How efficient and effective are the best franchisors in using their franchisees’ store investments?

February 25, 2015

Of the investment resources they attract, do they use them effectively or are they squandered?

Efficiency drucker

I chose some of the more “blue chip” of the U.S.-based systems and chased down their 2013 FDD (thank you the state of Wisconsin).

Preserving Franchisee Investments

Opportunism is when someone in a position of advantage, uses that position against another. In franchising, the situation that the franchisor controls the store’s sunk cost investment, can be exploited. A very good test of opportunism is: If the ownership of the assets were reversed, would the alleged “opportunist” likely change their decision?

Total Added Lost

While the 5 systems grew by 4,342 new stores (adding +$6-billion to franchisors’ coffers), there was also a loss of 1,738 stores or $2.5-billion of franchisee store investment that left the industry.

How goodHow “sticky” are franchisee investments in these systems? On average for every $1.00 of new franchisee that enters the market 42.2% was lost from 2010 to 2013.

Distance

 

Measured from the best practice level of Dunkin’ Donuts, there is some very large variation in these systems as they purport to take care of “other people’s money”.

leaky_bucket

Losing over 40% of the invested capital in 4 years? It seems the franchise industry is a bit of a leaky bucket.

  • Fairly apparent when the information is publicly available.

Kudos to the states of California, Wisconsin, Minnesota, Washington, and soon-to-be New York for their online repository of franchise disclosure documents.

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How frequently does Tim Hortons terminate their franchised stores in the United States?

February 24, 2015

Termination of a franchise agreement is the most financially devastating action a franchisor can take.

Terminations 2013

It is the “weapon of mass destruction” for mom-and-pop franchisee life savings and employment

Terminations 2012

 

Responsible franchisors avoid this too because it is such a red flag to the investment community.

Terminations 2011

It is only fair to compare it to their peer group and to best practices.

Terminations 2010ie. Tim Hortons terminated their U.S. franchisees 22.9, 1.1, 2.1, and 9.4 times more frequently than McDonald’s had done in the same year (2010 to 2013).

The frequency that the franchisor chooses to terminate a franchisee is a material fact to any buying or renewing franchisee.

Source: Information from Franchise Disclosure Documents (see for example Wisconsin Department of Financial Institutions). Free download for U.S. filed documents. One of 4 online sources.

Canadian information is unavailable because no provincial law requires these CDN documents to be (1) publicly filed or (2) put online.

Alberta, Ontario, New Brunswick, Prince Edward Island, Manitoba and soon-to-be British Columbia

Posted also on ConcernedTimHortonsFranchisees.ca.


Where will the real “fat” be trimmed at Tim Hortons: the head office or on franchisees’ bottom lines?

February 23, 2015

Tim Hortons1

The Globe and Mail reports on the new Tim Hortons president, Mr. Diaz Sese:

…Mr. Diaz Sese, who has law and business degrees and previously worked for French sporting goods retailer Decathlon, is moving from Singapore to Oakville, Ont., to take the Tim Hortons job, the company said last month.

Mr. Diaz Sese’s experience heading up Burger King’s expansion overseas fits in with Burger King’s goal of global expansion for Tim Hortons. The company says he tripled Burger King’s annual rate of restaurant growth in Asia.

Mr. Fisher said the new CEO, Mr. Schwartz, is part of a new breed of young leaders in the food service industry. “He’s got a reputation for cutting the fat and running lean operations.”

Yes, 3G Capital cut head office costs at Burger King in that takeover in 2010. But they had also had many corporate stores to sell for a quick cash hit.

This time, there are almost no Tim Hortons corporate stores to sell.

Just 3,800 franchised stores.


How can 3G Capital guarantee “no staff cuts” at the 3,600 CDN Tim Hortons franchisee-owned stores?

January 29, 2015

Industry Canada may not understand franchising: who actually employs these 96,000 Canadians.

Tim Hortons Youve been fired

Theo Moudakis / Toronto Star

But how can 3G Capital (buyers of U.S. Burger King in 2010) offer any assurances that the 1,100 or so CDN franchisees won’t be forced to lay off their staff once their gross margins and equity are “right-sized?

Is 3G Capital:

  1. incompetent,
  2. willfully misrepresenting things to Canadians and our duly elected politicians, or
  3. admitting that they are “joint employers” (with the franchisees) of those 96,000 franchisee employees?

Note recent charges against McDonald’s by the U.S. National Labor Relations Board: NLRB Charges McDonald’s as Joint Employer with Franchisees.

The National Labor Relations Board filed 13 cases against McDonald’s Corp. (NYSE:MCD) and its franchisees this month, alleging they violated the rights of employees, who worked at McDonald’s restaurants at various locations across the country.

The government agency’s complaints state that McDonald’s and its restaurant owners made statements and took actions against fast food workers for engaging in activities that aimed to improve their wages and working conditions. They accuse the parties of interfering with nationwide protests organized by unions over the past two years over their terms and conditions of employment.

Protect franchisees and they will protect their staff.

  1. Are Canadian federal officials either 1. or 2. (see above)?
  2. Is organized labour and others who wants a $15 minimum wage for the 1,140,000 franchisee-employeed staff in Canada?
  3. How about Industry Canada who risks public taxes while guaranteeing $1.4 billion of franchisee business loans (1999 to 2007).

Be modern and caring by not thinking about what you eat

February 14, 2011

Don’t even look at it says a fast food nation.

Just buy; feed that hollowness.  Anyone questioning food-based addictions and mindlessness are shunned. Those without straight hair may have a harder time, however.

Case in point: Woody pleads out to 5 instead of 30 years.

Blonds never tamper with food.

[Circa 1966, Jumping Frog]


Happy faces promising success, equality and brotherhood

February 9, 2011

Everything in advertising is chosen very, very carefully but the messenger’s true intentions leak out over time.

I wonder where Floyd Bond is now? I wonder if he still has his 2 stores? His marriage to Geanie?

Ads represent the main channel of intellectual and artistic effort in the modern world.

What happens when the ad makers take over all the popular myths and poetry?

Marshall McLuhan 1911 – 1980

If I told you this full page ad was placed in Ebony magazine, would that surprise you?

[circa 1978: Jumping Frog]


Burger King franchisees use power principles correctly

November 30, 2009

Power only retreats in the face of greater power.

Burger King franchisees know how to run an independent franchisee association. They use tough, no-nonsense actions that defend their supporting members.

Jim Coen is doing an excellent job of running the Dunkin’ Donuts Independent Franchise Owners, DDIFO association and it shows in its website.

He writes in Franchisees Exert Pressure on Burger King Board about the Burger King association (NFA, Inc. ) taking their message directly to the Board of Directors of Burger King.

Elaine Walker reports in the Miami Herald that Burger King’s franchisees say they no longer “trust” or “have confidence” in current management, so they’re going directly to the company’s board of directors with their complaints.

In a letter, the NFA sent this message:

Your management team has pushed the franchise community to the brink,” said the letter signed by 27 franchises, including the NFA board and the heads of 21 regional franchisee associations. “We are taking this extraordinary and historic action to communicate our concerns directly to the board.

This is the first step toward effective action, rooted in economic clout and competent franchisee leadership. It uses power to combat power by questioning the current management’s decision making to their boss: the Board of Directors.

You can be damn sure the franchisees have a rock-solid business case to back up their allegations.

If it doesn’t jingle, It doesn’t count.


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