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February 2008 |
Volume 10, Issue 2, Part 1 |
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February: Honoring
Our Best Presidents
In this issue...
Story:
For Vietnamese, The Year of the Rat Starts With Lunch..
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Street Smarts:
Buying a franchise? Avoid these costly mistakes.
Industry
Focus:
Franchisees
save big with site selection pro's
Guest Column:
Look north for new franchise expansion opportunities. Canada welcomes international expansion
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Buying a franchise? Avoid these costly mistakes.
It takes a lot of money to build a business,
and you certainly don't want to waste any. Check this list
of 7 costly mistakes to avoid.
1. Letting emotions rule.
Falling in love with a franchise concept is a common mistake.
Don't let your emotions guide your decisions. Use your head,
do your due diligence and take the time to thoroughly investigate
the franchisor's offering.
2. No professional team.
Don't try to do your own financials, contract reviews, or
negotiating. The cost of professional franchise attorneys,
accountants, and advisors is money well spent.
3. Too little cash. Lack
of capital is the number one reason franchisees fail. Item
7 in the UFOC will tell you how much money you'll need with
a low and high range. Be smart-go with the high range. Then
ask current franchisees if the numbers are high enough.
4. Penny wise and pound foolish.
Choosing one franchise over another because the initial
franchisee fees are lower is shortsighted. It assumes that
all franchises are alike and nothing could be further from
the truth. Choose the franchise with the proven concept
and strongest track record.
5. Too much help. Payroll
is the biggest part of overhead for most franchise businesses.
New franchisees often hire too many people or pay too much
in wages. A good franchisor will provide a good staffing
plan. Stick to the plan.
6. No comparison. Never
buy expensive equipment, supplies or inventory without shopping
around first. Even if your franchisor offers group purchasing,
do your own research, shop as many vendors as you can, consider
aftermarket suppliers, and weigh different financing options
(loans or leases).
7. Marketing blunders.
As a new business owner, you're going to be targeted by
every ad salesperson around. Ignore them. Follow your franchisor's
marketing plan to the letter to avoid wasting thousands.
Franchisees
save big with site selection pro's
For new franchisees, site selection
can be a confusing and stressful process. Pinpointing the
best location, getting a reasonable price, and negotiating
a fair and equitable lease are critical to your success.
Some franchisors help with this process; others don't. Either
way, a franchisee can benefit greatly from seeking
the help of professionals that specialize in franchise site
selection and lease negotiations.
NorthStar Advisory Services
is a retail-focused real estate firm providing nationwide
services in site selection, new store development, lease
negotiations, and construction management. Senior
partner, Ned Moody, says, "We match franchisees
with over 200 experienced, commercial real estate brokers
in our nationwide network." It costs franchisees (or franchisors)
nothing to access the network-NorthStar is compensated through
referral fees paid from brokers' commissions.
Upon direction from a franchisee,
the broker assigned to the new site search conducts a general
market overview, reviews current market conditions and availability,
then targets specific properties for a market tour. But
the real benefit comes after the franchisee chooses the
location. That's when the broker, who specializes in representing
retail tenants, works on negotiating a lease that favors
the franchisee.
"Usually," says Moody,
"a new franchisee doesn't know any more about real estate
than the average person. They typically don't even know
how to find the right kind of broker. Sure, you can drive
around and call the phone number on the 'for lease' sign.
But that's the worst thing to do because now you're talking
to the broker who is representing the landlord. Their interest
is opposite from yours. Getting a tenant broker who's on
your side will help you avoid the pitfalls."
Some of those pitfalls are whoppers.
For example, you may not recognize a "go-dark" clause in
your lease or understand its meaning. "It basically prevents
a tenant from closing ('going dark'), even if the tenant's
business is losing money," Moody explains. "Imagine being
a new franchisee in the second year of a five-year lease
and the franchise model isn't working for you. Yet you're
forced to stay open, pay employees, and continue operating.
And you don't even have the right to sublease to another
tenant. This nightmare is created by a clause that landlords
bury in the legal language of the lease."
An experienced tenant broker
can also negotiate for favorable terms such as free rent
for the first few months and tenant improvements (TI's),
costs that the landlord will incur to build out or finish
the space to the tenant's specifications. Those two items
alone can represent savings of tens of thousands of dollars.
Contact: Ned Moody, NorthStar Advisory Services
Website: www.northstaradvisory.com
Phone: 708-383-3961
 Look
north for new franchise expansion opportunities. Canada
welcomes international expansion
By:Frank Zaid
US franchisors need
look no further than directly north of the border for great
opportunities for international expansion of their systems.
Canada has long been the second biggest market for franchising,
with many successful franchise systems expanding into the
market by direct franchising, franchising through affiliated
companies, master franchising or development agreements.
The Canadian franchise market is estimated
to include over 1000 systems and to generate sales of approximately
40% of the gross retail economy. There are no reliable statistics
on the number of franchisees or jobs created, but clearly
they are significant.
US franchisors considering Canadian expansion
must appreciate that, despite its cultural, economic and
language similarities, Canada is a foreign country, with
different laws, socio-economic diversity and local cultural
preferences.
Canada currently has 4 provinces that have
enacted franchise disclosure laws - Alberta, Ontario, Prince
Edward Island, and New Brunswick (not yet proclaimed). Any
franchisor offering a franchise (which includes a master
franchise) to be operated in any of these provinces must
prepare and deliver a disclosure document to the prospective
franchisee at least 14 days before entering into an agreement
or taking any payment. The form of disclosure document differs
somewhat from province to province, and it is generally
not advisable (or even permissible in Ontario) to use a
US offering circular with Canadian modifications as the
form of disclosure document. Unless there is a statutory
exemption, the disclosure document must contain financial
statements for the actual franchisor and not for a parent
corporation, and must be prepared in accordance with Canadian
accounting standards or equivalent standards in the franchisor's
home jurisdiction.
Franchise agreements and ancillary documents
should be reviewed and amended to comply with the laws of
the province where the franchise is being offered, and there
is no substitute for experienced Canadian franchise counsel
being retained to assist in this process. Of particular
importance will be required changes to the governing law
and jurisdiction clauses, as well as remedies, use of alternate
dispute resolution, and termination rights.
Besides being advised on Canadian franchise
laws, US franchisors need to understand how general commercial
laws and tax laws will affect their Canadian operations.
Trade-marks must be protected immediately in Canada, and
depending on the nature of the franchise offering, other
areas for Canadian legal advice may include anti-trust laws,
lease documents, importation of products, packaging and
labelling, price or sale advertising, regulated industries,
consumer transactions, gift cards, privacy requirements,
guarantees, security documents, insurance practices, French
language laws in the province of Quebec, immigration laws
affecting franchisor employees, and federal goods and services
tax and provincial sales taxes.
And one other item not to be overlooked
is the necessity for a review of the franchisor's operations
manuals to be undertaken to ensure that legal and business
content conform to Canadian requirements or practices.
Many well known brand name franchisors have
expanded very successfully in the Canadian market, and other
newer concepts have been developed in Canada through master
franchise or development arrangements. Whatever the preferred
mode of expansion, US franchisors who do their homework
at the outset, who protect their trade marks and other proprietary
information, who are well informed of the legal and business
issues affecting franchising in Canada, and who structure
their preferred mode of expansion with full knowledge of
the tax and business implications, will find the Canadian
marketplace inviting, receptive and relatively easy to enter.
Frank Zaid is a senior partner with Osler,
Hoskin & Harcourt LLP, Barristers and Solicitors in Toronto,
Ontario, Canada and Chair of the firm's National Franchise
and Distribution Practice Group. He is a Past General Counsel
to the Canadian Franchise Association and Past Chair of
the Council of Franchise Suppliers of the International
Franchise Association. He can be reached at (416) 862-6415,
fax (416) 862-6666, or e-mail: fzaid@osler.com.
BK Avoids Slowdown to Post 29% Profit Gain
 Shrugging off macroeconomic pressures and other challenges that have
saddled even the strongest restaurant companies, Burger
King Holdings Inc. last month reported a 29-percent year-to-year
increase in its second quarter profit of revenues that jumped
10 percent to $613 million. The No 2 burger chain posted
a global same-store sales gain of 4.5 percent and a domestic
same-store sales jump of 4.2 percent for the December-ended
quarter. The news came the same week that quick-service
segment leader McDonald's posted flat domestic sales for
December and a 3.3 percent increase for the quarter.
Burger King said it was able to buck industry
trends with sales and marketing surrounding its Whopper
sandwich, new Homestyle Melts and a SpongeBob SquarePants
promotion. The Miami, FL.-based company, which operates
or franchises about 11,300 restaurants, also cited its value
menu and aggressive advertising like the Whopper Freakout
campaign that is expected to continue to air in the current
quarter along with promotional partnerships with the NFL
and family-driven brands like Snoopy and Cabbage Patch Kids.
(Nation's Restaurant News, 1/31/2008)
New Hotel Brand for the Budget-Conscious
 NYLO Hotels, the new chain of hip loft hotels that recently made its
debut in Plano, Texas, has announced a new chain that is
in tune with the times. Taking into account shrinking corporate
travel budgets, XP by NYLO will cater to business travelers
looking for value - and cool design. Guests get rooms with
soaring ceilings, a lobby wine bar, free wireless Internet,
breakfast buffet, gym and meeting spaces. There will be
no room service but rates will be $90 - $110 a night.
XP research says travelers want more than
a clean room, a nice bed and conveniences. They also want
personality. A spokeswoman for NYLO Hotels said that the
first XP is due on the East Coast in the third quarter of
this year. (USA Today, 2/11/2008)
 Under the guidance of New England Pantry Inc., the White
Hen Pantry convenience store brand continues to evolve,
as the company launched a new upscale concept called Pantry
Gourmet, a 3,200-square foot store that crosses several
retail channels, the company stated. New England Pantry,
the master franchisor of the White Hen Pantry brand in Massachusetts
and New Hampshire, operates 56 locations, none of which
were involved in the 2006 sales to 7-Eleven. The Pantry
Gourmet store, located in Northborough, Mass., features
a full-service Chock Full o Nuts, complete with dark roast
coffees, lattes, cappuccinos and smoothies, along with store-baked
pastries, desserts and Cheesecake Factory cheesecakes.
The stores also boasts a 12-foot expanded
produce section, an organic coffee bean kiosk from Hogan
Brothers of Framingham, Mass., and a small housewares department
featuring Village Candles. The store's dedicated, full-service
foodservice section is the largest in the company's history
and its grocery section offers a mix of traditional, specialty,
natural and organic items which was created to offer Whole
Foods shoppers an alternative to their "fill-in" shopping.
(Convenience Store News, 1/31/08)
Great American Cookie Co. Sold
 NexCen Brands, owner of ice cream chain Marble Slab Creamery
and The Athlete's Foot, has bought Atlanta-based Great American
Cookie Co. from Mrs. Fields Famous Brands for $93.7 million.
The purchase consists of $89 million in cash and $4.7 million
in NexCen stock. NexCen, which is headquartered in New York
but operates in Atlanta, also operates MaggieMoo's and hand-rolled
pretzel chains Pretzel Time and Pretzelmaker.
Great American Cookie Co. was founded in 1977
by local entrepreneur Michael Coles, who later made an unsuccessful
bid for one of Georgia's U.S. Senate seats. Great American's
sales last year were about $26 million with operating income
of $13 million. The company has almost 300 stores, mostly
in the continental United States. (AJC.com, 1/3/08)
 One year after Dunkin' Donuts announced its greater China expansion strategy and entry into Taiwan, the donut and coffee chain announced plans to open its first shops in Shanghai. Canton, Mass-based Dunkin' Donuts is set to open the first shop this spring with at total of 100 new shops planned over the next 10 years. The company recently granted the franchise rights for Shanghai and the provinces of Jiangsu, Zhijiang in the People's Republic of China to Mercuries & Associates which is the franchise partner for Taiwan. Currently, Dunkin' Donuts has more than 7,900 shops worldwide.
(Boston Business Journal, 1/25/08)
New Schrager-Marriott Brand Unveiled
 Ian Schrager and J.W. Marriott kick started their new lifestyle boutique
hotel brand this month by introducing its name, "Edition,"
and announcing an initial wave of signed development deals
that will see the expected opening of the first properties
in 2010. The renowned inventor of the boutique hotel and
the CEO of the world's premier lodging company said that
they have reached agreements with developers for the first
nine of what eventually could be more than 100 Edition hotels
in markets around the globe. Under the agreements, Edition
hotels are now planned for Paris , Madrid, Costa Rica, Miami,
Washington, Chicago and Scottsdale, Ariz. Two hotels are
also planned for Los Angeles.
The properties, while distinct, will all emphasize
good design, quality, originality, authenticity, and character,
while delivering impeccable, modern and gracious personalized
service. With an average of 150-200 rooms, each of the hotels
will reflect the best of the cultural and social milieu
of its location and of the time. A diverse set of world-renowned
architects and designers will be recruited to create one-of-a-kind
 
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