Franchising.com EXPRESS

The Current Economic Crisis Is Killing Franchising, Or Is It?

Advertorial Provided By: UpsideGroup

October 27, 2008

 

The economic crisis is everywhere; you can't avoid the black cloud even if you wanted to. It is on the front page of every local and national paper, it is the lead story on your evening news each night and the crisis is chronicled on every major monthly periodical with lead-ins comparing today's issues to the Great Depression of 1929.

So it would stand to reason that franchising, which is often dependant on third party financing to fund development of brick and mortar businesses would be suffering greatly. In addition, service businesses, with lower barriers to entry that saw unprecedented development during the housing boom when "Joe Six Pack", could easily apply and receive lines of credit on their newly found equity, should be facing tremendous difficulty as the housing bubble finally burst. But are they?

Some Franchisors are quietly having equal or greater success during these "difficult" times and refuse to relent to the black cloud. Joe Masarweh, President of expanding Zizzo's Coffee headquartered in Capitola, California actually believes this slow-down may be a blessing in disguise. "Securing preferable locations had been an issue for us in the past, but now our area developers are seeing good quality locations available." Statistics have supported Joe's views, as occupancies rates have been slowly declining leading to more opportunities for quality franchisors. Some real estate professionals agree sighting additional factors such as the reluctance of the mom and pop operators to attempt opening during this economy and the hesitance of lending institutions and landlords to partner with the riskier first-time entrepreneurs. Joe also has seen a reduction in construction costs. "We always negotiated with all our vendors on behalf of our franchisees but with some of our vendor partners seeing a 15-20% reduction in their business, we have had success greatly reducing costs with our newly found leverage."

Mike Lavin, an area developer who owns the rights to 35+ Golden Spoon Frozen Yogurt franchises throughout Arizona, is loving the current situation. "It is amazing, we have landlords chasing us". Lavin goes on to say, "The current climate has reduced our development fees per unit by upwards of 25 - 40%. Landlords are willing to put much more money toward TI allowances or even build the spaces to spec for us. Most of the savings go direct to our bottom line. In turn we can develop locations much faster at these lower costs which creates an interesting time/value of money dynamic." Lavin's partner Dave Josker notes, "We were very lucky to get in to exclusive Golden Spoon and now this has happened; I would never have predicted this would be the case when the economy turned but it has actually had only positive results for us."

Golden Spoon has always received great PR and has racked up awards throughout the years that may be contributing to the beneficial treatment by landlords. Zizzo's also benefits from a flexibility allowing operators to strive in many different types of locations, combine that with a recession proof product and you have a formula that may also be factoring in to their preferential treatment. So what of the larger box locations that require third party funding, premium, exclusive locations as well as much more intensive build-out requirements? Doug Jackson, a franchise consultant from New Jersey, believes although the needs of the larger boxes are more specific and in some cases more cumbersome; the opportunities mirror those of some of the smaller investment franchises. "It is just too risky out there for banks and landlords to invest in anything but the top brands and the bigger players." Jackson has seen his premium clients continue to grow; "even large sports bars requi ring 1.5 - 2M investments are having success because they have long track records and have continued strong sales by offering reasonable menu pricing that has consumers coming in multiple times a week as sometimes it is still cheaper than eating at home. Jackson has also seen the same trends of compromise with landlords, "Landlords can't afford to have large spaces vacant so we are seeing much cheaper rents locked in for many years and a lot of additional flexibilities we haven't seen in recent years. In conjunction, multi-unit franchisees are in high demand, as they combine proven expertise with tenured management teams and more cash on hand to leverage making good deals for themselves. Strong multi-unit franchisees have tremendous opportunities right now!"

There are some other unique side effects of the current trends, GREEN businesses have been receiving a lot of attention the last few years but it didn't always translate to increased franchise growth. USA Insulation knows that only too well. Pat Pitrone, President of USA Insulation headquartered in Eastlake, Ohio always knew he had a great product but his early days in franchising weren't easy. "We have been GREEN since we started thirty years ago but we didn't know it was a big deal, then a few years ago just as we started franchising --- GREEN was hot so we thought this was going to be a walk in the park." It wasn't quite that easy, "Everyone felt warm and fuzzy about the fact we were GREEN but that didn't lead to them purchasing a franchise", says Pitrone. But things have changed, "It is now like the perfect storm, not only are consumers really interested in lowering heating and cooling costs more than ever, consumers have finally put their money where their mouth is and started demanding truly GREEN products and services. This has lead to increased unit activity but also more franchises being sold" says Pitrone. USA Insulation also benefits from a lower total investment and less time needed from signing to open. Pitrone notes, "We are lucky because our investment is very reasonable and also once a franchisee joins the system we can have them up and running very quickly, we have all the T's and I's crossed, that is one of the benefits of being around for 30 years."

Jackson also sights another unique side effect of the current economy, "we have a larger inventory of existing locations available than we have had in recent years, there seem to be many different reasons but the end result appears to be that individuals that have more cash on hand have been able to garner very good 'deals'."

So it seems the demise of the franchise market may be overstated. Why younger brands, and the mom and pop may be seeing consolidation and a constricting of the marketplace, it seems stronger brands are being recognized for the strengths of their systems and being rewarded for their efforts and results of years past.

Mario Altiery is a freelance writer and president of Upside Group, an award winning franchise consulting firm based in Scottsdale, AZ. info@upsidegroup.biz, 480-626-0788

Presented By

Golden Spoon currently has key development territories available in Arizona and is seeking strong multi-unit franchise groups to expand the current offering.

For More Information:
PH: 866-737-6708
EM: info@upsidegroup.biz

USA Insulation is seeking franchisees in the following marketing: New York, New Jersey, Chicago, Indiana, Wisconsin, Pennsylvania, Texas, California, Colorado and other specific locations throughout the United States.

For More Information:
PH: 877-903-6800
EM: info@usainsulation.com

Zizzo's Coffee is seeking experienced multi-unit franchisees to expand with throughout the United States, exclusive territories available.

For More Information:
PH: 877-294-9967
EM:info@zizzoscoffee.com

UpsideGroup is a full-service franchise consulting firm working with some of the most dynamic brands in franchising today. USG has inventory in various fields in franchising allowing USG to match strong multi-unit franchisees to emerging brands within key territories. UpsideGroup is featuring three franchise opportunities, each offering strong competitive advantages and preferable area development agreements.

Upside Group also has exclusive opportunities in the health and fitness space, existing top sports restaurant units, and a 90 year-old award winning deli brand launching first-time franchise opportunities in the Northeast. Contact UpsideGroup to discuss any of the above opportunities and to get a complete list of existing inventory!

For More Information:
www.upsidegroup.biz
PH: 888-445-2882
EM: info@upsidegroup.biz

 

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