19 Aug 2015
US Franchisees Show Increasing Ambition to Take on Bigger Territories
Many initial franchisees are now keen to target wider geographical areas and multiple outlets from the off, according to several of the exhibitors and attendees at this year's National Franchise & Business Opportunities Show: Philadelphia.
The franchise model is alive and well in the US market, with exhibitors at The National Franchise & Business Opportunities Show: Philadelphia convinced of its value. Overall, the prospects are seen as good for both large, well-known brands and smaller businesses, as well as for the franchisees that run operations on the ground.
A number of exhibitors reported a trend for larger, more professional franchisees looking to take on larger territories with multiple locations, moving away from the stereotypical owner-operator model. Others, however, were prioritising moves into new locations due to reaching saturation point in their initial territories.
Green energy was also seen as offering good opportunities for grassroots entrepreneurs. Understandably, the best prospects in this sector were identified in the more environmentally aware US states.
Summarising his own company's experience, Scott McCollam, Regional Franchise Sales Manager for 7-Eleven, the Texas-based convenience store chain, said: "We have found that, when a franchisee runs a store, they're very heavily invested in it, so they're going to run it better than we would.
"Our business model is a little different to the typical royalties-off-the-top model – we share the gross profit. If the franchisee makes money, 7-Eleven makes money.
"We will go out and acquire the land, either leasing or purchasing it. Then we'll build the store and invest into that. We'll bring in all the products, all the equipment, we'll actually open the store and we'll run it corporately until we franchise it.
"Out of the 8,500 stores that we have in US roughly 70% are franchised. Our goal is to be 100% franchised."
Martin Tierney, Director of Seating Matters, a Northern Irish health seating company, also saw the advantage of the franchising model when it came to selling into the large and diverse US market. He said: "Franchising means that you have local people who know the local area. If you do it direct, you need a big sales force to cover a big country. I think education – showing what's worked in the past – is good for franchisees because many of them have never done this before."
Tierney also noted certain peculiarities related to selling the company's medical chair to the US (apart from Americans' larger average girth), saying: "A person has similar medical needs all around the world and conditions are often similar. The difference is usually down to funding – where the money comes from for the chair.
"Sometimes it comes from insurance, sometimes it comes from the hospital, that's the biggest difference. It's more like trying to sell to 50 different countries here, all with different regulations. It's a lot more difficult."
While most exhibitors at the show offered single brands, others presented a range of different options to would-be franchisees. The United Franchise Group, based in Florida, operates as the franchisor for several brands. Identifying the brands that were performing best for then, Troy Thomas, the company's Vice-president, said: "For our biggest brand, Sign-o-Rama, there are still many open areas, especially in the middle Atlantic region, where we are today. The resale of Apple products is huge, but not just Apple – other PC products as well.
"Our SuperGreen brand, focussing on green energy efficient products, is constantly changing. It's very sexy, it's new, and everybody's looking to save money on energy and go green."
Thomas was clear as to where franchisees should direct their efforts, saying: "It all comes down to sales. Those who stick to a game plan – which is what a franchise is – are the ones who succeed, whether as a franchisee or a master licensor."
Another green energy brand at the show offered something of a twist on the standard franchising business model. Bryan C Shirley, President of Yes Solar a North Carolina-based solar energy equipment supplier, said: "It's zero money to enter; there are no fees to us. We are essentially a product supply company, so we make our money on selling products.
"The main advantage of not taking on a franchise is not having to pay any front-end costs. It's not even an exclusive agreement that we make people sign – they don't have to sell our product. We are hoping for a loyalty factor and believe that, once we get them into the business, they will continue to buy our product. It's more about the marketing support, the sales support, and the branding. The Yes brand is going to be national."
While green energy may still be a hot topic in the US market – despite having been around for a while and with energy costs in falling in line with wallowing hydrocarbon prices – its success depends a great deal on local legislation and local energy pricing. Highlighting this, Shirley said: "At the end of 2016, the federal investment tax credit, which is 30%, is going to go away. Currently, if you put a US$20,000 system on your roof, you get $6,000 back from the federal government. States are increasing the incentives, but people still have to commit to it.
"It's also very dependent on energy costs. The energy costs in this area are much higher. In Florida, the 'sunshine state', solar is not that prevalent because you can buy a kilowatt of energy for nine cents, whereas here it might be 16 or 18 cents. We have dealers in northern and southern California, plus a couple in Florida. There's no one in the Pennsylvania and New Jersey area, but New York and New Jersey are the third and fourth states in terms of solar-friendly, mainly because of the legislation that's already in place."
Another business showing a decided regional variation was Primrose Schools, a Georgia-based kindergarten franchise. Collie Day, the network's representative at the show, said: "There is a lot of opportunity for us right now in California. There's a lot of need there for early education. It's just not offered there a lot of the time because the costs are so high.
"If you are wanting to build in someplace like California then it's going to cost at least US$150,000 more than building someplace in the southeast. In light of this, our schools in California are a little bit smaller. This is because we understand the costs would otherwise be extravagant. Our urban models can be anything between 9,000 and 11,000 square feet in size. We've done urban models really successfully in Houston, Austin and Atlanta, and we're doing that more often."
The education sector is also affected by local and national government policy, although Primrose's target market insulates its franchisees. Explaining this benefit, Day says: "I think the biggest change we're seeing right now is that, in some areas, the government or the city will pay for early education. As a result, many of our franchisees are coming to us and saying: 'How is this going to affect our school?'
"What we've found, though, is that it really doesn't affect our schools very much. We go into very high-income areas, with a high density of population. The people there really want that high premium cost education."
Finding a Point of Difference
Across the board, many franchises operate in a crowded sector and need a point of difference in order to stand out from the crowd. Finding and promoting that difference is vital for franchise operators when it comes to attracting customers.
Cleaning is one such crowded sector. Highlighting his own company's point of difference, Rob Albert, General Manager for Coverall, a Pennsylvania-based commercial health-based cleaning business, said: "It comes down to the health-based cleaning system and the technology that we use, and also our efficiency – time is money. A lot of the technology that we provide allows for a more efficient use of the franchisees' time.
"As a health-based cleaning system, we were trying to find a niche for our franchise owners – thinking: 'How do we separate ourselves from the rest of the pack?' Some people might think it's just a matter of going after healthcare accounts, but it's really about making every workplace healthier."
Food franchises of every variety were well represented at the event. Corey Bradley, Vice-president for Franchise Development for Bruster's, a Pennsylvania-based ice cream company, was confident that his business stood out. He said: "What makes us different is we make ice cream fresh in our stores every day, along with our waffle cones.
"We are a true 'cow to cone' business. We own the dairy where the milk comes from. This means we can control food costs and provide a consistent quality of product for our franchisees."
Bradley, however, had noticed a distinct change in the type of franchisee the company was doing business with. Highlighting this, he said: "We're now getting a lot more interest from folks who are coming in, either as individuals or as an investment group, and, instead of opening one store, they're looking to take on a territory and open multiple stores."
Brook Wise, Regional Franchising Director for Express Employment Professionals, an Oklahoma-based recruitment consultancy, was one of many seeking out new territory in order to expand beyond saturated markets. She said: "We're sold out in the middle of the country, where we're founded, and we are now expanding on both coasts.
"We're number one in light industrial, which is typically where franchisees will start, then they'll diversify their business from there. The sector is growing in line with the upsurge in the economy. Not only is the light industrial sector picking up, all other sectors are expanding too – medical, IT, financial.
"The unemployment rate is going down. I think companies are loosening up a bit and hiring people and that will, of course, have a major impact on us."
Brent Greenwood, Senior Manager of Franchise Development for Firehouse Subs a Florida-based sandwich chain was also looking to expand – this time across the northern and southern borders of the US. He said: "For us, the time is right for international development. We've sold a lot of territory here in the US. A lot of markets are sold out for us now. There are certain areas in the northeast and southwest where we still have significant opportunity, but the natural progression for us is to go international.
"We're very conservative about how we do it. In Canada, we're only going into Ontario, then going into other provinces after that. Next, we're looking to Mexico. Strategically, they're both close to the US so it's easy to get into these countries."
The National Franchise & Business Opportunities Show: Philadelphia was held at the Greater Philadelphia Expo Center from 21-22 March. More than 50 exhibitors offered a wide range of franchise opportunities to visitors from across the US northeast coast.
James O'Donnell, Special Correspondent, Philadelphia