Archive for March, 2008

No Financial Disclosures – The Excuse

From the Franchise Pundit:

I can’t count how many times I’ve heard directly from franchisors that they choose not to disclose financial results or franchisees because they are prohibited by law. That is an outright lie, and at the very best, extraordinarily misleading. The FTC wants to encourage franchisors to provide as much financial guidance as possible, but that guidance must be delivered in a consistent and regulated manner so as not to mislead the potential franchisee.

On Michael Webster’s BizOp blog, he looks at Romp ‘n Rolls bogus claim that they do not provide the financial results of their franchisees because FTC prohibits it.

And then from the BizOp blog we get this:

The FTC does not prohibit making earnings claims, or financial performance claims.

What the FTC does prohibit is stupid franchisors telling dumber franchisees that they have a “calculator” which will allow you to put together a pro forma if the basis for that calculator is not disclosed in the UFOC!

Run away from any franchise or business opportunity which tells you that the FTC made them lie to you.

This is definitely worth reading for this looking to deal with a franchise or are currently doing so. Yes indeed, long live the franchise…

Franchise Pundit:

BizOp News

Why the eBay Franchise Failed

This article is about eBay, but the comments easily apply to other franchises and including the MA business. Plus it shows that mentality of expanding without consideration for the business or for the owners.

Ah, the infamous technique of saying or emphasizing one thing, prior to the deal, and then after the trap has been shut innocently pointing the the FDD or UFOC, saying “well, didn’t you read the contract and disclosure?”

The author quite correctly points out the “the U.S. government requires this UFOC document, but they do not provide a course in how to read it. I will say that it is intended to provide many worthwhile protections for prospective franchise buyers, but since most of those same people do not read the document, these protections are rarely understood.”

Finally, what training were you given?

And this certainly speaks volumes!

So, there you have the components of failure in a nut shell: a wonderful pitch unconnected with a real business, over investment in fixed costs by the franchisee, and and under investment in substantive training by the franchisor.

Read the rest of the article here:

What happened to the idea of the franchise?

Are franchises worth it, not just for meal assembly, but franchises in general? Until recently they seemed to be sure-fire ways of striking it rich. They always seemed to be in the right location, had a system for making money, commercials played all the time and there was no shortage of customers.

But over the past couple of years the franchise seems to have revealed (or perhaps people have just begun to expose) its darker side. It was a rare thing to see a franchise outlet fail, and if something like that did happen, the store was quickly closed, revamped, restored and rejuvenated and reopened “under new management” with all the mistakes of the past behind it. More often than not the second go round was a success because they actually did learn from their mistakes. Making money for the local owner was making money for the corporate owners and that of course was good for business.

But that was then…

We jump ahead to the latter part of the decade and we see that franchises are in quite a state of chaos. Stores are staying open which should be closed, expansion is taking place when reduction would seem a better course, owners are losing money, products are sub par, customers are harder to please, advertising is a mixed responsibility, not to mention the allegations of fraud, corruption and deceit which are starting to happen with some regularity.

Quiznos has been front and center with a myriad of allegations and some disastrous results, but they aren’t alone with Panera Bread, iSoldIt, Burger King, Darden, Dairy Queen and even McDonalds have all come under scrutiny for taking the money and not upholding their end of the arrangement in the money making system. Franchises slash prices and the owners loose money. Cost of food goes up and the owner foots the bill. Quality suffers and the owner has to take the hit in giving back the credit to the customer. Advertising is lacking so the owners have to spend their own money to cover lost ground. More and more the relationship has become one sided. The owner is indentured to the franchisor with no escape route should things go wrong. The franchisor can walk away like it’s a bad date, but the owner has to stay until the end.

– Lose money and you have to close the doors? That’s a breach of contract.
– Not making enough money to pay the royalty fees? Breach of contract again.
– Disagree with the system and want to try something on your own?
– Making money but it’s not enough to justify the time an effort you put in? How do you get out of your contract?
– Has the franchise failed to make the profits you anticipated?
– Have they failed to protect the territory you were sold?
– Are they taking advantage of every marketing opportunity you pay for with your royalties?

Unlike buying stock in a company and reaping the benefits when the company does well or selling off those shares when things take a turn, there is no simple way to get out of the franchise relationship. It’s a shotgun wedding with no chance of divorce. You can’t say no, you can’t try your own ideas, you can’t stick with what works and toss out what doesn’t, you have to pay for upgrades and new equipment, even if it means going broke, and that radical individual thinking is only going to get you in trouble.

When you read comments like this from last year:
However, it is buyer beware. There is little more than signed contracts to protect buyers. Legislation introduced to protect franchise owners has not passed. There are many business brokers who specialize in certain franchise chains.

Again, like any franchise purchase, know what you are signing up for. Check to see the lawsuit history of the franchisee. Get references and talk to other franchisee owners. If there is one, consult with an association associated with the franchise. As this tragedy illustrates there can be a lot at stake if you don’t.

So it makes you wonder, what happened to the franchise over these past few years?

The Magic and Mystery of Meal Assembly

Once people understood the idea and the magic of how meal assembly worked did it lose its charm? In the beginning it was this great “new way” to make meals and customers clamored to try something that would save them time and money (plus in the early days they probably got bragging rights for getting in when others didn’t/couldn’t). But like a magic trick, once they learned how it was done it lost its appeal. The idea of layering 5 ingredients into a pan, covering it and then sticking it in the oven just wasn’t crafty enough. Customer saw you bought tomatoes in bulk, sugar in huge bags, beans in paint can sized containers and cheese in enormous pre-shredded bags. Not only could they identify the ingredients, they could identify the brands. There wasn’t some big mystery involved anymore. You took a recipe, combined the ingredients and then cooked it according to the instructions. I’m sure everyone heard “I can do this at home!” exclaimed during a session at some point.

And was that the downfall?

Let’s put all the other factors aside for a moment. When customers figured out they could do the same thing at home that they were doing in a meal assembly kitchen is that where the problem started? It’s not a matter of whether they did make similar meals at home, it’s whether they could make them at home (if they put in the time and effort to get all the ingredients). Did the consumer simply see chicken, oregano, chives, carrots and other ingredients they probably had in their own kitchens (albeit from 1998) and not see the whole picture of a dinner put together in 10 minutes rather than 30? And no clean up to boot!

By presenting customers with exactly how to make everything and do it themselves did it make them not want it? For example, KFC has a secret blend of 11 herbs and spices (yes, I know that you know what it really is, but work with me here) that the customer can’t reproduce in their own kitchen, so they go out for it. TGI Friday’s has some secret blend of sauces and some special cooking technique that makes the chicken juicy and succulent (yes I know you know how that one’s done too, let’s move on) which they can’t create in their own kitchens, so they go out for it. Olive Garden has these wonderful breadsticks and soups that are to die for (I know, I know, hush) which you can’t get anywhere else, so they go out for it.

All these places have a signature dish (or two) that you can’t recreate at home because of their secret ingredients or process. Or they offer some appetizer or dessert you “just can’t get anywhere else”. Even the steak houses have some special “rub” or specialized “coals” they use to cook the meat.

Was meal assembly a victim of its openness and simplicity? The big cans right there on the shelves, the giant bags of bread crumbs out in the open for all to see, the gallon jugs of vinegars and oils, all of it just sitting there letting the customer in on the secret that cooking really isn’t that hard.

Was the idea of saving money, saving time and convenient meal planning all overshadowing because customers could see how it was done? Was the magic trick ruined because the chef revealed how the meal was made?

Surviving the Summer Months

Easter has just passed (barely) and it looks like we have a straight shot into summer. Depending on each school there is about two months until the summer vacation hits and everything that goes with it. Now, summer months were not kind last year, with many people leaving comments on the severe drop in business and many are still reeling from its effects. With that in mind what is the strategy for this summer?

Without trying to over-emphasize this may be the make or break time for many out there. The previous year had a big slow down for summer, which lead into a slower than normal Thanksgiving and of course less than optimal Christmas. In essence we are coming up on 6+ months of struggling sales and if history repeats itself it could be very trying times.

· I think the water shortage will be widespread just like it was last year.
· Gas is higher than it was last year – will that be helpful or a hindrance as far as people staying close to home and food prep?
· The economy is slumping – I’m not sure it’s as bad as earlier predicted, but definitely not the best.
· Food prices are higher than last year – mainly due to gas prices.

So there are some strikes against meal assembly and the restaurant business in general. I see articles that consumers are already to show their frustration at rising prices. What is the plan of attack to make MA attractive to customers this year? Grilling is always a good choice, but you obviously people can get their own steak, chicken, etc to grill and having just one or two grilling items won’t really be that big of a draw. Advertising, and getting it started early is a key component, but where and with whom? The topic got a bit of a kickstart not too long ago right here,
but even then many have hit the ceiling with “I’ve tried everything”.

I already know of many people getting their Fourth of July plans together and planning vacations. With so many more people offering the carryout option can prepared meals be a part of the vacation plan? It got a lot of favor the first time around, last year it didn’t hold much sway, will people see it as convenient this year?

It’s been a slow start and a lot of new factors coming into play this time around. How is a meal assembly owner going to survive the summer?

And let us not forget those in the Dream Dinners camp. They’ve had a series of meetings which hopefully resulted in helpful ideas to implement for the summer.

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