we

approach value and discounting instead of focusing on our great food and service. Historically we stayed away from getting into the discounting business, but we are finding in this economy that the consumer wants value and we are working on strategic ways to make value propositions profitable. How is social media affecting your business? Social media certainly allows for full transparency of our operations, which is mostly a good thing. It allows us to really understand the guest and their experience, which in turn gives us great insights on how we can improve, which is our top priority. From a social responsibility perspective, it helps us to share all the great community work our teams are involved in, and also builds affinity to the brand when our neighbors see how locally involved we are. How do you hire and fire? Those decisions are up to our president and CEO, but as a practice we have always believed in promotion from within and we continue to do that when able, both in our operations and our administration teams. How do you train and retain? Our company is constantly training our new management as well as our existing team, introducing new programs that continue to develop our managers at all levels. We are proud to acknowledge one of the lowest turnover rates in the industry. How do you deal with problem employees? Our company has policies, and each manager has objectives that are established each year. If someone is not meeting those objectives we will take appropriate action. Fastest way into my doghouse: Not being honest with me.

BOTTOM LINE Annual revenue: $183 million. 2017 goals: To increase sales and improve profit margins over 2016. Growth meter: How do you measure your growth? By overall sales and traffic increases from the previous year. Vision meter: Where do you want to be in 5 years? 10 years? We are constantly evaluating other franchise opportunities, and when and if we are comfortable with those we would look to expand through that vehicle. How is the economy in your regions affecting you, your employees, your customers? The consumer has many options in our categories, and right now in our markets they are not as confident in the economy as they were a year ago. Are you experiencing economic growth in your markets? No, and there is a saturation of restaurants in the category with the consumer having many choices. They are not dining out with the same frequency as they were a year ago. How do changes in the economy affect the way you do business? We are much more aligned with value as we recognize the guest is looking for that more than ever. How do you forecast for your business? Based on current market conditions, commodity pricing, availability of people, and the economy.

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What are the best sources for capital expansion? There are many sources for capital in the marketplace, so that is not a current constraint. Experience with private equity, local banks, national banks, other institutions? Why/why not? We deal with national banks and people familiar with lending to restaurants. What are you doing to take care of your employees? We are constantly looking for opportunities to enhance our benefit package, partnering with outside vendors to provide resources for discounts and other added-value programs. How are you handling rising employee costs (payroll, minimum wage, healthcare, etc.)? We always focus on looking for ways to improve productivity. Most recently we used tabletop devices for ordering and payment, but we are also looking at streamlining our kitchens to gain more efficiency. How do you reward/recognize top-performing employees? That is a constant focus for our company. We provide opportunities to have them give us their great ideas, we have employee recognition programs, and we have an annual celebration every year with our whole team to recognize our top performers throughout the year. What kind of exit strategy do you have in place? I don’t have an exit strategy. I love the business and plan to stay in the business.

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12/21/16 10:50 AM


R E C O N N E C T BY KERRY PIPES

The Sky Is the Limit

S

Tropical Smoothie franchisee and AD adds new concept

am Osborne is the longest-running franchisee in the Tropical Smoothie Cafe system. That says a lot about him, as well as the brand. He’s been a part of the smoothie chain for nearly two decades, as both an operator and an area developer in Florida. He still loves every day, has added a new concept, and plans to expand further this year. When we interviewed Osborne 8 years ago (Q1 2009), he was a 36-year-old operator who had latched on to a growing concept called Tropical Smoothie Cafe. The Tallahassee-based franchisee

also owned the area developer rights to the Gainesville and Orlando territories, overseeing 22 stores and operating two units himself. This was just as the Great Recession began wreaking havoc, especially in Florida. When funding got tight, says Osborne, he simply hunkered down to weather the storm. Since then, he’s closed two underperforming units that were in non-traditional locations, took on two transfers, and added a unit, bringing his total to 23 today. “Financing is finally opening back continued on page 36

NAME: Sam Osborne TITLE: Owner, Tropical Smoothie Cafe/Tropical Smoothie Area Development; co-owner, Island Wing Company COMPANY: Tropical Smoothie

Cafe/Tropical Smoothie Area Development/Island Wing Co.

NO. OF UNITS: 1 Tropical Smoothie Cafe; 23 Tropical Smoothie area development (4 more in development); 1 Island Wing Company AGE: 44 FAMILY: Girlfriend of 5 years (she

has a son, 22, and a daughter, 19), and I have a daughter, 10

YEARS IN FRANCHISING: 19 YEARS IN CURRENT POSITION:

TSC store, 19; TSC area developer, 18; IWC, 1

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R E C O N N E C T “There will be obstacles along the way that may turn back most folks, but you keep your eye on that goal and when you run into that obstacle you go over it, you go around it, or you bust right through it.” PERSONAL First job: Working for my dad’s construction company during my high school years. Formative influences/events: Going into the Air Force in 1990 and going to Desert Storm. It gave me a perspective about being an American that not everyone gets a chance to see and appreciate. As for influences, I am a big believer in you are who you hang out with. I have been blessed to have been around people who are smart, hard-working, ethical people, and those are the ones I use to guide my own day-to-day decision-making ideas. Key accomplishments: When I first got into Tropical Smoothie Cafe I had a vision of just opening up one or two locations, and that would be it. I ended up opening up four within 2 years and becoming an area developer for the franchise, helping others open stores in different parts of Florida. Most recently, I partnered with the original founder of TSC to open a franchised location of his newest concept, Island Wing Company, here in Tallahassee. Biggest current challenge: Opening a new full-service restaurant/bar has been a great reminder of how important it is to put all the pieces in place and to get and keep the best people in key positions. Hiring personnel is always the biggest challenge, but when the pieces are in place it allows me to focus better on the long-range goals. Next big goal: I would like to reach a total of 50 Tropical Smoothie Cafe units in my area development business. That is my long-range goal. TSC has been exploding over the past few years and that number is looking very achievable. First turning point in your career: I always look back to my mistakes or “losses.” Those are the turning points that make me a better business person. I have said it many times: I have never learned as much from my successes as I do from my failures. I have an ability to find the silver lining to just about any bad situation and use it to my advantage. This allows me to truly have very few regrets in life. Best business decision: Hands down, getting involved in Tropical Smoothie Cafe when it was an unknown and there were doubters around me wondering why I would want to take such a risk. I am their oldest franchisee in the system. Hardest lesson learned: Not fully understanding the real estate processes early on and what it takes to make a successful store work. Location, location, location is so important. When you have a great concept all you have to do is find good real estate and it will really do well. Work week: With so much growth going on right now in TSC and with the newness of IWC there is no a longer a “typical work week.” I find myself working harder than ever, including nights and weekends, but it’s fun and exciting. I’ve never been so optimistic about where things are going. Exercise/workout: I converted my garage into a hybrid gym and typically

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do P90X or Insanity five or six days a week. Right now I am training for a marathon, so most of my focus is running four days a week with one to two strength training days. Best advice you ever got: I used to cling to a saying that I learned early in my career where someone told me, “Employees will never live up to your level of expectations, but only your level of acceptance.” I still think about that often as it reminds me about how to manage people. But now, with all the things I have gone through and worked hard to get, there is another saying that constantly stays in the forefront of my head, especially when things get tough. I was told, “Once you set your eyes on a goal you don’t ever look back. You run as hard and as fast as you can to get to it. There will be obstacles along the way that may turn back most folks, but you keep your eye on that goal and when you run into that obstacle you go over it, you go around it, or you bust right through it.” What’s your passion in business? I love variety. I enjoy the fact that I may have a few hours of office work, a couple of meetings, site selection for a new store, or talking about upcoming promos or operational procedures all in the course of just one day. I never feel like I am strapped to the same routine every day. I have been able to have a job that completely fits me. How do you balance life and work? I used to really struggle in this department. I would be on vacations and end up working. Over the past several years I have become very vocal that when I am at work I am there to get things done, and on the flip side when I am on vacation or spending time with my family or friends I don’t want to talk about work or get distracted. This doesn’t mean that I don’t work at night or on weekends, just that when I have decided it is time to “punch out” I want to give my undivided time and attention to my family or friends. Guilty pleasure: This one is easy. I am a pilot and still own a plane but don’t fly it much because not more than a couple of people can fit in it with me. A couple of years ago we bought a new boat. I love getting lots of friends together, and we go out on it during the warmer months and hang out together. What used to be my favorite thing to do is no longer because I really enjoy time with friends and family out on the water. Favorite book: Because my mind is always so active, I don’t usually sit down to read much—it just isn’t that relaxing to me like it is to most people. But I have read many books and most of them are either business-related or motivational. One of my all-time favorites is a book about Charlie Plumb, who was a POW in Vietnam for 6 years. It’s called I’m No Hero and it is very inspiring. Favorite movie: “Forrest Gump!” There is no better movie that can take you from laughing to crying to being inspired to be a good person like that movie does. What do most people not know about you? I’m a pretty open book

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R E C O N N E C T PERSONAL, continued kind of guy, so I don’t think there is anything about me that would surprise anyone.

part of what made me today was those 4 years of service. I wouldn’t trade a single day or experience I had during that time.

Pet peeve: Somehow years ago someone gave me the nickname “GSD.” It means Get S—t Done. I have always held myself accountable to always do whatever it is that I said I would do and not make any excuses. I tend to remind others around me that if you say you’re going to do something then stick to it and GSD. It can bother me sometimes when people don’t.

Last vacation: Five-day vacation on the Harbor in Destin, Florida, with Christine and the three kids.

What did you want to be when you grew up? When I was in the Air Force I had strong aspirations to become a military pilot. Little did I know there was this entrepreneur bug lodged inside my brain that told me I didn’t want to go about my career and be able to forecast out how much money I would be able to make or be limited to by depending on rank and years and service. I wanted to really have a mentality that “the sky is the limit.” That said, a huge

Person I’d most like to have lunch with: One of my favorite books was about Charlie Plumb, the Vietnam vet. I was extremely fortunate to have had breakfast with him many years ago when he spoke with our franchisees. We hit it off that morning since we had something very small in common: he ejected out of an F-4 fighter on the day he was captured and I worked on the ejection seats for the F-4 fighter for 4 years. To say he was inspiring would be an understatement. He gave me some of the best business advice I ever received and I still think about him and his speech all the time. I would love to have another opportunity to sit down with him and have lunch.

MANAGEMENT Business philosophy: “Do the right thing.” Karma isn’t just about personal dealings. Management method or style: Hire the best, give them the tools to be successful, and then give them guidelines on what the expectations will be. I have never been a micro-manager so I have to rely on having the right people around me. Greatest challenge: Finding the right people to work for me. Employees are some of the best aspects of owning your own business, but getting all the pieces of the puzzle to fit can be tough sometimes. How do others describe you? Sometimes a goofball and sometimes a relentless boss. One thing I’m looking to do better: Be a better listener sometimes. How I give my team room to innovate and experiment: I have a weekly meeting with my top managers. During that meeting I cover usually six to nine areas of the business and we review and refine what the expectations are going to be. At the end of every meeting I always ask, “What do you need from me to reach our goals?” I like to set the expectations but then leave it up to them to find ways to achieve them. How close are you to operations? I am a systems guy. I like to get into the back of the house and see how it is being done and then go back and create systems that will help us do it better and give us better reporting and clarity into what it’s doing for our business. My value is not standing in the kitchen or at the register and I know that. I enjoy doing it from time to time, but I know that if we are going to grow, then my area of expertise is helping my team come up with ways to make their job more productive. What are the two most important things you rely on from your franchisor? Buying power and systems. As much as I like to create my own systems I love having systems in place for me that we can use day to day. I have been lucky to be in two really good concepts that do those things well. What I need from vendors: Consistency! Have you changed your marketing strategy in response to the economy? How? When we really got hit hard in the Great Recession I

learned that grassroots marketing is extremely powerful. It takes a lot more time and ingenuity to execute, but the results far outlast any mainstream media marketing that we all get so accustomed to. I also found that teaming up with local charities can be very beneficial as well. How is social media affecting your business? This has become a double-edged sword. We can instantly get our message out to customers, but you have to be careful that you don’t say or do things that will upset them, as they have an avenue to say negative things about you that others may read and assume are correct. How do you hire and fire? I am a huge believer in doing group interviews and doing them on a regular biweekly basis. I also believe that when a potential employee comes in asking,“Are you hiring?” you always say “Yes!” Even if you don’t specifically have a slot open there will always be that candidate who stands out, and you know that you have to find a place for them even if it means cutting one of your weak employees. We call it Topgrading, and it allows us to hire slowly and fire quickly. Most managers do it the opposite way. How do you train and retain? As a franchise, one of the nicest things to have is our organizational services department. They are constantly upgrading training techniques and developing new ways to get all the crew members on the same page together and more quickly. How do you deal with problem employees? I believe in the old adage that we should always get rid of the bad apples. Employee morale can have far-reaching implications both good and bad. If you don’t get the bad ones out of there soon enough, then all you will be left with are the bad ones. Fastest way into my doghouse: I heard a speaker years ago say, “It’s not that difficult to achieve goals. Just always do what you said you would do, how you said you would do it, and when you said you would do it.” I tell my staff that I expect the same things out of them that they can expect out of me, and if we can just stick to that simple philosophy stated above then most of the time we will succeed.

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R E C O N N E C T up now and we are in the middle of expansion plans,” he says. One way he’s expanding is with Tropical Smoothie’s newest concept, Island Wing Company. The new brand, with just 5 locations open in Florida, is a family sports bar offering baked wings—no grease and no fryers to deal with. “My one location has been open for about 6 months now in Tallahassee, and we expect to do $4 million to $5 million this year.” Stretching out from years as a QSR operation to a full-service restaurant has been a challenge, he says. “You only have

“Just always do what you said you would do, how you said you would do it, and when you said you would do it.”

a dozen or so employees in QSR, but it takes several dozen in a restaurant.” Still, things are working out just fine for Osborne, who has beefed up his infrastructure since we last spoke. “I hired a regional director of operations about five years ago, and that has freed me up to do more of the big picture thinking and planning to chart growth,” he says. Osborne expects to add four more Tropical Smoothie Cafes to his operation in 2017, and perhaps one more Island Wing Company. At 44, he says he has a lot of franchising left in him.

BOTTOM LINE Annual revenue: NA. 2017 goals: We are finalizing three leases in TSC right now, with another one just starting the process. I hope to have three stores opened by Q2 with a fourth opened by Q3. I feel pretty confident we can get another two franchise agreements signed by year-end as well. Growth meter: How do you measure your growth? I like to always stay ahead of the curve. The QSR industry is doing pretty well right now, and I would like to try to stay ahead of the industry’s comp sales by at least 2 to 3 points. In a new family restaurant/bar like Island Wing Company we haven’t been able to track year-over-year results yet. I am hoping that when we hit our 1-year anniversary in July that we can see a 10 percent growth in the next year. Vision meter: Where do you want to be in 5 years? 10 years? My goal is to have at least 10 to 15 additional Tropical Smoothie Cafes opened within 5 years and possibly one more Island Wing Company. In 10 years I would like us to have hit that 50-store mark in TSC and possibly be doing some different things in IWC, while at the same time branching out to some other, different investments or business ventures. How is the economy in your regions affecting you, your employees, your customers? We are riding a really nice wave right now and have been for the last 4 years. We have seen double-digit growth in sales year after year. As for our employees, it has become much more competitive to find good candidates because the job market has opened back up again. We have to really work hard on “casting the biggest net” to find new potential candidates. It’s great to see our customers all happy again. Florida got hit pretty hard about 10 years ago and it took a while for our region to bounce back. There were a lot of sad stories about folks losing their jobs or commissions and that seems to have really turned back around. Are you experiencing economic growth in your market? Yes, big time. How do changes in the economy affect the way you do business? It is hard to grow when financing dries up. Banks are now working with us again to do new stores or improve old ones. Six or seven years ago it was almost impossible to get money for a restaurant. I just completed a new loan with a local bank in Tallahassee where they are giving us 100 percent financing to move our store to a new location. How do you forecast for your business? With Tropical Smoothie Cafe

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we sit down at the end of each year and take a look at three factors: 1) How is the QSR industry doing in comp sales trends?; 2) How is TSC doing in comp sales trends?; and 3) What things do we think the coming year will have in store for us? This helps us make a conservative estimate as to where we think we will line up. Forecasting isn’t just about where we think our bottom line will end up with regard to profits. We also have to create local advertising budgets well in advance so we can line up all our marketing strategies for the year. What are the best sources for capital expansion? I have always liked working with local or regional banks. A lot of times it’s not just about whether the business plan makes sense for a bank to decide whether or not to make a loan. It’s about the person. Getting to know the people who run the banks is so important in establishing trust. They are making an investment into the person just as much as they are the company. What are you doing to take care of your employees? I have always been a believer in giving them opportunities to move up and to make bonuses if we hit our goals. In both my concepts we have different ways to incentivize them. How are you handling rising employee costs (payroll, minimum wage, healthcare, etc.)? This is one of those things that quite frankly is just too much to try to pay out without increasing menu costs to the customer. It’s a fact of life that when costs go up there is a fine line where the company can and cannot absorb those costs from the net profits. There are so many new costs out there right now that unfortunately the only way to stay in business is to increase pricing. How do you reward/recognize top-performing employees? I have always paid my employees more than most of my competitors. That said, I also expect the best out of them. We have to get and keep the best to perform at the highest level. What kind of exit strategy do you have in place? At 44, having an exit strategy just doesn’t even sound right. I make jokes all the time that I haven’t decided quite yet what I want to do when I grow up. I do know that 15 years from now I want to be doing a lot more traveling and working less often. I don’t know exactly how that may work out, but in a perfect world I see myself bringing on some additional staff who would run more of the day-to-day stuff that I still work on right now, and then having the flexibility to step back and enjoy more personal time with family.

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INGREDIENTS FOR SUCCESS TECH ADVANTAGE • One standardized POS system with mobile app and online ordering for all stores • Proprietary app helps you manage your business with “real time” sales figures, labor & more

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INDUSTRY RECOGNITION • Technomic’s 2017 Consumers’ Choice Award Winner for “Overall Takeout Capabilities” • Entrepreneur Franchise 500 (2013-2017) • 2017 Top Franchises - Franchise Business Review

To learn more go to franchising.hungryhowies.com or call us today at 248.414.3300 *Results measure company-wide same store sales figures for each calendar year 2010 through 2016. Excludes store sales from units in the State of Florida, units which are not obligated to and do not report sales to Hungry Howie’s, and units which opened and or closed during each calendar year period from 2010 through 2016.

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AT H L E T E S I N F R A N C H I S I N G

Disciplined and Relentless

Global basketball player transitions to franchising

BY KERRY PIPES

K

’Zell “Zelly” Wesson took his pro basketball career global more than 17 years ago. He currently plays in Turkey as a forward for Afyonkarahisar Belediyespor, a team in the Turkish Basketball League. But the 6-foot-7-inch Wesson is also making sure he’s got game as he nears the end of his playing days—by investing in and growing a chain of Workout Anytime fitness gyms in the USA. He and his wife Neesh opened their first Workout Anytime franchise in March 2013 in Stockbridge, Ga. The brand’s hallmark is its price point and 24/7 operating hours. The couple now has three units open and another in the pipeline. Naturally, he says, it makes sense for him to operate a business in the fitness sector as a way to help others get fit, stay fit, and enjoy a better quality of life. And, he says, it will make a great business for him when he retires from basketball. Wesson says that although playing professional sports overseas came with a unique set of challenges, he’s thoroughly enjoyed the opportunity. “It’s tough when you are on a team and don’t speak the native language or fully understand the local culture, but you just have to adapt and overcome… or go home,” he says. Although he spends a lot of time overseas working out, practicing, and playing, he remains actively involved in his business back home. He says his wife and a great management team on the ground in Georgia ensure everything is running smoothly while he’s 6,000 miles away. Wesson says the franchise model appealed to him because of its simple structure and “follow the NAME: K’Zell “Zelly” Wesson TITLE: Operations director Zelly Wesson, foreground

COMPANY: Workout Anytime NO. OF UNITS: 3 open, 1 in progress AGE: 39 FAMILY: Married, no children YEARS IN FRANCHISING: 8 YEARS IN CURRENT POSITION: 4

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AT H L E T E S I N F R A N C H I S I N G

PERSONAL What’s your passion in business? To make an impact on the lives of those in the communities I serve.

First job: Grocery store stock boy. Formative influences/events: Reading books. Key accomplishments: Being the first in my family to graduate from college.

How do you balance life and work? It’s tough, and it will never be equal (as in 50/50), but by scheduling time for life, vacations, etc.

Biggest current challenge: Being in multiple places at once.

Guilty pleasure: Peanut butter.

Next big goal: Parenthood.

Favorite book: The Bible. There are principle and life lessons for everything, including business.

First turning point in your career: 2008 economic collapse. Best business decision: Surrounding myself with a mastermind network to allow me to grow and see things from different perspectives.

Favorite movie: “The Pursuit of Happyness.” What do most people not know about you? That I’m a jokester.

Hardest lesson learned: You will lose people over time.

Pet peeve: A wasted life.

Work week: Monday to Saturday.

What did you want to be when you grew up? A sneaker designer/ fashion designer.

Exercise/workout: I haven’t officially retired, so I am very active like I’m still playing. You never know. Best advice you ever got: Be intent with your life.

Last vacation: Cabins in the mountains. Person I’d most like to have lunch with: Tony Dungy.

plan” approach. He’s also relying on his ability to adapt to help him transition from sports life to business life. “Being an athlete, you’re always expected to take care of your body and stay in shape. So I was always studying and learning new things that allowed me to become the best athlete I could become,” he says. “I still take that approach in business and use what I have learned, while

continuing to learn with my members, clients, and staff.” At 39, Wesson already has had calls to return for another year on the court, but he’s not sure if he’ll play an 18th season of professional basketball. Regardless, he knows that back in Georgia his franchise business is up and running, and that there’s a place for him when he comes home.

MANAGEMENT Business philosophy: Forward focus. Always improving. Committed to better. We should always be moving forward. Management method or style: Lead by example. If I’m improving, then we should all be improving. Greatest challenge: Understanding that people are human. There are always feelings involved. You must find common ground to communicate and find solutions. How do others describe you? Very driven. One thing I’m looking to do better: Simplify. The more you grow, the more complicated things become. I’m always looking for ways to keep it simple. How I give my team room to innovate and experiment: We meet regularly to discuss the vision and direction of the business. But through delegation and implementation my team and I work things out. It’s a never-ending process. Some things we fail at. But we discuss what went wrong and what can we take away to move forward. How close are you to operations? I’m very hands-on. I’m in the trenches every day. I believe, as the operations director, it is my duty to understand each community we serve. I work with my team diligently to establish a culture that promotes improvement in fitness, as well as in life. What are the two most important things you rely on from your franchisor? First, to continue to grow the brand. And second, to continue to improve, staying true to its core values but also staying current or ahead of the

latest trends in the industry. What I need from vendors: To be informed and updated on any changes in their respective segment. Have you changed your marketing strategy in response to the economy? How? No. My strategy has always been to be genuine, to show real people getting real results, real people improving their lives through fitness. How is social media affecting your business? It’s a double-edged sword. It’s good for promoting fitness and increasing awareness of daily activity, movement, posture, etc. On the other hand, there are no regulations for quality information. There are no criteria for what can be considered good exercises or bad exercises, or what to eat versus what not to eat. There are times when you’re having to combat what was found on social media. Nevertheless, it’s an information tool. How do you hire and fire? We hire slow and fire fast. How do you train and retain? Education is an ongoing process. There’s the initial training, but we also have daily procedures and weekly reinforcement trainings to make sure we are all on the same page. How do you deal with problem employees? We look to find a solution that is in the best interest of all parties. Sometimes it’s a reprimand, sometimes we must move on. But we are always looking to move forward in the best interest of our members. Fastest way into my doghouse: Lack of respect for time or the members and clients of the business. It’s about professionalism.

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AT H L E T E S I N F R A N C H I S I N G

BOTTOM LINE Annual revenue: Seven figures. 2017 goals: To open our fourth location and continue to improve the lives of our members. Growth meter: How do you measure your growth? I look at new members as well as retention. I look at where we are improving over this time last year. Are we in a position to open another location? Are we simplifying things and getting better as a staff? All these are things I look at as key areas of growth. Vision meter: Where do you want to be in 5 years? 10 years? In the next 5 to 10 years, I want to open 10 locations serving 10 thriving communities. I want to see the impact of the many people we are helping. How is the economy in your region affecting you, your employees, your customers? We lose people from time to time. That’s the life of any business. Someone who has lost a job or has hit hard times may move out of our area or may decide to cancel their membership with us. We just have to continue to move forward. We continue to do our part and know that we can only control what we can control. The bright side is that we are a value-priced service for our memberships. Some people will keep their gym membership despite their circumstance. But for the most part, we have seen steady growth.

retained earnings. It’s just saving and putting aside money until you’re able to expand. There’s also commercial lending for things like equipment. It’s good if you have a lot of equipment needed. Just be careful not to bite off more than you need. Experience with private equity, local banks, national banks, other institutions? Why/why not? Traditional lenders are harder since 2008, but they are still willing to lend money. Just be prepared to have done your homework, researched your business, competitors, and have a business plan, collateral, and good credit. I believe a relationship with an institution is still good. But understand they can only do what they can do. If a business is risky, or you as a borrower are risky, then there’s only so much they can do. On the other hand, there are industry lenders who understand certain business models more than a traditional bank. It may be wise to research those in your given field. What are you doing to take care of your employees? Team members are like family. It is important to get to know them and make them feel a part of what we are building. Whether it’s holiday, birthdays, new babies, etc., we celebrate that. It’s more than just sales goals and transactions. We are in a people business and we want to build relationships across the board.

Are you experiencing economic growth in your market? Yes, new businesses are coming into the areas we serve. We also have more people moving to our areas.

How are you handling rising employee costs (payroll, minimum wage, healthcare, etc.)? Employee costs are a part of business. We just focus on improving the business so these costs are covered.

How do changes in the economy affect the way you do business? Not much. We still market and advertise based on a percentage, so it’s all relative. We know we are in a people business. It’s all about understanding and communicating with people.

How do you reward/recognize top-performing employees? We have bonuses and incentives to recognize those who are performing well. Also, as we continue to expand we are always looking to promote.

How do you forecast for your business? In the fitness industry there are seasonal trends. We can project when sales will be higher and when they will be moderate. But we always have sales goals to continue to move us forward. What are the best sources for capital expansion? It depends. I like

What kind of exit strategy do you have in place? In the next 20 years, to pass these businesses off to someone who has a passion for people and for fitness, someone who can improve the well-being of the people in the communities we serve. I’m not sure if that’s one person or a group of people. But I know we can only go so far before it’s time to let someone else take the reins. In the next 20 years, I hope to identify that person or group.

SPORTS & BUSINESS What skills or experience from sports have carried over to operating a business? Being disciplined and having a relentless work ethic. As much time as we put into becoming professional athletes—the hours, the sweat, the ability to bounce back from failure—we must apply that into being the best business person we can be. Which do you find more competitive, sports or business? Business, by far. In sports, you know your competition. You understand the game, as you have been playing it all your life. In business, you must stay abreast of the changes in your business or you can become a dinosaur. Technology is advancing daily. Social media creates a low barrier of entry. You have competition from everywhere, because people have more access to information, both good and bad. You must stay true to your principles. You must continue to learn and get better in your field. And you must never stop helping people. Why did you choose franchising as an investment option? Franchising is a proven system. You just have to find the one that fits who you are, or that aligns with your interests and goals. I wanted an investment that allowed me to bring out the best in people while doing something I enjoy. How did you transition from sports to franchising? It was a natu-

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ral progression for me. The franchises I have been affiliated with have both been in health and fitness. Being an athlete, you’re always expected to take care of your body and stay in shape. So I was always studying and learning new things that allowed me to become the best athlete I could become. I still take that approach into business and use what I have learned, while continuing to learn with my members, clients, and staff. What was your greatest achievement in sports, and what has been your biggest accomplishment as a franchisee? In sports, it has been my longevity. Although I have won team championships and many individual accolades, it was the ability to endure for almost two decades. I have already received numerous calls to play an 18th season. And although I have yet to decide whether to continue playing or not, the fact that there is still interest is validation that I am doing something right. And that’s what I would like to achieve in business: longevity. I believe I am on the right track in business. As a franchisee, to continue to open multiple franchises is a confirmation. However, the feedback I get from the members of the community is all I need. The fact that people thank you for coming to their area, or say they are so happy we are here, makes this business worthwhile.

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1/3/17 4:44 PM


U N D E R BY DANIELLE BUENROSTRO

A Winning Combination Veronica and Tyler Jordan pair up for success

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eronica Jordan was determined to trade in her 9-to-5 desk job for something more creative and profitable. In 2012, after searching for 3 years, she came across a Facebook ad that inspired her to unleash her inner entrepreneur. “I was so determined to find something else. When I saw the ad for Wine & Design, I told Tyler, ‘This is it. We’re going to do this,’” she says. Now with three studios, 15 employees, and top sales bragging rights for the franchise nationwide for the past two years, Veronica and her husband Tyler have found a winning combination in NAME: Veronica Jordan, Tyler

Jordan

TITLE: Multi-studio owners COMPANY: Wine & Design NO. OF UNITS: 3 AGE: 27 (both) FAMILY: Married with 2 children,

Evelyn, 6 and Eli, 4

YEARS IN FRANCHISING: 4 YEARS IN CURRENT POSITION: 4

LIFE UNDER 30 How did you get into franchising at such a young age? Veronica discovered the business model through social media and brought it to Tyler’s attention. She felt it would be a smashing success in their hometown, and though Tyler had early reservations, he soon found out that Veronica was right. Was becoming a franchise something you’d planned on? No, it happened very fast. Did you have a mentor or inspiration for getting into franchising? Not particularly. Tyler’s family had two decades of success with a hardware store franchise model so we had seen franchising work. What jobs, skills, and experience have helped you operate a franchise business? Veronica had held several detail-oriented positions in defense contracting finance. These positions, combined with her event planning and community

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outreach efforts with organizations like Hospice, created a mindset/ skillset needed to become a successful small-business owner. What obstacles did you face in franchising at such a young age? We started this journey at 23, and many people did not take us seriously. It was difficult at times navigating relationships with local officials, banks, etc. How would you describe your generation? Goaloriented. The Millennial generation does not share the clockwatching mentality of previous generations. Our generation does best when they are provided with tangible and measurable goals in the workplace that they can complete, rather than ensuring eight clocked hours are worked daily. Do you see franchising as a stepping stone or a career for you? Yes. We aspire to open another, non-franchised community-based business in the near future.

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U N D E R Wine & Design, a paint-and-sip franchise with 70 locations. For $35, patrons take a two-hour class and learn how to paint a predetermined masterpiece. Wine is sold for $5 a glass or $16 a bottle. “This community is so hungry for things to do that are new and different,” she says, and chalks up a lot of their success to “location, location, location.” Their first studio is located in Leonardtown in St. Mary’s County, Md., near the Patuxent River Naval Air Station, about 45 minutes south of Washington, D.C. Tyler says being near a military base provides a stable economy and a strong customer base of young working families, defense contractors, and civil servants with disposable income. “Our customers are age 35 to 50 working professionals looking for a night out or a fun place to have a kid’s birthday

party,” he says. The Jordans say they were attracted by the brand’s nontraditional approach to franchising, which allowed them to start with a low-cost investment as an “on wheels” operation for six months. As young, inexperienced entrepreneurs, the couple had a hard time finding capital and decided to self-fund the $15,000 for the franchise fee and materials for their launch. “We had bought some land and were going to convert an old tobacco barn into a studio, but we got a call from the former mayor of Leonardtown, and he wanted us to open a studio in their town,” says Tyler. By the time the couple opened their first studio, they’d built such a huge following that they were able to open another studio in Annapolis in October 2015, then another in Calvert County in May 2016. A key to their success is selecting art-

ists who deliver a first-rate experience. “If someone has a bad time, they will tell 10 people. If they have a good time, they might tell one. We have to go above and beyond to make sure they have a good night,” says Tyler. While Veronica doesn’t see herself returning to a 9-to-5 job and Tyler is keeping his for now, the couple is looking forward to learning how to better enjoy the fruits of their labor and striking a better worklife balance. “We aspire to other local business endeavors, but with Wine & Design fulltime for Veronica and two young children, we simply do not have the bandwidth to take on some of these aspirations,” says Tyler. “We have talked about becoming less involved by adding a general manager to oversee the three locations, or eventually selling.”

PERSONAL First job: We both started working in high school, where we met. Veronica worked part-time for a small insurance company as an office assistant and Tyler worked for his family business, which also happened to be a franchise. Formative influences/events: The largest influence on both our lives was becoming parents. That defining accomplishment caused a drive and focus on providing the best future possible for our children and our family’s future generations. Key accomplishments: 2014 and 2015 top franchise sales for our St. Mary’s County location. Biggest current challenge: Managing three locations is quite challenging, especially when Veronica is so involved with the day-to-day operations and customer interfacing for all three studios. Next big goal: To open a new events-style business in our hometown in St. Mary’s County. First turning point in your career: For Veronica, making the jump from a 9-to-5 financial analyst position to being a small-business owner. Tyler was the opposite, leaving his family business to start working in skilled IT positions. Best business decision: Opening our first studio in Leonardtown, Md. When we started, we operated totally on wheels, traveling to bars, restaurants, and homes. Having a physical location in an up-and-coming town allowed us to become the top-producing franchise in the country. Hardest lesson learned: We feel like we are continually learning hard lessons. The constant lesson that personifies our lives, both personally and in business, is having a backup/alternative strategy. Life can be random and sometimes unfair, and not keeping an open mind to unplanned change and an inability to adapt goals will likely lead toward failure and discontent. Work week: Tyler still works a 9-to-5 job with a defense contractor. Veronica’s work week generally is 24/7, though she tries to take time off some weekends and most Mondays. Exercise/workout: Does chasing kids and opening wine bottles count? Best advice you ever got: I think something that has stuck with us and should be enforced in today’s youth is to aspire to careers that suit what you are talented in, and to hone the skills required to succeed on that path. It can

be very easy to chase a dream or career that you love the idea of, but lack any talent in. Modify your dreams to fit your strengths. What’s your passion in business? To ensure that the product is always of the highest quality and that customers are so thrilled with the experience that they decide to come again with a friend. How do you balance life and work? It can be extremely difficult at times. We often would stay on our work computers until past 1 a.m., to the point where we were so consumed with maximizing growth and revenue that it began stressing our relationship. We both have decided to make a greater effort to spend more time together (non-work related), with our children, and with friends, and focusing less on having absolute control over every situation. Guilty pleasure: We both binge watch “Game of Thrones,” “Stranger Things,” and now “Westworld.” Favorite book: Tyler’s favorite book, The Hobbit by J.R.R. Tolkien, is one he read countless times in his childhood/young adulthood. Veronica’s is Big Magic by Elizabeth Gilbert. Favorite movie: Tyler’s favorite is “The Godfather.” Veronica’s is “Mamma Mia!” What do most people not know about you? With social media and our outgoing personalities, most people know mostly everything about us. We both tend to be very transparent. Pet peeve: Tyler absolutely hates when people leave a shopping cart in the middle of the parking lot. Veronica’s pet peeve is being asked what her pet peeves are (because she couldn’t think of one!). What did you want to be when you grew up? Tyler wanted to be a video game developer, Veronica a wedding planner. Last vacation: February 2016 to visit Tyler’s younger brother in Los Angeles. Person I’d most like to have lunch with: Tyler would like to have lunch with Nick Offerman to discuss carpentry and Ron Swanson (his fictitious character for “Parks & Recreation”) to see if they could eat all of the eggs and bacon. Veronica would like to have lunch with Ash Ambirge from the Middle Finger Project (a creative woman-oriented small-business support/ empowerment blog).

MULTI-UNIT FRANCHISEE IS S U E I, 2017

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U N D E R

MANAGEMENT Business philosophy: We think small-business owners find themselves in a niche where community interaction and involvement are of the utmost importance. Giving back to community groups and providing for worthy local and national nonprofits provides us with a sense of purpose and often rewards us with loyal customers later. Management method or style: We both believe that you should lead by example, meaning ensuring that staff sees you are willing to put forth the effort to succeed daily. We also strive to make ourselves approachable and available to handle concerns or crises on a personal basis. Greatest challenge: We have a large group of creative professionals who work at our three studios (many as subcontracted artists). Managing customer demand with availability of our staff can be difficult. Also, balancing the mindsets of business owners and creative artists can sometimes be a challenge. How do others describe you? Veronica is fun, resourceful, hard-working, outgoing, and a little bubbly. Tyler is passionate, confident, relatable, loyal, and a touch nerdy. One thing I’m looking to do better: Time management. There never seem to be enough hours in a day. We have been getting better at delegating tasks and duties to others, but we are always looking to improve. How I give my team room to innovate and experiment: Our business model thrives on creativity, so we often allow our staff to generate new concepts and class models to provide for our customers. How close are you to operations? Veronica is directly involved with day-to-day operations with the customer. Tyler offers support with simplifying business processes, IT, and navigating state and local law with business expansion. What are the two most important things you rely on from your

franchisor? Branding and suppliers/vendors. What I need from vendors: Art materials (canvas, easels, paint) and studio furniture. Have you changed your marketing strategy in response to the economy? How? We have not changed our strategy. Traditional media has not done as well for our localized business. Customers typically live within 10 miles of the studio. Small dollars spent on ensuring social media impressions on existing and potential customers is always money well spent. Customers love seeing pictures of class and typically share with friends how great the experience was! How is social media affecting your business? Social media has been vital to the growth and exposure of our business. We have to stay active on Facebook and Instagram to ensure that we interact with and inform our customer base. How do you hire and fire? Our staff is made up entirely of creative people who not only can create amazing works of art, but who also can teach others how to create their own masterpieces. How do you train and retain? We have senior-level artists who can inform new or unsure artists with the steps, approaches, and methods to complete any piece. Keeping our artists in communication with each other creates a social atmosphere where they can support and push one another. How do you deal with problem employees? It’s few and far between, but we both try to have an honest and open discussion with our staff to give them the opportunity to fix/adjust the problem. If the problem continues, we will hold a person-to-person meeting again to inform and reinforce why they are being terminated. Fastest way into my doghouse: Dishonesty.

BOTTOM LINE Annual revenue: $600,000. 2017 goals: To boost our newest studio’s revenue by 20 percent by grassroots marketing and heavily promoting our divisions. Growth meter: How do you measure your growth? We have experienced physical growth, opening two more studios in the past year. But we also measure growth tangibly in overall revenue. Vision meter: Where do you want to be in 5 years? 10 years? Debt-free would be a great start! We could see ourselves opening another studio, but we also want to place focus on opening a community-based business we feel would be in demand. How is the economy in your region affecting you, your employees, your customers? We are quite fortunate to live in an area that has had a very stable economy because of a nearby military base (Patuxent River Naval Air Station) and its proximity to Washington, D.C. Are you experiencing economic growth in your market? The area of our primary studio, in St. Mary’s County, has had stable growth over the last two decades because it’s a headquarters for Naval Air. Our Calvert studio, in North Beach, Md., is in an area that is trending up as well. How do changes in the economy affect the way you do business? We have been extremely fortunate to have locations in areas with stable economies. We are busiest in late fall to early spring and slower in the summer. What are the best sources for capital expansion? We have had

44

terrific success with payment processing-based capital loans (PayPal and Square). The awards are quick and the fees are minimal. Experience with private equity, local banks, national banks, other institutions? Why/why not? When we started, we did have trouble with both local banks and national banks, so we started entirely selffunded. During our second studio opening, after being established for 2 years, we had great success with a small local bank. What are you doing to take care of your employees? We offer a unique job type that is not only creative, but also flexible in schedule. Most of our instructors are subcontracted part-time, as many are working professionals during the day. Teachers are a large portion of our instructor staff. How are you handling rising employee costs (payroll, minimum wage, healthcare, etc.)? This has been one of the hardest adaptations with opening multiple locations. As we have grown, the need for more staff has increased, obviously resulting in higher employee costs. We have had to reevaluate how we are spending and distributing hours among our studios to find balance between what would be ideal to make the locations perfect and what is financially feasible. How do you reward/recognize top-performing employees? We often run incentives/bonuses for artists who effectively promote our products and who create “sell-out” works of art for future classes. What kind of exit strategy do you have in place? We are still figuring this out!

MULTI-UNIT FRANCHISEE IS S UE I, 2017

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2017 Mega 99 Rankings Each year we work with FRANdata to compile a list of the country’s largest multi-unit franchisee organizations. Based on total unit count, the rankings show not only the number of units these “mega” franchisees operate, but also the brands they favor. While the list is dominated by food brands, it also includes non-food concepts such as business services (tax preparation), consumer services (automotive), and lodging. Building a multi-unit empire is a matter of taste, opportunity, passion, and comfort level. If you’re looking to expand and diversify your own franchise empire, take a gander at what the “big guys” are buying—it just might help you in your growth choices in 2017. NAME

46

UNITS

BRANDS

1

NPC INTERNATIONAL

1,478

PIZZA HUT, WENDY'S, TACO BELL, KFC

2 3 4 5

TARGET CORP. FLYNN RESTAURANT GROUP CARROLS GROUP SUN HOLDINGS

1,170 854 762 724

6 7 8

DHANANI GROUP MUY BRANDS ARAMARK

669 607 556

9

PILOT TRAVEL CENTERS

547

10 11

HEARTLAND AUTOMOTIVE SERVICES ARMY & AIR FORCE EXCHANGE SERVICES

538 497

12 13 14

ROTTINGHAUS COMPANY HARMAN MANAGEMENT CORP. SODEXO

398 394 393

15 16

GPS HOSPITALITY HMS HOST

388 377

17 18

KBP FOODS JIB MANAGEMENT (YADAV ENTERPRISES)

361 343

19 20 21 22

TACALA UNITED STATES BEEF CORP. BODDIE-NOELL ENTERPRISES CAFUA MANAGEMENT COMPANY

338 337 336 300

PIZZA HUT, COLD STONE CREAMERY APPLEBEE'S, TACO BELL, PANERA BREAD BURGER KING BURGER KING, POPEYES LOUISIANA KITCHEN, ARBY'S, CICIS, GOLDEN CORRAL, KRISPY KREME, GNC BURGER KING, POPEYES LOUISIANA KITCHEN PIZZA HUT, WENDY'S, TACO BELL, LONG JOHN SILVER'S EINSTEIN BROS. BAGELS, CHICK-FIL-A, SUBWAY, PAPA JOHN'S, PANDA EXPRESS, PIZZA HUT, QUIZNOS, TACO BELL, FRESHII, MOE'S SOUTHWEST GRILL, QDOBA, TIM HORTONS, WHICH WICH, CHILI'S, RAISING CANE'S, ERBERT & GERBERT'S, SBARRO, THE EXTREME PITA, KFC, STEAK ’N SHAKE, QUAKER STEAK & LUBE, THE COFFEE BEAN & TEA LEAF, WAHOO'S FISH TACO, RITA'S ITALIAN ICE, DUNKIN' DONUTS, COSI, MOOYAH, LA MADELEINE, PINKBERRY, DENNY'S SUBWAY, CINNABON, WENDY'S, ARBY'S, TACO BELL, DQ TREAT, MOE'S SOUTHWEST GRILL, PIZZA HUT, CARVEL ICE CREAM SHOPPE, CHESTER'S, KFC, HOT STUFF PIZZA JIFFY LUBE BURGER KING, POPEYES LOUISIANA KITCHEN, TACO BELL, ARBY'S, EINSTEIN BROS. BAGELS, WING ZONE, PIZZA HUT, TACO JOHN'S, CHURCH'S CHICKEN, DENNY'S, DOMINO'S, GODFATHER'S PIZZA, SUBWAY, CHARLEYS PHILLY STEAKS, BLIMPIE, CINNABON, CAPTAIN D'S SUBWAY KFC, A&W, LONG JOHN SILVER'S, PIZZA HUT EINSTEIN BROS. BAGELS, CHICK-FIL-A, PIZZA HUT, SUBWAY, TACO BELL, JAMBA JUICE, ERBERT & GERBERT'S, PAPA JOHN'S, UFOOD GRILL, BURGER KING, QUIZNOS, MOE'S SOUTHWEST GRILL, MCALISTER'S DELI, TIM HORTONS, BLIMPIE, HOT STUFF PIZZA, QDOBA, CHESTER'S, DQ TREAT, MRS. FIELDS, NATHAN'S FAMOUS, QUAKER STEAK & LUBE, THE COFFEE BEAN & TEA LEAF, TONY LUKES, A&W, GODFATHER'S PIZZA, SBARRO BURGER KING, POPEYES LOUISIANA KITCHEN BURGER KING, NATHAN'S FAMOUS, QUIZNOS, PIZZA HUT, THE GREAT AMERICAN BAGEL, CINNABON, POPEYES LOUISIANA KITCHEN, FAMOUS FAMIGLIA PIZZERIA, CHICK-FIL-A, KFC, PINKBERRY, RUBY'S DINER, TCBY, LA MADELEINE, STEAK ’N SHAKE, MIAMI GRILL, ATLANTA BREAD COMPANY, A&W, MANCHU WOK, BAJA FRESH, BLIMPIE, GODFATHER'S PIZZA, YEUNG'S LOTUS EXPRESS, PANDA EXPRESS KFC, TACO BELL, PIZZA HUT JACK IN THE BOX, DENNY'S, EL POLLO LOCO, CORNER BAKERY CAFE, SIZZLER, TGI FRIDAYS TACO BELL, SONIC DRIVE-IN, KFC ARBY'S, TACO BUENO HARDEE'S DUNKIN' DONUTS, DUNKIN DONUTS/BASKIN-ROBBINS

MULTI-UNIT FRANCHISEE IS S UE I, 2017

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2017 Mega Rankings, continued NAME

BRANDS

23 ADF COMPANIES

299 PIZZA HUT, PANERA BREAD, KFC

24 THE COVELLI FAMILY LIMITED PARTNERSHIP

295 PANERA BREAD, DQ GRILL & CHILL/TEXAS DQ, DQ TREAT

25 K-MAC ENTERPRISES

294 TACO BELL, KFC, GOLDEN CORRAL

26

291 LITTLE CAESARS, DUNKIN' DONUTS, SIZZLER

SIZZLING PLATTER

27 LUND BROWN GROUP

286 HARDEE'S, CARL'S JR., DUNKIN DONUTS, TACO BELL

27 MASON-HARRISON-RATLIFF ENTERPRISES

286 SONIC DRIVE-IN

29 HEARTLAND FOOD CORP.

285 BURGER KING

30

268 PIZZA HUT

AMERICAN WEST RESTAURANT GROUP

31 TA OPERATING

267 POPEYES LOUISIANA KITCHEN, SUBWAY, TACO BELL, GODFATHER'S PIZZA, PIZZA HUT, BURGER KING, HOT STUFF PIZZA, WENDY'S, QUIZNOS, DQ GRILL & CHILL/ TEXAS DQ, RITA'S ITALIAN ICE, TIM HORTONS, SUPER 8, NOBLE ROMAN'S PIZZA

32 LOVE'S TRAVEL STOPS & COUNTRY STORES

266 SUBWAY, CHESTER'S, HARDEE'S, DQ TREAT, TACO JOHN'S

33 SHERRY POLONSKY

262 DUNKIN' DONUTS

34

246 KFC, LONG JOHN SILVER'S

APEX RESTAURANT MANAGEMENT (AMPEX BRANDS)

35 KRISTY CUNNINGHAM

244 DUNKIN' DONUTS

36 FUGATE ENTERPRISES

242 PIZZA HUT, TACO BELL

37 COMPASS GROUP USA

237 PAPA JOHN'S, EINSTEIN BROS. BAGELS, QUIZNOS, PANDA EXPRESS, SALSARITA’S FRESH CANTINA, NATHAN'S FAMOUS, MOE'S SOUTHWEST GRILL, JAMBA JUICE, TACO BELL, TIM HORTONS, WENDY'S, DENNY'S, BURGER KING, PINKBERRY, SBARRO, UNO DUE GO, BOJANGLES', CHILI'S, ILLY, TOSSED, SMASHBURGER, IHOP, COSI, JASON'S DELI

38

232 SONIC DRIVE-IN

D L ROGERS CORP.

39 SOUTHERN CALIFORNIA PIZZA

229 PIZZA HUT

40 SEAWEND LTD/CEDAR ENTERPRISES

211 WENDY'S

41 CHARTER FOODS

209 TACO BELL, LONG JOHN SILVER'S, A&W, KFC, BURGER KING, CHILI'S

42

208 BURGER KING, CHILI'S

QUALITY DINING

43 HENLEY ENTERPRISES

206 VALVOLINE INSTANT OIL CHANGE

44 WENDPARTNERS

204 WENDY'S

45 RPM PIZZA

191 DOMINO'S

46

185 DQ GRILL & CHILL/TEXAS DQ, DQ TREAT

FOURTEEN FOODS

47 FALCON HOLDINGS

184 CHURCH’S CHICKEN, LONG JOHN SILVER’S, HARDEE’S, A&W

47 MARLU INVESTMENT GROUP

184 ARBY'S, CHURCH'S CHICKEN, SEARS OUTLET & APPLIANCE STORES, LITTLE CAESARS, JACK IN THE BOX, TGI FRIDAYS, SIZZLER

49 JAE RESTAURANT HOLDINGS

179 WENDY'S

49

179 WENDY'S

STARBOARD GROUP

51 RMH FRANCHISE CORP.

48

UNITS

175 APPLEBEE'S

MULTI-UNIT FRANCHISEE IS S UE I, 2017

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1/19/17 6:05 PM


2017 Mega Rankings, continued NAME

50

UNITS

BRANDS

52

CELEBRATION RESTAURANT GROUP/CFL PIZZA/BRAVO FOODS

174

PIZZA HUT, TACO BELL

53

B & B CONSULTANTS

172

SONIC DRIVE-IN

54

DESERT DE ORO FOODS

170

PIZZA HUT, TACO BELL

54

FRAUENSHUH HOSPITALITY GROUP

170

DAIRY QUEEN

56

THE PANTRY

168

SUBWAY, LITTLE CAESARS, DQ TREAT, DQ GRILL & CHILL/TEXAS DQ, CHURCH'S CHICKEN, NOBLE ROMAN'S PIZZA, HOT STUFF PIZZA

57

JRN

165

KFC, PIZZA HUT

58

HAMRA ENTERPRISES

161

WENDY'S, PANERA BREAD, NOODLES & COMPANY

58

MERITAGE HOSPITALITY GROUP

161

WENDY'S

60

SUNSHINE RESTAURANT PARTNERS

157

IHOP

60

WING FINANCIAL SERVICES

157

JACKSON HEWITT TAX SERVICE

62

KMART CORP.

156

LITTLE CAESARS

63

SUNDANCE

154

TACO BELL, KFC, PIZZA HUT, A&W

64

CHALAK MITRA GROUP

152

KFC, KFC/TACO BELL, LA MADELEINE

65

DAVCO RESTAURANTS

150

WENDY'S

65

NATIONAL FOOD SERVICES

150

POPEYES LOUISIANA KITCHEN, BURGER KING

65

VKC GROUP

150

SUBWAY, GREAT AMERICAN COOKIES, MOOYAH , PRETZELMAKER, TCBY, TWISTERS

68

DOHERTY ENTERPRISES

149

APPLEBEE'S, PANERA BREAD

68

PJ UNITED

149

PAPA JOHN'S

70

RESTAURANT MANAGEMENT CO.

148

PIZZA HUT, LONG JOHN SILVER'S

71

BRIAD RESTAURANT GROUP

147

WENDY'S, TGI FRIDAYS

72

INTERFOODS OF AMERICA (SAILORMEN)

144

POPEYES LOUISIANA KITCHEN, BURGER KING

73

APPLE INVESTORS GROUP

141

BURGER KING, WENDY'S

73

PACIFIC BELLS/WORLD WIDE WINGS

141

TACO BELL, BUFFALO WILD WINGS

75

APPLE GOLD

138

APPLEBEE'S, BURGER KING

75

VALENTI MANAGEMENT

138

WENDY'S, CHILI'S

77

CALIFORNIA FOOD MANAGEMENT

136

BURGER KING

77

Z & H FOODS

136

POPEYES LOUISIANA KITCHEN

MULTI-UNIT FRANCHISEE IS S UE I, 2017

muf1_rankings(46,48,50,52).indd 50

1/19/17 6:05 PM


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Contact: Annette Bagwell | abagwell@goldencorral.net | 800-284-5673 ext. 4479 | goldencorralfranchise.com/muf

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SIGNED 50+ OPENINGS FRANCHISE PROJECTED IN 2017

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15 STATES

WITH SIGNED FRANCHISE AGREEMENTS

4

CONSECUTIVE YEARS OF DOUBLE-DIGIT

SAME-STORE SALES GROWTH*

2012 2013 2014 2015

11.9% 10.9% 12.6% 14.9%

*As reported in item 19 of the Franchise Disclosure Document dated May 13, 2016. Please review item 19 for further details. This is not an offer to sell a franchise, which may occur only in applicable states and through a Franchise Disclosure Document or Prospectus. Your results may differ from the represented performance. There is no assurance that you will do as well and you must accept that risk.

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2017 Mega Rankings, continued NAME

UNITS

BRANDS

79

PALO ALTO

135

PIZZA HUT, TACO BELL, KFC

80

COTTI FOODS CORP.

134

TACO BELL, WENDY'S, PIEOLOGY

81

SUMMIT RESTAURANT GROUP

130

PIZZA HUT, LONG JOHN SILVER'S

82

AMERICA'S PIZZA COMPANY

129

PIZZA HUT

82

BAJCO

129

PAPA JOHN'S

82

QK

129

DENNY'S

85

STAR PARTNER ENTERPRISES

127

TACO BELL, KFC, PIZZA HUT, A&W

86

HOOGLAND FOODS

126

MARCO'S PIZZA

87

SERVUS! (BR ASSOCIATES)/SIDAL

123

LONG JOHN SILVER'S, WENDY'S

88

BORDER FOODS

122

TACO BELL, CHURCH'S CHICKEN

88

WENDY'S OF COLORADO SPRINGS

122

WENDY'S, GOLDEN CORRAL

90

DIPASQUA ENTERPRISES

120

SUBWAY

90

DORO

120

HARDEE'S, TACO JOHN'S

90

SERAZEN

120

PAPA JOHN'S, HARDEE'S

93

WISCONSIN HOSPITALITY GROUP

118

PIZZA HUT, APPLEBEE'S

94

MARWAHA GROUP (SBMG)

115

SUBWAY

95

CONSTANTINE SCRIVANOS

114

DUNKIN' DONUTS

95

JEM RESTAURANT GROUP

114

PIZZA HUT, TACO BELL

97

CARLOS ANDRADE

112

DUNKIN' DONUTS, DUNKIN' DONUTS/BASKIN-ROBBINS

98

RANDOLPH S KATZ

111

MIDAS

99

EMERALD CITY PIZZA

109

PIZZA HUT

99

HESS CORP.

109

QUIZNOS

99

SEI/AARON'S

109

AARON'S SALES & LEASE OWNERSHIP

99

SOUTH AMERICAN RESTAURANTS CORP. (SARCO)

109

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BY EDDY GOLDBERG

Regulatory Unburdening? An end to uncertainty—but what lies ahead? Headline: “Donald Trump’s Cabinet Selections Signal Deregulation Moves Are Coming” —Wall Street Journal, Dec. 9, 2016, p. 1

U

with,” he says. Michael Lotito, a franchise attorney who co-chairs the Workplace Policy Institute at Littler Mendelson and is labor counsel to the IFA, echoed their concerns about having to make decisions, such as setting next year’s budget or adding units, when the ground rules are changing. “Business uncertainty will continue,” he says. “The trend line is positive, but the timeline is not at all clear.” As 2017 begins and the Republicancontrolled Congress and new president settle in, we look at some of the thorniest legislative and regulatory threats on the minds of franchisees and franchisors.

ncertainty is the bane of business. Although the regulatory environment of the past few years seemed bent on attacking the franchise business model (the NLRB’s joint employer decision, the DOL’s new overtime rule, and steep minimum wage hikes, to name just three), the early drama and politics of the incoming administration seem to be creating a new kind of uncertainty. At least, as the headline above indicates, the prevailing feeling is that the legislative/reguMinimum wage latory environment is about “I’m not opposed to raising to move in a more favorwages, but how you do it able direction for business is more what I’m worried in general and franchising about,” says Gary Robins, in particular. a Supercuts franchisee with “Uncertainty is always 51 salons and 400 employees. Raising the minimum uncomfortable. What we Zane Tankel don’t know is the scariest,” wage significantly in one says Zane Tankel, CEO and chair of Ap- fell swoop, from the federal minimum of ple-Metro, which operates 36 Applebee’s $7.25 to $15 an hour, for example, is what and two Pizza Studios in and around New raises the ire of employers, who suddenly York City—including the world’s larg- find their labor costs more est Applebee’s, in Times Square. “What than doubling at the turn we do know is that Andy Puzder being of the calendar. Secretary of Labor will be friendly. He The push for large hikes certainly knows the restaurant business.” to minimum wages across the “There will be somebody running the country “will be more detridepartment that’s met a payroll. I think mental than people think,” that will help,” says John Metz, a multi- he says. “There’s no way unit franchisee and franchisor of Hurri- to do that.” Robins favors cane Grill & Wings. a phased-in approach as a Keith Miller, a Subway franchisee more sensible route to adin Northern California and chair of the dressing income inequality, Coalition of Franchisee Associations, while allowing employers a said he was in a good mood on Election longer window to adjust without having Day—not because of who won or lost, but to lay off workers. Massachusetts, for exbecause no matter how it turned out, at ample, phased in its 2017 minimum wage least things would be more certain. “As a of $11/hour over three years, boosting it policy wonk I knew what I’d be dealing to $9 in 2015 and $10 in 2016.

54

“A higher minimum wage is technology’s best friend,” says Tankel. “As wages go up, people just replace that wage with technology.” In fact, as it has become increasingly clear, the more the minimum wage rises for unskilled, entry-level workers, the more businesses will turn to technology. Examples include online ordering, in-store kiosks, and tabletop ordering with tablets—even hamburgermaking machines. In New York over the past year, faced with a wage hike for tipped workers to $7.50/hour as of December 31 (increasing to $10/hour by the end of 2018), Tankel was forced to reduce his workforce from more than 3,500 to about 3,000. He tried to do it through attrition, but there were layoffs. “It breaks my heart to get rid of anybody. We’re very people-oriented,” he says. “What’s happening is that labor is being taken out of practically everything we do,” says Metz. “Jobs are getting eliminated. Hopefully we will find new jobs.” As a franchisee, Metz has 40 Denny’s with 2 more in construction, 1 Dairy Queen, and 1 Marriott Residence Inn; and as a franchisor about 75 Hurricane Grill & Wings (6 corporate), plus his new fast casual brand, Hurricane BTW. Metz says the variation in minimum wages across the U.S. for tipped workers is a particular problem for restaurant operators. “I’m in favor of a federal minimum wage. If they want to move it up, do it on the federal level, not on a state or local John Metz level. Why? Because I’m in the full-service restaurant business. With a federal minimum wage, I preserve my tip credit. With a state minimum wage above the federal level, I lose that.” Metz has a simple solution: abolish tipping and raise the minimum wage for

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Regulatory Unburdening? servers. “I’m a big fan of raising the minimum wage—if we avoid tipping,” he says.

Lotito, who keeps an eagle eye on this is- those with statewide operations—may sue as it wends it way through the appeals simply be keeping abreast of changes in process. He says to watch for how quickly the law. Even cities, from Seattle to New Will NLRB be trumped? the composition of the NLRB changes York, are writing their own rules. One of last year’s hottest topics in fran- under the Trump administration. If the “Be very mindful of what’s happening chising was the possible fallout from the nomination process goes smoothly and not only in your states, but also in your NLRB’s August 2015 Browning-Ferris nominees are approved in a timely man- cities,” cautions Lotito. “They are going decision, which adopted a new—and unset- ner, a newly constituted board will issue to engage in additional legislative activtling—standard for determining whether decisions relatively quickly to walk back ity that will continue to make compliance or not a company is a joint employer, and the joint employment decision. more difficult.” This is critical not only by extension whether a franchisor can “On the other hand, if the nomination in terms of compliance, but also when be held liable for the actions of its fran- process bogs down, it will let the current considering growing your franchise orchisees. Flying in the face board engage in a great deal ganization. “Opening a new location, expansion, of nearly four decades of of mischief,” he adds, perpractice, the decision genhaps until spring or sum- or growth is always a measured risk,” says erated fear and uncertainty mer when a legal decision Robins. “What’s affected our growth exis expected to come down. pansion strategy is the environment. Where with its potentially devastating effect on the franchise In his view, it’s likely that we open is now a factor. Five years ago business model, which had franchising will not have to it wasn’t. Is the opportunity here, in this been settled since the adopdeal with indirect control area, worth the headache? We’re bringing tion of the FTC Franchise issues. If that happens, he in those factors into measuring the risk.” Rule in 1979. says, “That would be con- For example, he’s become more cautious While franchisors were sidered a huge victory for about expanding in Philadelphia, citing concerned they might be franchising.” Until then, it’s factors such as increased expense, rules, Michael Lotito sued for a single franchisee’s wise to seek expert counsel predictive scheduling, and paid time off. bad behavior, a concern for franchisees on all compliance issues, in-house or from Predictive scheduling was that their franchisor would pull back a third party. on the of support it been providing for If you’re considering a third-party Predictive scheduling is picking up steam fear of joint liability lawsuits. PEO to hire that expertise, nationwide, says Robins. “We have not yet seen any significant he adds, be sure to perform “What one city does afchange in our franchisor’s behavior. They deep due diligence on them: fects others.” Referring to have not backed off on their training and who is their counsel, the HR Seattle, San Francisco, and level of support,” says Supercuts’ Rob- personnel in the field, how other cities where the type ins. However, he adds, “They have in many they are responsible of business or number of fact changed the franchise agreement to for, how responsive they are, employees determines the protect themselves, but I’m fine with that. their turnover rate, and be applicability of a law, he’s The have not pulled their head into their sure to speak with those alcalling these “50/500” rules; shell. In fact, they have stepped up to work ready in the PEO network. that is, localities where the through these joint employment issues.” So what’s next? Sixteen law is applied unevenly based Robins, an active CFA member through months after Browning- Gary Robins on the total number of emthe Supercuts Franchisee Association, is Ferris, much of the hysteployees a company has. among many who agree that franchise ria seems to have been overblown. While “I don’t like when the rules are applied agreements have become overbalanced calmer observers suggest it was a one-off unequally,” he says. Just ask any franchitoward franchisors and that it’s time for decision and that future rulings will be see in Seattle, where the City Council the pendulum to swing back. decided on a case-by-case basis, many in has repeatedly burdened franchisees with “We’ve now added an indemnity clause the franchising community continue to requirements that don’t apply to nonto our franchise agreement,” says Metz, be concerned and are following the issue franchised businesses. “I’m subject to rules my competitors wearing his franchisor’s hat. “This means intently as it evolves. Says Metz, “I think it was a really lousy are not, that the guy across the street our franchisees indemnify me if I have a loss on account of their practices. We ruling, but it looks like it will stand, un- I’m competing with is not subject to,” he had a blanket indemnity before, just like less someone in the Trump administration says. For example, with minimum wage, Denny’s does. We made it clearer in the wants to strike it down.” he says, “If it goes up for everyone I’m new franchise agreement.” Under the new administration, says good with that.” “We’re under assault by the governIn fact, some franchisors have been bad the CFA’s Miller, “It’s likely that joint actors, exerting too much control over employer will go away.” ment—federal, state, and local,” says Stay tuned. their franchisees, opening all of franchisTankel, noting that the restaurant ining to increased scrutiny by regulators dustry just came off its worst year since State and local laws and elected officials. the Great Recession. In New York, he “Industries get defined not by their The biggest compliance hurdle for multi- says, among half a dozen bills being inbest operators, but by their worst,” says state and national franchisees—or even troduced in the City Council, one would

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Regulatory Unburdening? require employers in the city to inform employees of their schedules two weeks in advance—and pay them a bonus if there are changes in the schedule or in their number of hours worked. “How in the world do you schedule when you don’t know if it’s going to snow?” says Tankel, citing the potential absurdity of having to pay a penalty to everyone who’s scheduled to work at his more than three dozen restaurants when they may not even be open. Tankel, an industry veteran with a long track record of doing good for his employees and communities in the New York metro area—hiring former convicts and opening his Applebee’s in areas considered iffy at best by most brands—says that while this is a very difficult time for restaurateurs, he still loves the business and, at 75, has no plans to get out soon. “There are good things on the horizon. It certainly won’t get worse. But we will be left with some of this legacy legislation in place. It won’t just go away,” he says. Metz says predictive scheduling makes sense within reason, but thinks some of the proposed rules are unreasonable. On the employee side, “What right do we have as an employer to have somebody on the schedule and 30 minutes after they’re there to cut them? There has to be some give and take,” he says. “We really can work as an industry to give people more control over their schedule.” Metz says he has found a happy medium for his restaurants: an employee scheduling tool called HotSchedules that works for employees to give them advance notice of their schedules yet still allows enough flexibility to make it work for him as an employer. Overtime, over-burdened Headline: “21 States File Suit Challenging the DOL’s New Overtime Rule” (September 2016). Announced by the Department of Labor in May 2016, the ruling to raise the threshold for overtime from $23,660 to $47,476 per year (from $455 to $913 per week) was quickly criticized and challenged. Nevertheless, franchisees scrambled to meet the DOL’s December 1 deadline— only to learn at the 11th hour that the deadline was put on hold by the courts. Metz says he made the change well in advance of December 1 and he’s sticking to it. “As soon as Obama said that’s what he wanted to do, we immediately took ac-

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tion as if it would happen.” Those changes apply to everyone at corporate, as well as to the managers at his franchised and corporate locations. “I’m very happy with hourly managers and one salaried manager per store,” he says. And while he thinks the previous number was much too low, he says the new number is a little high. “Everybody we’re hiring now is hourly, and I think those people are making less,” says Robins. Without the new rule, he says he would have hired more people into salaried positions. Today he is not only hiring people on an hourly basis, he also is not allowing them to go overtime. “I’ll continue to make that change in 2017 until we get some clarity around that rule.” In the big picture, the employer-employee relationship has been changing over the years, and it’s past time the country’s businesses and regulators caught up with the times. Much of the shift to the socalled flexible economy has been made possible by technology, with Uber, Lyft, and Airbnb the most prominent examples of “two-sided marketplaces” that essentially are middlemen connecting buyers and sellers. But so are online ordering and delivery services and staffing agencies (see “The Gig Economy,” page 70). Lotito refers to a 2014 book by David Weil, Wage and Hour Administrator at the DOL since May 2014. In The Fissured Workplace, Weil argues that the traditional relationship between the employer and employee has broken down and that gig economy workers need more protection. And yes, Virginia, there are plenty of documented abuses of the employeremployee relationship that have, again, drawn increased scrutiny from regulators and legislators (think misclassified workers, independent contractors, and companies that try to mask control of the situation and move the liability of the employment relationship to someone else.) Again, Lotito cites the “10 percent factor” of bad actors, who tend to define their industries, create negative headlines, and result in compliance requirements that burden business owners. “Employees become more expensive because of all this compliance,” he says. “The incoming administration will take a hard look at this.” ACA (aka Obamacare) As of this writing, what’s happening with the Affordable Care Act (ACA) is anyone’s guess. Even with the Republicans in control of both the White House and Congress

(and some of the more fervent members salivating at the prospect of finally repealing “Obamacare” after at least 60 failed votes), the future is far from clear. Trump and Congress already can’t agree, and Republican legislators have begun arguing among themselves about what to repeal, what to replace it with, and when. Some are even wondering now if the “known evil” of the ACA is better than the current state of uncertainty in Washington, D.C. Yet, amidst all the political and ideological posturing, there’s still the real world of competition, market share battles, and brand building. “I have different worries,” says Metz. “I’m not particularly worried about the regulatory environment.” Instead, he says, it’s the growth of new kinds of competition in the restaurant industry for consumer dollars and mindshare—not so much from other restaurants, but from new competitors such as convenience stores and grocery stores offering fully prepared takeout foods, and from prepared food delivery services like Blue Apron. He does, however, like the growth in delivery concepts such as UberEats, which along with online ordering will drive sales. Then there’s the simple fact of more consumers dining at home more often as their disposable income shrinks and they worry about the uncertainties affecting their own future. “Obamacare affects everybody across the spectrum,” says Tankel, not only employers. He says the flat rate penalty of $695 for not having insurance (even if you’re a 30-year-old in perfect health) is equal to about 15 average checks at one of his Applebee’s, roughly one visit a month. That adds up. While he objects to “picking peoples’ pockets and redistributing that income to the more needy” in the healthcare pool, he strongly supports coverage for people with pre-existing conditions. “They need to be covered, but we have to find a better way.” Get out there! “The narrative of franchising is still misunderstood by legislators and the public,” says Robins, who has participated in the CFA’s efforts to educate elected officials on CFA Day, which includes a visit to “The Hill” to meet with members of Congress. “Not only the federal legislators, but the state and local ones still don’t understand that it’s small guys operating a business under a flag. And the employees. We need

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Regulatory Unburdening? to do a better job all around.” Not only does most of the general public think the franchisor is the employer at the local level, so do a majority of employees, according to a recent survey. Says Robins, “We’re still local businesses that operate in the communities we serve. I’m not one big business, but 51 little businesses.” Operators must learn to educate people—customers, communities, city coun-

cils, and Congress—about the franchise model and its role in the economy, agrees Lotito. And while the chances to do so are plentiful, for the most part they’re being wasted. “Generally speaking they don’t take advantage of the opportunity: ‘Let me tell you how many people I promoted last year, how many wage increases we gave, jobs we created, our health insurance plan, how we helped celebrate the birth of an employee’s new child with

time off.’” Instead, he says, franchisees are letting others define who they are, “a horrible mistake.” Lotito, who says he’s constantly amazed by franchisees doing so many wonderful things and not telling the world, suggests investing time to train their managers to have those talking points at hand when they interact with the public. “Running the business is a lot more than pumping out a donut, a coffee, or a pizza.”

IRS Proposed Rule Change Hurts Franchisees

T

his past August, the IRS proposed a rule changing the valuation of interests in closely held businesses. In plain English, the proposed rule change is bad for franchisees. Multi-unit franchisees were well represented among the more than 8,000 written responses to the proposed change. And on December 1, among the nearly 40 citizens who spoke at the IRS public hearing (“Estate, Gift, and Generation-Skipping Transfer Taxes; Restrictions on Liquidation of an Interest”) were Keith Miller, a Subway franchisee and chair of the Coalition of Franchisee Associations (CFA), and Rob Branca, a Dunkin’ Donuts franchisee and vice chair of the CFA. The CFA represents 41,000 franchisees at 86,000 locations employing about 1.4 million people. While speakers from businesses as varied as auto dealers, Rob Branca CPAs, and the National Cattlemen’s Beef Association testified to the rule’s negative effects, Miller and Branca explained why the proposed change would be particularly harmful to franchising. In their own words, here’s why. (Note: They are transcribed from the hearing and may contain inaccuracies.) Branca: Franchises are especially vulnerable if these regulations are amended because of factors particular to franchising that naturally depress a business’s price. A franchise inherently becomes less valuable for every second ticking by after a franchise agreement is signed; ownership of a franchise is only for a set, continually declining term of years. There is no certainty of renewal for an additional term. The traditional methods of business valuation that the IRS applies simply do not accurately capture vital facts that affect value. Perhaps more notably, there is an omnipotent third party in franchise transfers that is not present in a non-franchised family business: the franchisor. Franchisors typically possess the power to not only apply not insubstantial fees on transfer, franchisors can also deny them outright. Franchisors also typically possess a right of first refusal to step into the shoes of any transferee. Transferees often price

60

the uncertainty created by these franchisor rights into the purchase price, knowing that the time and money spent on due diligence, negotiation, attorneys, and accountants can be completely lost. However, perhaps the most discounting factor in valuation of an interest in a franchise is the severely limited pool of buyers. Only an approved franchisee of the system is even eligible to buy at all. Miller: While our ongoing business may be valued at one price, our ability to sell at that price is often severely impacted by the franchise business model. Many obstacles to our ability to sell may not be included in our contract, the actual franchise agreement, but may be inserted over time unilaterally in our operations manual during the life of that franchise. I’ll give some specific examples in my own brand, Subway. There are clauses that state that transfers cannot have multiple franchises on one contract or include conditional contracts. For example, the sale of one franchise is conditional in the sale of a second franchise or the real property related to that franchise. It also has a clause in there that says you can only transfer one store at a time to a new franchise owner or up to three Keith Miller to existing franchise owners, and they do limit us in this way. So these specific clauses negatively impact the value of our franchises. For example, if you own the property that your franchise is located on, you can’t conditionally sell them both on the same contract. Or if you own say 10 or 20 stores, you would have to break up your company to sell the individual units. I think you can clearly see that in total, a company of a large franchise owner, with all the overhead structure and efficiencies in place that are built into that larger company is more valuable than when broken into individual stores and without the real estate. So I ask you, how can you properly value a company when you can’t sell the company? While these examples are specific to Subway, many franchises follow similar policies, so we would respectfully ask that you reconsider this rule change.

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Join the Movement Are You a FAN? Franchise businesses need to come together and speak with one, consistent, strong and collective voice on behalf of our great industry. IFA has launched the Franchise Action Network (FAN), to mobilize the franchise industry to be that voice. By joining the FAN, we will unite all of our voices within franchising with a strong message about the positive impacts of the franchise business model in every community across the country. Make your voice heard and join in this fight by signing up for the FAN today!

www.FranchiseActionNetwork.com If you have any questions about this new initiative, please do not hesitate to contact IFA’s Senior Director, Political Affairs & Grassroots Advocacy, Erica Farage at efarage@franchise.org or 202-662-0760.

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the expansion leap while ensuring that his two existing fitness facilities stay strong. Heaps learned early as a first-time business owner about the problems of working in the business instead of on it. When Heaps teamed up with his sister

Sam Heaps

Kate Carski in 2012 to open their first Title Boxing Club franchise in Springfield Va., they spent every waking business hour running the facility. Within two years, the pair added a second club in nearby Falls Church. It didn’t take long for him to discover that something in his handson approach had to give. “Even though we were putting in the hours, we weren’t able to get enough done,” says Heaps, a former college baseball player and personal trainer. “You can’t do it all. I had to step back and look at the big picture. We had to put our trust in our team and let them thrive and shine.” To meet the challenges that come with expansion, taking the time to find the right people who are the right fit is worth the investment. Most decisions required to efficiently manage multiple units are people-driven, especially when it comes to making the shift from doing everything yourself to hiring your first manager (or managers). At the center of a strong working infrastructure is a concept called “span of control,” says Simon, who was in charge of implementing the delivery system at Pizza Hut and served as vice president of U.S. operations at Tim Hortons. “I tell every franchisee I have ever managed in my life that when you go from five to six stores you are going to build that sixth store just to pay for the supervisor to run the first five,” he says. “Too many stores creates too much freedom, not enough stores chokes all freedom. You need to grow in every aspect of the business, but also allow for creativity,” he says. Cultivating a layer of management to develop leadership and foster a culture where people want to stay and move up the ranks will help

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Building FOR Success to solidify your infrastructure over time. With pizza restaurants in Indianapolis, Cincinnati, and Cleveland, Simon’s organizational chart includes two vice presidents and six supervisors. Each vice president oversees three supervisors. Each supervisor is in charge of seven stores. When developed correctly, multi-unit processes should be able to be replicated anywhere, by anyone. The amount of operational control an established manager or supervisor is given is more complicated, based on geography and the complexity of the business. Conducting a proper gap analysis can help a franchisee determine infrastructure needs from the outset. The timing for adding management personnel also depends on the complexity of your concept. For many concepts, that point arrives at three units. “Going from one to three is the hardest jump you will ever have in the franchise world,” says Simon. “It is where all the processes come into play. You can’t be there yourself to do them and that is where the replication comes in.” (And the delegating.)

in making it all work at this scale, says Talmage. New hires are schooled on the job, spending time with up to three of the company’s best technicians over the course of two months. When trainees are handed over to a duty supervisor, they must pass a rigorous test before being allowed to go out on their own. Talmage, whose background includes naval intelligence, international management consulting, and private banking, runs a tight management ship. The company has just 25 employees, bolstered

Water, water, everywhere As the largest Watermill Express franchisee, Ken Talmage, chairman and owner of Monterey Water Co., is well-versed on perfecting an infrastructure to manage his 106 drive-up kiosks. Spread across 300 miles of California’s Central Valley, the kiosks offer pure drinking water and ice to thirsty customers. Ken Talmage Talmage has spent more than two decades growing his business by cre- by constant real-time data from 50 senating an efficient route system to keep sors located inside each unit. This allows his customers supplied—and satisfied. for both quality control and the ability To achieve this, technicians must service to troubleshoot quickly. GPS tracking each location nearly every day, so locat- systems installed in each of the service ing his kiosks for maximum efficiency is vehicles enable supervisors to keep track paramount. of each technician in the field. Watermill, the nation’s largest drive“When I look at expansion, I don’t look at expanding one or two units,” he up drinking water and ice business, has says. “I look at where I am going to build its own high standards Talmage must another 10 units and make another route.” maintain, but it’s smart hiring and a focus Each route consists of nine to 12 locations, on a customer culture that has kept his depending on their geographic distribu- company expanding through the years. tion. His field technicians are overseen by His marketing coordinator and duty suduty supervisors from offices in Fresno pervisors all started with the company in and Manteca, more than 100 miles apart. entry-level promotions jobs. Training for technicians is critical “We have so many standards internally

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that we can become focused only on our internal processes,” says Talmage. “What you need is to be focused on the customer. By virtue of the fact that people coming through our system started in promotions, we are always thinking about the customer.” Learn from the best Hiring right is imperative, particularly for franchises such as Title Boxing Club, where the front-line employees work so directly with members. Every club may appear the same, but the environment the trainers create at the club level is what makes the brand so successful, says Heaps. Soaking up the know-how of successful franchisees both inside and outside your system can help accelerate your learning curve by showing you how to use their best practices to train, incentivize, and retain employees. For Heaps, this wake-up call occurred two years ago when he hit the road to observe some of the brand’s best-performing clubs. The trip was an epiphany that came just as his business expanded and his sister started a family and reduced the time she spent in the clubs. “We watched and took notes on everything,” he says. “That changed everything for us by learning from other successful franchisees and not just being stuck in our ways. We made ourselves grow by learning and using the knowledge of other franchisees.” The result was a major shift in how he managed his own managers. A daily checklist evolved from “Here’s what I did today” into more productive follow-up checklists designed specifically for each position. For example, a new hire onboarding checklist details everything required to be a successful team member. Heaps now uses a job-specific organizational chart that outlines the roles of the regional manager, club managers, head trainers, and marketing coordinator. Each manager fills out a monthly report that highlights goals, training, completed staff evaluations, and other information, such as the results of a club walkthrough. Sales team members use a daily followup schedule to help them stay organized and diligent.

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Building FOR Success Managers also use Title Boxing Club’s monthly scoreboard to grade club performance and follow the monthly marketing campaigns to keep the brand message current and fresh, says Heaps, who is always ready to roll up his sleeves to help with any business need. To ensure everyone is on the same page, managers meet weekly to discuss club updates and upcoming promotions. Timing those meetings and check-ins with managers is another factor to consider when setting up internal systems. Simon says he avoids speaking with his supervisors during lunch and dinner rush hours at his Donatos locations, choosing instead to talk with them between 9 and 10 a.m. and 2 to 4 p.m. Automation also is a great tool to incorporate into your operations. “I get reports every day from all 42 stores,” says Simon. “I don’t have to call any store supervisor or VP to get data. I can look at the data, which, over time, I can ask questions about. What I don’t want to do is monopolize someone else’s time.” But it’s also important not to overrely on technology and automation, he

reminds. Those personal check-ins are valuable in maintaining communication. “Yes, we have these big projects,” says Simon, “but I still want them to know we are involved and we care about their success. It’s a balancing act for sure.” Let go and grow Despite all the messages from franchisors, business gurus, and veteran franchisees to delegate and not try to do too much themselves, it’s still hard for many franchisees to make that happen, for various reasons: force of habit, personality, the additional expense of hiring managers, or because they simply don’t know how to set up the best internal systems, even when they want to. Successful franchises are successful for a reason, says Heaps, who is always looking for ways to do things better, manage and motivate his managers, track results, and set company goals. Creating the right infrastructure is a constant focus for him, while always sticking with the system and maintaining brand standards. “When we first got into this, we were doing well, but not as well as we are doing now,” he says. “Your wheels start to

spin to see what you can do differently. We got ahead of ourselves and away from the brand.” By tinkering with the system, he says, “You are losing out on the whole branding aspect of what Title Boxing—or any franchise—is all about.” To make the right kind of changes to your franchise organization, Heaps recommends franchisees look to their franchisor and other franchisees to consider how to improve the processes you have in place, as opposed to changing the brand or product on the business level. While there is a risk of investing too much money and time in infrastructure early in the growth process, if you can weather the financial strain there is a big payoff down the road. And in the end, seasoned entrepreneurs understand that success means their business can run without them. “As an owner, you sometimes think you are the important person, so whatever you want to happen—happens,” says Simon. “That is absolutely the wrong methodology,” he says. “I am the least important person in this company. If I don’t go to work today, the business still operates.” Now that’s letting go!

Multi-Unit Franchisees Dream. Build. Grow. Succeed. To provide a deeper sense of their journeys, insights, and personalities, we’ve selected from our most inspiring print interviews to create a new series of videos of these franchisee leaders.

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For more information call: (408) 997- 7795 ext. 202

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FIRST ANNUAL

EUROPEAN MULTI-UNIT CONFERENCE

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oing international? So are we! This past December, Franchise Update Media co-produced its first conference in Europe, partnering with the Best Franchisee of the World. The First Annual European Multi-Unit Franchising Conference was held December 2–3 at the beautiful, historical Palazzo Borghese in Florence, Italy. Attendees included franchisees, franchisors, investors, association heads, and government representatives from across the world. “This event was created as a platform for continued education and sets the stage for upcoming trends that are important to franchisees,” said Franchise Update Media Chairman Gary Gardner upon his return home. “Our goal was for franchisees to go home with new ideas to help take their businesses to the next level.” For nearly two decades, Franchise Update has presented conferences in the U.S. for franchise sales and development professionals, multi-unit franchisees, and marketing executives, along with hundreds of magazine articles reporting on international franchising. This new conference provided attendees with information-packed sessions, networking opportunities, and plenty of time to meet with sponsors from around the world. The sessions and speakers covered global multi-unit franchising

growth trends, as well as an overview of the master franchising model as a vehicle for international expansion. An international panel of multi-unit operators addressed the benefits and challenges of building, growing, and operating multi-unit and multi-concept companies. The panel included three members of Franchise Update’s Multi-Unit Conference Advisory Board: Michael Kulp (KBP Foods), Tony Lutfi (MarLu Investment Group), and John Metz (RREMC and franchisor of Hurricane Grill & Wings). U.S. sponsors for the inaugural event were Denny’s, Dairy Queen, Carl’s Jr./ Hardee’s, MSA Worldwide, and Sky Zone Trampoline Park. “For being the first conference in Europe, I think it went extremely well. I worked a little, learned a lot, and met some very interesting people,” said attendee Daniel Alley. Historical note: The Palazzo Borghese, a beautiful facility located in the historic center of Florence, is characterized by its unique 16th century architecture, enhanced by ongoing renovations in the ensuing centuries. The Reception Hall, a true architectural and artistic jewel, contains more than 2,000 square feet of frescoes, plasters, bas-reliefs, niches, statues, columns, and draperies. Stay tuned for more details and information about next year’s event.

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© 2017 Franchise Update Media. All rights reserved.

1/3/17 4:50 PM


CustomerService B Y

JOHN (AND BO) DIJULIUS

The Real Deal Life lessons from a 13-year-old I have had the good fortune to experience and witness many professionals who truly know how to serve. However, one person in particular consistently blows me away by how he builds rapport instantly with strangers and learns so much about them in only a short conversation. This person is my 13-year-old son, Bo DiJulius. I’ve been so intrigued by his ability to strike up a conversation with someone he has never met before and have that person share so many intimate details with a teenager that I asked Bo if he could share how he does it.

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f someone asks me what customer service is, it’s like tying my shoe. But not all people know exactly what it is, especially a teenager like me. Some businesses don’t look at customer service as it should be looked at. Why should they look at it differently? Well, it just makes life easier for so many people, including yourself. Treat customers like a celebrity and make them feel special. Make them want to come back. Customer service also helps you. If you leave a mark on someone or treat them very nicely it’s very easy to remember them. For example, it’s the first day you see this man walk into the store. You make him feel special and do your job by providing the product he came to your business for—but you also provide him with a different outlook on his day, and even you and the business. Next time he comes in, you will hopefully say, “Joe, it’s so nice to see you.” Just think about walking into a business with other people there and somebody calling out your name. It would probably seem like you’re an important person. Well, that’s the goal. Make them feel like they are the real deal. Not only for Joe, but for Susan and Aaron and Lou. Then they don’t have to worry about how their new shoes are going to look, or if this dress is cute, because with your support they will have such a boost in confidence! This is only one part of customer service. You’ve got to smile, laugh, and talk, but not about yourself all the time. For example, “Joe, how’s your family been?”

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“Joe, how’s your job?” “Joe, you look very good today, did you get a haircut?” Another important thing is that if you need to bring a “mask” to work, then bring it. If you fought with your boyfriend or girlfriend all night and morning and come to work with negativity, it’s going to spread like a virus. It will fill the air. Hide your feelings under a mask, and at the end of the day that mask might not come off because you feel too good to take it off. You’re making people’s days and releasing stress from yourself. And you meet interesting people when being inquisitive. Not all people are all happy and smiley. But that should never change you. Why do I do this? Well, I just love that feeling when you know someone’s going home with a smile. And that somebody

“Make them feel like the real deal so you can be the real deal.”

is the person you helped—and yourself. Because positivity is just as contagious as negativity. So fill the air with joy and bright smiles. “Where are you from?”

I was at the Cheesecake Factory in Buffalo, N.Y., eating with my dad. We were sitting next to a man and a woman. While my dad went to the bathroom, I stopped playing Pokémon Go and said, “Where are you guys from?” The woman was from Germany and the man was from Buffalo. They were dating, too. I learned so much as we spoke and it was one of the craziest things ever. John Stanz was the man’s name. He served, I believe, 10 years in the Marines and was a staff sergeant. He was shot in the ear one time and also blown up in a truck by an IED. He broke and tore so many things I can’t remember. He was in a coma for five-and-a-half weeks. His family was called to say their goodbyes because John had a 0 percent chance of living. His family said no they will not give up, which forced his parents to quit their jobs. Amazingly, John woke up from his coma but was told he would never be able to speak or eat on his own, or even walk ever again. Almost two years go by and John is recovered and was overcoming the impossible. He still has lots of injuries but is a hero. The thing is what if I didn’t say, “Where are you guys from?” I would have missed out on something that inspired me so much. That’s why you have to talk and learn and meet people. Thank you for your time. And remember, make them feel like they are the real deal so you can be the real deal. If you ever want to contact me, email me at bodijulius9@gmail.com, or bodijulius on Twitter and Instagram. You’ll find the kid who is learning and living an amazing life thanks to my amazing father and two brothers who taught me it all. Thank you and have a great day. John R. DiJulius III, author of The Customer Service Revolution, is president of The DiJulius Group, a customer service consulting firm that works with companies including Starbucks, Chickfil-A, Ritz-Carlton, Nestle, PwC, Lexus, and many more. Call him at 216-839-1430 or email info@thedijuliusgroup.com.

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1/19/17 6:20 PM


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37 Years Strong in the Franchise Market

4/27/15 1:53 PM


People BY JOCELYN MANGAN

The Gig Economy Managing employees in a changing world

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e often hear about the wage gap. But one emerging reality from the trend of the flexible economy is a tax classification gap. In one case dealing with this issue, a London employment tribunal ruled in late October that Uber drivers in the U.K. should be classified as employees of the San Francisco-based company—and no longer be considered self-employed or independent contractors. One of the judges in the ruling said it was “unreal to deny that Uber is in business as a supplier of transportation services.” The U.K. ruling follows Uber’s settlement of two classaction lawsuits with drivers in California and Massachusetts for up to $100 million after drivers argued that Uber classified them as independent workers in an effort to drive down wages and withhold benefits. This news is part of the ongoing discussion of how workers and employers should operate and interact in the evolving “flexible economy.” Rulings like these open the floodgates to a series of important labor questions such as: What does it mean to be an employee today? Who is responsible for protecting independent workers? Who is accountable for labor vulnerabilities? These become meaningful questions as the popular two-sided marketplaces that cater to flexible working continue to grow and revolutionize the way we do business. Companies such as Uber, Lyft, Airbnb, Care.com, Etsy, and Snagajob are just some of the online platforms that allow suppliers and buyers to meet and trade goods or services, and they show no signs of slowing down. The population of workers taking advantage of these opportunities is growing, too. According to a 2015 study from Intuit, by 2020 more than 7.6 million Americans will be working in the on-demand economy. That’s more than double the current number of 3.2 million. An October 2016 survey of approximately 8,000 U.S. and European workers by the McKinsey Global Institute reported that between 20 and 30 percent of respondents engaged in some form of

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independent work. Among the independent workers, 70 percent said it was their preferred choice (30 percent as free agents for their primary income, and 40 percent as casual earners for supplemental income). While the remaining 30 percent of respondents chose independent work out of necessity, generally speaking, independent workers report higher levels of satisfaction on many aspects of their work life than traditional company employees. These factors include flexible hours and location, as well as work/life independence. On the flip side, aspects that scored lower contentment levels were income security and benefits. What does it mean?

All of this this begs several questions: As the way we conduct business and the traditional employer-employee relationship evolves, how do we protect the rights of workers? Where does the contract begin and end, and who are the stakeholders? And how do all of these changes affect hiring practices? We’ve been thinking about this a lot at Snagajob, especially since the shift toward a gig economy shows no signs of decelerating. While more complex challenges such as the tax classification gap will require more discussion between private business owners and innovative policy makers to really begin to implement change, some challenges are being tackled today. For our part, we are testing new technology and systems that can help multi-unit franchisees attract, hire, and retain quality hourly workers who have evolving needs and desires. In May, we launched a pilot program with a Jersey Mike’s franchisee in Northern Virginia to create a network of on-demand workers. The premise was that even when a store is fully staffed, schedule changes happen, which can derail even the best-laid plans. Dealing with these last-minute changes isn’t just about finding another person. Managers must also consider overtime, ACA, compliance, and more. Supplying operators with a pool of readily available workers ensures that coverage (and compliance) is more easily

managed and fulfilled. To be a part of this on-demand network, applicants had to be screened, trained, and onboarded before accepting available shifts. After just four weeks, we were surprised by the results: • 30 shifts were filled, with even more requested; • 84 percent of last-minute shift requests were filled through the on-demand network (some within 2 minutes); • 4.4 stars (out of 5) was the average rating given to an on-demand worker; • 100 percent of on-demand workers were recommended for future shifts; • on-demand workers were paid within 30 minutes of completing their shifts; and • 95 percent of manager opinions of on-demand workers changed for the better. Brian Deeth, the franchisee of six Jersey Mike’s in Northern Virginia, said, “Our customers are having a better experience inside the restaurant now that we have the ability to make sure that every shift is staffed properly. I can guarantee that it’s because we are able to run more smoothly not having the stress associated with managing noshows and call-outs.” What we found is that not only were Brian’s customers happier, his team members were too. Available, on-demand workers were able to get more shifts, and those already on the schedule didn’t feel overworked by having to do someone else’s job on top of their own because of a last-minute change. That’s a win-win for the team’s productivity and morale—and Brian’s bottom line. Given the success of this pilot program, we expanded to focus on student workers at Virginia Commonwealth University and partnered with half a dozen companies in Richmond. We named our experimental network HUSL and are gearing up to broaden our scope with even more workers and employers. We look forward to learning more through our experimentation, and through it continuing to respond to the needs of hourly workers, employers, and the platforms where they meet. Jocelyn Mangan is chief product officer and chief marketing officer for Snagajob. Contact the company at 866227-0466.

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1/19/17 6:21 PM


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11/17/15 1:57 PM


Technology BY TOM EPSTEIN

Got EMV? Why you should, and what’s ahead

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he chip card (EMV) deadline passed in October 2015. Yet according to industry accounts, fewer than 50 percent of retail and restaurant outlets were set up by the end of December 2016 to accept cards this way. Since readers of this magazine are both franchisees and consumers, I will address both sides of what is going on with chip cards. As a consumer, you are likely a bit upset with longer, slower lines in stores because of the additional time it takes for EMV transactions to clear. And as a business owner, you are likely seeing more chargebacks than ever before. But wait, wasn’t EMV supposed to reduce fraud and potential chargebacks? Well sort of. The U.S. is the last of the G20 nations to adopt EMV. And, in our infinite wisdom, we mostly have rolled out only chip-and-signature technology, while the rest of the world is using chip-and-PIN. What’s the difference? With chip-andsignature, someone could still steal your card, use it at a retail establishment and just sign it. No new real security here. As such, there is still a risk of fraudulent transactions at the POS. With chip-andPIN, there is very little risk of this as the would-be thief would not know your PIN (unless you wrote it on the card). So why did the banks bother at all? So they could protect themselves from the larger risk of someone hacking an entire system. Data transmitted with a chip card is much more secure than with a magnetic stripe. Back to those pesky POS transactions and increased chargebacks. The banks have not been aggressive in shipping cards with chips. Why would they be? If they reach a penetration rate of 75 percent of all cards used by merchants, the entire risk migrates back to them. Currently, about 65 percent of all cards in circulation have a chip in them. So the banks have bought themselves an extra year or two. What about franchisees? Why haven’t more implemented EMV readers? The POS companies see this as

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a great way to earn additional hardware money (and in some cases, SaaS fees). So franchisees and their franchisors are weighing the cost of the new hardware and software against the rise in chargebacks. But be aware: as more EMV cards enter the marketplace, you will get more chargebacks unless you upgrade!

“There even could come a day when no one even carries a credit card any more.” Quick service restaurants in particular are hesitant to embrace EMV readers because of increased transaction time. On average, EMV transactions take 20 to 25 seconds, compared with just 1 or 2 seconds for swiped transactions. This makes a big difference in getting people through the line during a breakfast or lunch rush. As I’ve noted before, I am betting this issue will start to push a much safer and faster method of payment using NFC technology (near-field communication like Apple Pay, Android Pay, and Samsung Pay). Table service restaurants have had to invest in expensive pay-at-the-table type solutions. However, the good news here is that technology is finally catching up, and we are seeing new hardware options coming out rapidly and getting cheaper to implement. Membership businesses like health clubs, tanning, massage, and lashes salons will have to factor higher chargebacks into their business models. Businesses where customers book online for even one-time appointments also will see higher chargebacks since a customer can’t present a chip card when booking these services. However, they can lower their risk and minimize chargebacks by working with their software provider and payment pro-

cessor to make sure they are passing on all the data needed in those transactions. Some of our clients that use proprietary software pass on only the minimum information needed to charge a credit card. But by passing on a customer’s street address, ZIP code, and if necessary, tax amount, you not only will reduce your chargebacks, you’ll also get lower interchange rates from the processors. All “card not present” business models, even if they actually see the customer and are not really e-commerce, will see more chargebacks as fraudsters will naturally migrate toward these businesses. Mobile franchises, such as handyman services, are getting much more involved in accepting payments from smartphones and tablets. The hardware providers are just now catching up, and we will start seeing EMV readers that connect to smartphones using Bluetooth or other technologies. However, these are not cheap, and it is likely that the practice of giving the readers away free will disappear. (I would expect to pay between $150 and $300 for these.) But assuming fairly large average tickets here, the saving of just one chargeback will more than pay for the new device. We are at the point where any franchisee with “card present” transactions should be looking at adding EMV readers. But please, do yourself a favor and make sure you have NFC in place as well, as I truly do think this is where we will end up in the U.S. NFC is much safer and faster than chip-and-PIN, and a growing number of consumers have a mobile wallet in their smartphone—and even if they are not using it today, people will soon learn not only that they can get through lines more quickly, but also that they will have a much lower chance of having their card numbers stolen. There even could come a day when no one even carries a credit card any more. No more George “Seinfeld” Costanza wallets! 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.

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1/19/17 6:22 PM


InvestmentInsights BY CAROL M. SCHLEIF

The Pursuit of Happiness Key economic decisions are now in play

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he recent U.S. election cycle, more than any other in recent memory, tapped into deep angst within both major parties and the electorate at large. On the surface, this would seem to be at odds with an economic reality that has an unemployment rate of around 5 percent, wages rising more strongly than they have in a decade, and citizens, on average, in far better shape than they were in 2008 or even 2012. Even before the election, average household income had climbed back toward all-time highs supported by recovering housing prices and rising stock markets. What gives? The knee-jerk presumption points to the gap between the top and bottom tiers of wage earners, and indeed that gap is large relative to any point in recorded history. A host of perceived ills from applied regulation, immigration, globalization, unfair taxation, too many lobbyists, and a host of other culprits have variously been painted as having “robbed” us of something we are “owed.” To hear the popular press and the politicians tell it, it’s as if the Declaration of Independence actually promised “happiness,” versus the right to pursue it. Note the difference a few words makes? The original doctrine implied self-rule and self-sufficiency—not an “everybody gets a trophy” mentality. But to create an amenable environment for business and consumption to occur, three important constituencies must work together: • Government—Provides infrastructure support, fiscal policy, reasonable regulatory oversight, national oversight of borders, treaties, and citizen protection. • Business—Produces profits that remunerate stakeholders, pays equitable taxes to support resources relied on from government, and partners with educational institutions to create, train, and maintain a leading-edge work force. • Central bank—Formulates a strong and viable central bank and policy to facilitate reliable money movement, mon-

etary policy, oversight of employment, and inflation targets. The basics in play

Before the election, the popular mood presumed that the central banks were the only piece of the equation that could be counted on. It was as if the other two legs of the stool were too tattered to do their part (or that a citizenry had forgotten how to hold them accountable). Nearly a decade of zero interest rates created a global conundrum with $13 trillion in government debt priced below zero, bloated central bank balance sheets, and tepid economic growth. But between the Brexit vote and the outcome of the U.S. presidential election, all of a sudden basic economic philosophies seem to be in play again. What does “fair” look like when it comes to regulation, taxation, ownership, security, borders, etc.? It’s opened a tiny wedge in a seemingly intractable system, and each of us has an ability to speak up and hold our politicians, business leaders, and government officials accountable for helping to create an environment conducive to selfsufficiency. Granted, the definitions of “fair,” “open,” and “equitable” are thorny. But we’ll never get to them if we’re all living in and trying to operate from behind barriers, literal or figurative. Key fundamental decisions will be made in the coming months. Some of the issues in play are: • tax rates for individuals—the higher they are, the less individuals have in discretionary funds to invest in venture and early stage projects; • corporate tax and regulatory environments—and whether or not they encourage companies to stay put, bring cash embedded in foreign subsidiaries home, or build innovation zones; • carried interest taxed at capital gains versus ordinary income rates; and • tariff decisions which, if increased, could spawn counter-tariff moves by other nations and put a damper on global trade. Collectively, we can either lean into these

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discussions—and hold those in high places accountable to do the same—or we can allow media and leading voices to continue to polarize the debate. Despite the fact that some very vocal constituencies have been left behind, putting the globalization genie back in the bottle is essentially impossible, especially in a low-rate environment. Individuals will seek opportunity— it’s embedded in our optimistically biased human nature and our desire for a better life for ourselves and our offspring. Companies will seek an amenable environment, which means a well-educated work force, high local standard of living, and fair tax environment. The trick in the next couple years is ensuring a seat at the table and a piece of that global opportunity. As changing political moors in a variety of countries and blocs are sorted out, the current state of global affairs may well lead to volatile markets in quarters ahead. In environments like these, we continue to advocate global diversification, a steady head, and nimble (though studied) dynamic tactical shifts as events unfold. Capitalism can be a messy, unorganized state of affairs. Innovation typically grows faster than expected and can quickly disrupt or challenge business models and regulatory sensibilities seemingly overnight. Such change and flux can be either frustrating or exciting and opportunity creating. It’s up to all of us to decide which—and to hold our politicians and government officials, business leaders, and central bankers to more collaborative and constructive standards. It’s up to all of us to help create an environment conducive to the collective pursuit of happiness! Carol M. Schleif, CFA, is deputy chief investment officer at Abbott Downing, a Wells Fargo business that provides products and services through Wells Fargo Bank and its affiliates and subsidiaries. She welcomes questions and comments at carol.schleif@abbotdowning.com.

MULTI-UNIT FRANCHISEE IS S U E I, 2017



73 1/19/17 6:24 PM


Finance BY ROD BRISTOL

Performance Groups Peer pressure can be a good thing! “If you always do what you’ve always done...”

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ou know the ending to this old saw, and when it comes to your company’s financial results it is absolutely true. By now, you are well into Q1 2017. Are you receiving a P&L statement and balance sheet by the 15th day following the close of business at the end of each month? If not, you’re already behind. So how is it going? Are you ahead of last year, dead even, or are you falling behind in sales, profits, and cash flow? And if you are falling behind, how are you going to improve things? Think about this: What is the hardest thing for any business owner to do? Find a new product? Fire someone? Get a loan? None of the above! The hardest thing for a business owner to do is something different! You attend conferences and hear great speakers share new ways of doing things. However, you come back and the same alligators that were eating you before you left start chopping you up once again, and all those great ideas and aspirations fall by the wayside, just like last time. If you’re truly interested in doing something different, maybe it’s time to consider a performance group. A performance group is a group of business owners who meet regularly to share operational and planning ideas and act as a board of advisors to each of its members. These groups use a skilled facilitator, financial benchmarks, structured agendas, financial analysis training, and have administrative support. What is their impact? With consistent accountability, members integrate financial benchmarking into the ongoing process of monitoring and managing their business. Applying this process with a group of peers provides a pool of “best practices,” or standards, to draw from when implementing new plans. What makes it work? The members working together. Participating in a performance group gives owners a resource for solving business management chal-

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lenges faster and more effectively. What are the results? By focusing management efforts toward a plan, group members can go beyond crisis management and actually create the company they want to own. Members achieve their goals far more quickly and efficiently than doing it on their own. Here is one franchisee’s answer after participating in a Profit Mastery performance group: “In my honest opinion, this program is

by far (the franchisor’s) most valuable initiative. As confident as I was about my ability to manage and control my office’s financial and operational metrics, I was very humbled as soon as I saw my financial and KPI results compared with the other owners in our group. The improvements in our business have been dramatic across the board: financial improvements, operational improvements, process improvements, quality improvements, and employee satisfaction improvements. The breadth and extent of the improvements are both humbling and inspiring!” Adding up the benefits

The following data from a previous performance group participant will give you a sense of the benefits of the program in

only one of these areas: owner profits, arguably the most important metric to most owners. • Our 2011 owner’s discretionary profit (ODP) was 11.6 percent. • In the four quarters since starting the program (2012 Q2, Q3, Q4 and 2013 Q1) our ODP averaged 15.4 percent. • This increased ODP percentage equals an actual increase of $170,000 in ODP dollars for the previous four quarters (compared with what my ODP dollars would have been if I was still at my 2011 ODP percentage level). • In the past two quarters (2012 Q4 and 2013 Q1) my ODP percentage increased to 16.7 percent, which equals an annualized increase in ODP dollars of $238,000 (compared with 2011 ODP percentage levels). About right now you’re probably saying, “I don’t have a performance group available to join, but I do need an accountability partner.” If you’re interested in learning more about our performance group process, I would be happy to share that information with you. Please feel free to contact me. If it’s not possible for you to join a group, I have a solution for you! America’s SBDC (Small Business Development Centers) provides free counseling services to business owners throughout the country. Their counselors are often former business owners and bankers who bring a great deal of experience to their counseling activities and provide terrific services to clients. To find the nearest SBDC center, search online for America’s SBDC and type in your ZIP code. Set up an appointment, become a client, and your SBDC counselor will assist you in driving up the success of your business by helping you set goals, measure them, and manage better to achieve them. Rod Bristol is executive vice president at Profit Mastery. For over 30 years, franchisors and franchisees have improved their financial performance and unit profitability by following the Profit Mastery process: financial training, benchmarking, and accountability/ bankability modeling. Learn more at www. profitmastery.net, 800-488-3520 x13 or email bristol@brs-seattle.com.

MULTI-UNIT FRANCHISEE IS S UE I, 2017

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1/19/17 6:27 PM


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1/18/17 12:08 PM


ExitStrategies

BY DEAN ZUCCARELLO

Franchise Consolidation Grows Trend to spread beyond restaurants

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onsolidation arguably has been one of the largest and most important trends in the franchise sector in the past few years, and it’s not hard to see why. One definition of consolidation is “a solidification and strengthening”—terms that also describe two of the most critical aspects of running a successful multi-unit operating company. While we expect this trend to continue in the restaurant industry, we also believe that consolidation will have a significant impact on other franchised brands in new and exciting ways. Historically, the consolidation trend in franchising has been driven by traditional, restaurant industry Tier 1 and Tier 2 brands in the QSR and casual dining segments. The economic reality of declining traffic, heavy discounting, and prime cost pressure, combined with heavy governmental regulation, has created a much more complex business model. Smaller operators have borne the brunt of these changes and, in many cases, the answer has been to sell to a “consolidator” in the same franchise system. These consolidators typically have an established organization and infrastructure that allows them to deliver a level of professional management and to leverage fixed overhead costs in a way smaller franchisees simply can’t. As we move forward, the traditional consolidation model we’ve seen in recent years will remain prevalent. However, while this activity is likely to slow as the seller pool of smaller companies operating top-tier restaurant brands shrinks, we believe this trend will maintain its strong momentum for the foreseeable future. With large absolute numbers, a significant number of aging franchisees, and a new era of sophisticated buyers looking to achieve rapid growth, this form of consolidation is not going anywhere soon. Tier 1 and 2 brands have been the front-runners in attracting buyers seeking growth through mergers and acquisitions, owing to the sheer

76

number of restaurants in their systems, large geographic footprints, and the greater number of available opportunities to consider. Eventually, there will come a time where these massive, consolidated operators will reach a critical mass and no longer have the desire, or ability, to acquire more stores. We have already started seeing some franchisors implement size limits on their franchisees, creating an incentive for these large-scale operating companies to seek opportunities in new brands. Although mega-franchisees benefit from their immense size (because of greater predictability of operational results and returns through economies of scale, implementation of modern technology, market control, and fixed-cost leverage), there is still a point at which big becomes too big, and benefits turn into inefficiencies. Where are we headed?

Once top-tier consolidation slows, the question is, Where will this leave franchising? We suspect that strategic buyers will turn their attention to Tier 3 and 4 restaurant brands, as well as to regional brands. The greatest untapped potential for consolidation lies within these smaller brands. Additionally, the opportunity in this segment will attract a greater number of interested purchasers because of the inherently lower valuations of these brands. Also meaningful for potential buyers is the risk-and-reward tradeoff of entering a less mature system with high-growth opportunity. This leads to another appealing aspect of consolidating smaller brands: a buyer’s greater ability to control a larger portion of a system’s franchised universe. This is especially desirable when purchasers are seeking “the next greatest thing” by entering a system at the ground level. We already are seeing this consolidation trend follow in the non-restaurant

franchise world. While it remains true that restaurant franchising is the most widespread use of the business model, the industry inevitably will become overpopulated in the future. This saturation in the restaurant realm will push franchisees to seek outside opportunities with a less competitive purchasing process. Industries likely to see an uptick in their attractiveness to buyers include service businesses such as auto services and repair, house cleaning, day spas, health centers, fitness centers, senior care, pet care, dry cleaning, and early childhood development. Opportunities for consolidation in these industries are immense and desirable for the same reasons as they are for smaller restaurant brands: purchasers are typically working with lower valuations and have a greater chance of controlling a significant portion of the franchised system. The bottom line is that the franchise business model works. It enables entrepreneurs to run their own businesses without falling prey to the fundamental risks of creating a new and unique concept. Operating a franchised brand gives buyers a sense of safety and security, stemming from the existing familiarity with the concept. We will continue to see the application of the basic, time-honored concept of franchising push itself into other, non-food industries. This is clearly the free market at work, with the survival of the strongest business models, like franchising, reigning supreme. Because franchising has proven itself time and again as an incredibly successful way to run a large, multi-unit company, we believe there are no upper bounds to what can be achieved in operating businesses in this domain. Dean Zuccarello is CEO and founder of The Cypress Group, a privately owned investment bank and advisory services firm focused exclusively on the multi-unit and franchise business for 25 years. He has more than 30 years of financial and transactional experience in mergers, acquisitions, divestitures, strategic planning, and financing in the restaurant industry. Contact him at 303-680-4141 or dzuccarello@cypressgroup.biz.

MULTI-UNIT FRANCHISEE IS S UE I, 2017

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1/19/17 6:29 PM


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1/23/17 4:22 PM


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1/18/17 3:41 PM


FranchiseMarketUpdate BY DARRELL JOHNSON

The Coming Recession What lessons can we learn in advance?

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ne of the economic truths for the U.S. economy is that we have recessions, and the next one is coming. Maybe not in the next month or even the next year, but it is coming. We have had 11 recessions since WWII and are currently in the second longest-running recovery of those 11 recessions. Time is not on our side. One of the economic realities from recessions is that we usually end up with permanent changes to our businesses. Often those changes are related to what caused the recession. The last recession was caused by a subprime mortgage crisis that led to a global financial crisis. Financial institutions were permanently affected, with changed capital requirements and a lot more regulatory scrutiny. The result was that lenders changed how they went about assessing risk, including franchise lending risk. A common joke during the run-up to the 2008 recession was that if a prospective franchisee could fog a mirror, they could get financed. Back then, the general view within lending circles was that franchise financing was low-risk financing, because most lending portfolios in the mid-2000s didn’t have much franchise loan stress showing. Lenders made two false assumptions, however. First, when it comes to risk, not all franchise systems are equal. Second, it takes three to five years for the majority of new units to reach full stability. Brands with significant unit growth spurts had not reached system stability in the years just before the downturn. The result of being wrong was a predictable knee-jerk reaction by lenders and a dearth of capital available for franchises in the years following the end of the recession in 2009. Gradually, lenders addressed the two errors they’d made. They started differentiating franchise brand risk beyond simple but ineffective screening criteria such as: at least 30 franchise units, 5 years of franchising, and SBA loan loss data. (The first two of these didn’t define risk at all, and the last was recognized as be-

80

ing based on substantially flawed data.) Lenders gradually tossed these criteria and learned to assess franchise brand as well as borrower credit risk in better ways, which opened the lending gates to brands judged to have lower risk. FRANdata helped this transition with franchise brand FUND ratings and more creditbased risk information available to lenders on the Franchise Registry.

Multi-unit operators should have a significant voice, and that voice should be collective and loud. Lessons for today

With the lessons learned from the last recession, what are the likely lessons we will learn from the next one? To answer that, let’s turn to what likely will cause the next recession. With no looming economic bubbles, it is more likely that the next recession will be driven by consumer confidence dropping. We don’t have any industries overheating today, and we aren’t in an a state of “irrational exuberance.” In fact, this economic recovery is notable for its lack of specific economic drivers other than the Federal Reserve’s monetary policy. The Fed’s actions did keep the economy growing, but the recovery has been so slow that it seemed like no recovery at all. This economic recovery is also notable for its lack of productivity growth. Productivity improvement usually comes from capital investment, the absence of which stands out today. There are many reasons, but it’s the impact that is important. We drove labor toward full employment, and labor issues became the focus of many state and federal actions. This caught the franchise business model at a bad point in its evolution as the franchisor-franchisee pendulum had swung

significantly toward the franchisor. In the interest of protecting the brand—and, in many cases, genuinely seeking to help franchisees become more successful by providing more guidance into their operations—franchisors became vulnerable to attacks on the business model itself. The result was a plethora of state and federal legislative initiatives, as well as regulatory actions, that had direct implications on the franchise business model. Some in the franchising community may take solace in the probability that the recent election will take pressure off labor-specific issues. However, they will be missing the lessons that the last few years of business model attacks have presented to the franchise community: from the language we use in franchise agreements and operations manuals, to a reassessment of the range of services that franchisors should be responsible for relative to franchisees. Essentially, the legislative and regulatory challenges we’ve had to confront in recent years should push us to understand why they occurred, and provide the opportunity to reassess each of the franchisor functional areas that have evolved into what is common practice today. On that point, multi-unit operators should have a significant voice, and that voice should be collective and loud. In recent years, much of FRANdata’s research for franchisors has been around what “best” looks like, and which brands come closest to meeting “best.” This requires defining a standard and measuring brands relative to that standard. Following the last recession, we learned how to do that around franchise credit risk. I hope we now can do the same with the aggressive legislative and regulatory problems of recent years. We certainly need to prepare for the next recession. And what better way than to fine-tune operational best practices? 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 703-7404700 or djohnson@fran data.com.

MULTI-UNIT FRANCHISEE IS S UE I, 2017

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1/19/17 6:30 PM


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1/20/17 3:06 PM


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1/4/17 3:19 PM

Multi-Unit Franchisee Magazine - Issue I, 2017  

We’re starting 2017 in our customary way: with our “Mega 99” list of the largest U.S. franchisees ranked by total number of units.

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