Tracking the Trend: What History Can Tell us about the Future of Franchising. Mary Jo Larson Publisher/Vice President Franchise Times Corp.

Transcription

1 Tracking the Trend: What History Can Tell us about the Future of Franchising Mary Jo Larson Publisher/Vice President Franchise Times Corp.

2 McDonald s: World domination Founded 1941 Today: 34,565 restaurants

3 1980s 1990s 2000s Today Future Hamburgers

4 McDonald s: World domination BK copies McDonald s BK s new products: Satisfries and Big King Wendy s image activation program Wendy s focus on premium products

5 Better burgers: A fall out begins? Ousted CEO after steep sales declines Once fastest growing restaurant chain, now suffers from lagging AUVs Crazy growth and an IPO possible on the horizon, but AUVs fall after year 2. Store profitability a struggle

6 1980s 1990s 2000s Today Future Pizza

7 Franchises are winning 13,700 stores $11.2 billion in sales 10,000 stores $6.9 billion in sales 3,800 stores $2.6 billion in sales 3,500 stores $1.4 billion in sales Independents: Ouch! Shrank by 1.5% last year Technology possibly to blame

8 Better pizza: A craze on the rise BWW makes equity investment. Will be MN franchisee Vikings offensive tackle Matt Kalil and father purchase franchise rights for MN Chipotle makes investment in the Boulder, Colo.-based restaurant Brought to you by the same people who founded Quizno s Pizza laggard Pizza Inn goes head to head with other fast casuals

9 1980s 1990s 2000s Today Future Coffee

10 Coffee: Can t give it up Starbucks and Dunkin Donuts are this generation s Phillip Morris and RJ Reynolds. They sell a physically addictive product. They ve branded it successfully. And they ve made themselves ubiquitously available. They re generating new customers/addicts every day. And it s a beautiful business. Bryan Elliott, Raymond James Restaurant Analyst

11 The big gloves are on Came out of the recession fighting: Same-store sales grew at 5% in the first-quarter of 2014, bottom line expanded an astounding 25% to hit $540.7 million 6% same-store sales growth for 15 straight quarters revenue expected to grow by 10% in fiscal 2014 Today, there are 21,000 locations, twice that of Dunkin Donuts.

12 Coffee: Can t give it up MN territory still yet to be sold; projected 50 units to be operated by multiple franchisees Caribou to remain Midwest chain. German PE firm Joh. A. Benckiser purchases it last year; closing or converting stores in other markets to Peet s Coffee & Tea. 80 locations, most in MN. Experimenting with new food concept in Edina

13 1980s 1990s 2000s Today Future Mexican

14 Yes, cows explode.

15 1980s 1990s 2000s Today Future Sandwiches

16 Subway: 15 years ago, Jared changes everything Chain crosses 40,000 th -unit mark

17 Subway: Struggling with weak comp sales Theories: Latest $4.00 lunch special is confusing with the $5.00 foot long Lower-end consumers are struggling and have cut back It has reached its peak or.it s those other guys

18 Those other guys 10-year system sales growth of 1,785% Delivery and simple system help grow revenue $1.26 billion in worldwide sales Approximately 2,000 locations $385 million in sales. More than 700 locations and climbing. 697 restaurants with $334 million in sales

19 And what of.? Trouble, trouble, trouble: Marked up food and other supplies to franchisees, limits profitability for operators. More $ earned from selling supplies than collecting royalties (18% total off the top) Unit volumes under $300,000 Bad locations Franchisee stores close, royalties diminish Franchisee lawsuit in 2009 resulted in $95M settlement. Another suit brought last year. Mammoth struggles with debt, and defaulting on covenants Filed for bankruptcy protection in March Massive unit closures 2008: Almost 5,000 stores Today: 1,200.or less

20 13 locations 67 locations

21 1980s 1990s 2000s Today Future 1979 Yogurt

22 A top dog? Menchie s Ranked fasted growing franchise in Franchise Times 2014 Fast & Serious Ranking 400 stores since launching in under construction

23 1980s 1990s 2000s Today Future Casual Dining Restaurants

24 One winner Considered a hybrid of casual dining and fast casual In the fourth quarter: Revenues climbed 12.4% to $341.5 million Same-store sales popped 5.2% at company-owned locations and 3.1% at franchise locations Brrrrrr.For the first five weeks in 2014 company-owned stores tacked on another 4.8% in comparable sales growth

25 1980s 1990s 2000s Today Future Fast Casual

26 The big players Last year: 20.7% sales increase 9.3% same-store sales increase 9.3% guest traffic up Building, building in 2014 Sales weakness due to long lines and service issues. Demographic women with higher incomes has other choices Too many menu items Still building stores Correcting service times

27 QSR playing defense More sophisticated menu offerings like flatbreads and rice bowls Higher price point than most fast casuals Early reviews are positive

28 1980s 1990s 2000s Today Future Chicken

29 A beleaguered chain Introduction of so-so products assists in sales decline Franchisee store closures accelerate the past few years due to same store sales declines Outdated restaurants how can you spend money on remodeling when your sales are shrinking? Franchisor plays hardball with franchisees who don t remodel. They are out of compliance and will not renew their franchise contract.

30 Chicken done right apparently

31 1980s 1990s 2000s Today Future Misc. Services

32 Make my life better please 648% growth in system sales over the last 10 years 526% growth rate in system sales over the last 10 years 35 senior care franchises, and growing 950 locations and $960 million in worldwide sales Revenues increase 47% in last three years

33 1980s 1990s 2000s Today Future Gyms

34 It s all working out for gyms $675 million in worldwide sales $484 million in worldwide sales 2,400 clubs in 50 states and 16 countries PE investment by Roark Capital Now franchising Waxing the City $390 million in worldwide sales Investment in 9Round boxing franchise Investment in local personal training concept Steele Fitness

35 What happened to.? 7,000 worldwide locations Sales (10.7% ) and number of units (4.4% ) declining In November, acquired Jenny Craig diet centers Added Biggest Loser s Jillian Michaels as spokesperson, trying to skew to younger crowd

36 What to watch for: Nutrition/Fitness Education Healthcare/senior care Fast casual restaurants

37 Why it s growing Low interest rates and capital availability are fueling franchising. Lots of lenders for the right brands. Private equity funds are steadily increasing their investments in franchisors and now, franchisees

38 Mary Jo Larson Publisher/VP Franchise Times Corp