Denver Franchise Executives Share Views – What’s Changing? What’s Challenging?

Aside

Senior franchise executives gathered at PostNet headquarters in Denver April 13 for the latest in IFA’s series of CEO roundtables taking place throughout the country. Attendees discussed the economic outlook for franchising, including IFA’s efforts to bring together franchisors, franchisees, lenders and policymakers to begin a campaign to loosen credit, which began with this month’s Small Business Lending Summit.

Click below the jump for details on each of the specific topic areas discussed below.

Discussion topics included

  • 2011 Franchise Business Economic Outlook
  • Franchise Business Leader Survey Highlights
  • Credit Access #1 Issue
  • IFA Small Business Lending Summit Update & Next Steps
  • Overview of Key Federal and State Issues
  • OnTrack–Benchmarking for Franchisors–IFA’s newest member service

Changes and Challenges

  • Franchise Sales/Pipeline
  • How Franchisors Are Adapting to “New Normal”
  • What’s Working and Not in Lead Generation
  • Is Franchising the Right Strategy?
  • Co-op Advertising Campaign–Best Time To Own A Franchise

John Reynolds gave highlights of the 2011 Economic Outlook report produced for the IFA Educational Foundation by PwC, predicting 2.5 percent growth in establishments and jobs, and 4.7 percent growth in economic output.  The report also gave an outlook by business lines with higher output growth in automotive, commercial/residential services, and personal services.

Reynolds summarized highlights of two IFA member surveys conducted in November of 2010 and March of 2011 that showed no improvement in credit access picture for franchisors and franchisees. 

Charlie Melancon, IFA’s Senior Vice President for Government Relations & Public Policy, reported on early success by IFA in push to expand the SBA loan program, increase loan limits and extend 90 percent guarantee–efforts which resulted in increased capital flow to small businesses in late 2010 and early part of 2011. Melancon stated while this was a “lifeline” to small franchise businesses, it was clearly not enough.   

Melancon gave highlights of the lending shortfall of 20 percent on franchise small businesses, and results of the lending report prepared by FRANdata for IFA.  

Melancon reported on the IFA Small Business Lending Summit on April 7 which brought together nearly 200 franchise executives, lenders, and policymakers to find solutions to increase capital flow to franchise businesses.  Among outcomes of the summit-a Working Group was formed to continue engagement  between the franchising and lending communities, develop a national franchise loan registry to streamline the loan process for franchisors, franchisees, and participating lenders, and provide ongoing education programs for lenders–about franchising–and for franchisors and franchisees–about how to be better prepared in dealing with lenders. For a full report,  including a white paper, “Linking Franchise Success with, Economic, Growth and Net Job Creation,” go to http://www.franchise.org/smallbusinesslendingsummit.aspx

Melancon updated members on federal and state priorities including efforts to repeal the health care reform law, taxes, the Veterans Own Franchises Act, swipe fee reform and menu labeling.  For a full report on IFA’s top legislative issues, visit the Government Relations tab at franchise.org.

Brian Spindel, CFE, PostNet President & CEO, who also chairs IFA’s Benchmarking Task Force, reported on the successful launch of OnTrack–a free online benchmarking tool for IFA members and gave a brief demonstration of OnTrack’s features and functions.  He reported that more than 120 IFA members have signed up for OnTrack since the IFA annual convention in February.  For sign-up information, visit http://www.franchise.org/benchmarking.aspx

Franchise Sales/Pipeline and Challenges – What’s Working and Not?

Franchisors reported that franchise leads and sales were still very flat with only small improvements in recent months due to credit access, economic uncertainty and low consumer confidence.  Many expressed challenges such as relying on past lead generation techniques–Internet/portals, trade shows, advertising, etc.–were not working and were not cost effective. 

Franchise executives discussed whether brokers were a better strategy because when managed properly they can deliver higher quality leads.  There was a lot of discussion about whether a dedicated inhouse, highly incentivized sales team was a better approach than relying on brokers.  Several franchisors stated they were using brokers because they just needed to get some traction going.   One franchisor said he has spent a lot of time optimizing the company’s website and re-targetting visitors through using cookies.  All franchisors agreed that they were spending more time and effort on pre-qualifying and helping to prepare franchise prospects to get financing. 

Is Franchising the Right Strategy? 

As franchisors are being asked to provide loan guarantees, provide leasing programs, and provide direct financial assistance to franchise prospects and existing franchisees, several franchisors asked if putting more capital in company stores and less effort to franchise development might be a better strategy during times of restricted capital. Many franchisors said they were increasingly focusing on re-structuring and re-vitalizing existing network and unit economics, and less on franchise sales for new units. Several franchisors said that stronger unit economics will attract better, more sophisticated and higher quality franchisees in the long run.  One franchisor said he was considering not refiling the company’s FDDs due to the cost and focusing more on the short-term to strengthen existing franchisees. 

Co-op Advertising Campaign–best time to own a franchise 

Discussion then turned to a brainstorming session on ways that IFA members could develop a co-op advertisng program to combat the negative media reports about the economy–by promoting the idea that there’s never been a better time to own a franchise business.   The advertising campaign would promote the benefits of owning a franchise, being affiliated with strong brands, and being part of a system versus going it on your own.   Using social media and doing multi-channel messaging could be used to support a co-op campaign.  A co-op campaign could also link back to the IFA Web site where people could learn more about franchising and how to go into business for themselves, but not by themselves. Several franchisors said that such a campaign could also address the other side of the credit access issue by demonstrating, to potential franchisees and investors, the positive attributes of franchising and the lower risk profile of many franchise businesses.  

This is a summary, please add your comments and questions.

Posted by John Reynolds, President, IFA Educational Foundation

An Opportunity to be A Part of History, Continued…

Aside

In Part One of this very engrossing two part series, I referenced baseball’s opening day, and voiced the sentiment that many IFA leaders were heading to D.C. with a sense of optimism because we felt we could truly make a positive difference.  Well, now a week later, I can whole-heartedly say that last week’s Small Business Lending Summit (SBLS) was one for the record books and I absolutely DO feel like everyone in the room made a positive difference!! 


Speaking at the SBLS alongside The UPS Store franchisee Mariana Huberman

Think of the SBLS as the baseball game where each team scores every inning – one for you, one for us, two for you, two for us.  My opinion is this “game” is far from over, but our team (the franchise community, the bankers and the policy makers) is currently leading against team No Money for You.  We’re only in the bottom of the 2nd inning though, so what we have to do now is be relentless in keeping the pressure on in order to sustain our advantage. 

I believe IFA Chairman, and McDonald’s franchisee, Jack Earle summed up the day very well when he said, “The dialog was at times tense and always enlightening”.  At one point, there was a lot of “respectful disagreeing” going on, but even after that particular presentation the panelist came off the stage and offered a pat on the fanny to the crowd (metaphorically speaking, of course). True progress cannot be made unless all parties really make an effort to understand the opinions and views of their counterparts.  I believe the SBLS absolutely provided the right environment for progress to materialize.

Below the jump are my Top Ten SBLS “Plays of the Day”:

  1. There is an estimated $10.4 billion dollar demand for capital by the franchise community.  Unfortunately, there’s only an $8.4 billion supply available leaving us with a $2 billion “lending gap”.  This could seriously further impede the already slow economic recovery.
  2. When conference attendees are warming their hands by the coffee table heat lamps and wrapping themselves in tablecloths, it’s too cold in the room!
  3. Five Guys Burgers is estimated to have 1,000 locations by the end of 2011.  How have I not eaten at one yet?
  4. Karen Mills, SBA Administrator, says the three reasons why banks aren’t lending are: 1) they don’t want the risk, 2) they don’t have any capital, 3) regulatory restrictions.
  5. The US borrows $4 billion dollars per day!
  6. Tony Wilkerson, CEO of the National Association of Government Guaranteed Lendors (NAGGL) says, history shows direct correlation between small business access to credit and job creation. 
  7. Steve Moore of the Wall Street Journal says history is clear that the economy does worse when one party (either party) controls government. Divided government equals best economic situation. 
  8. Dr. Jeffrey Rosensweig, Associate Professor of International Business and Finance, and Director, Global Perspectives Program, Emory University, says two words to remember regarding franchising: “Resilient” and “Locomotive”.  The franchise model is resilient and franchising can be a locomotive for growth. 
  9. It is possible to run a 9 ¼ hour event with 200 attendees, 47 speakers, 5 panels, a white paper release, senior government officials and media and have it finish exactly on time!  Amazingly well-done!!
  10. There are at least nine “C’s” in lending, not just collateral, capacity and character.  A tenth was suggested to be added, “Common Sense”. 

Posted by Susan Black-Beth, Chief Operating Officer, Super Wash, LLC. Check out Susan’s blog at www.superwashsusan.blogspot.com.

Key takeaways from the lending summit focus on collaboration, communication between banks, franchise businesses

Aside

At IFA’s Small Business Lending Summit last week, franchisors raved about the process of franchising and the importance of building solid relationships with franchisees to help them achieve entrepreneurial success. “I get jazzed by the franchising concept where people put their own money at risk,” said Nigel Travis, president and CEO of Dunkin’ Brands, who also discussed the importance of ongoing training and a brutal franchisee selection process. Relive some of the key moments in the slideshow below. 

Posted by Matt Haller, IFA Director of Communications

IFA Addresses Restaurant Industry Leaders on Credit Access Challenge

Aside

Speaking to the Restaurant Leadership Conference this week in Scottsdale, Ariz., IFA President & CEO Steve Caldeira talked about the latest issues impacting franchise businesses, particularly the continued credit challenge facing the industry regarding access to capital in advance and their ability to grow and create jobs.  

(left to right): Scott Allmendinger, Publisher Restaurant Business Magazine; Steve Caldeira, President & CEO, IFA; David Jobe, President, Leadership Conferences, CSP Information Group; Peter Romeo, Editor-at-Large, Restaurant Business Magazine 

The event, which is put on by CSP Information Group, publishers of Restaurant Business magazine and MonkeyDish.com,  brings together more than 1,400 leaders from the restaurant industry, including franchisors, multi-unit franchisees and owner-operators from across the country.

During his speech, Caldeira focused a recent small business lending report produced by FRANdata for the IFA Education Foundation, which shows a 20 percent lending gap facing franchise businesses in 2011. This gap is expected to result in the loss of 80,000 jobs and $10 billion in economic output this year if lending to franchise businesses does not improve.

The restaurant industry, as the largest business format category in franchising, encompassing more than 246,000 establishments, 4.4 million jobs and $287 billion in economic output according to IFA’s 2011 economic outlook for franchised businesses, will likely feel the brunt of this lending shortfall.

To address the challenges, Caldeira has put together the IFA’s first-ever Small Business Lending Summit, taking place in Washington, D.C. on April 7, which will bring together lenders and franchise businesses to develop solutions to the lending shortfall that will spur job growth within the franchise sector. IFA has partnered with the National Restaurant Association, as well as leaders in the banking industry such as the Consumer Bankers Association and the National Association of Government Guaranteed Lenders, for the event.