The 23rd Annual Elements of Successful Franchising

Transcription

1 The 23rd Annual Elements of Successful Franchising Speakers: John Hamburger, President, Franchise Times Steve Joyce, President & CEO, Choice Hotels International Dennis Wieczorek, CFE, Partner, DLA Piper LLP Philip Zeidman, Senior Partner, DLA Piper LLP Date: Sunday, February 23, 2014 Time: 9:00am 12 Noon

2 Dennis Wieczorek Partner DLA Piper 2 2

3 Philip Zeidman Partner DLA Piper 3

4 Steve Joyce CEO Choice Hotels 4

5 John Hamburger President Franchise Times Corp. 5

6 Philip Zeidman, Partner DLA Piper LLP (US) 6

7 How is Franchising Affected by the World Around us? 7

8 FOCUS ON VALUE 8

9 Disposable Personal Income 9

10 Baskin Robbins Unveils New Development Incentives for 2014 Burger King revamps $1 menu as King Deals Value Menu Hotels Responding to Customers Requests for Free Internet 10

11 FRANCHISORS OFFER THEIR OWN FINANCING PROGRAMS 11

12 FOCUS ON AGING 12

13 US Population 65 and Older 13

14 ELDER CARE FRANCHISING CREATES NEW NICHE 14

15 FRANCHISE OWNERSHIP IS A RETIREMENT OPTION HOT TREND: SENIORS BUYING FRANCHISES 15

16 ...And A Word About Youth 16

17 But It Doesn t Look Like a Marriott Marriott International Aims to Draw a Younger Crowd Are restaurant marketers ignoring Gen X? Millennials want brands to be useful, disruptive Restaurant Chains Try to Woo a Younger Generation 17

18 FOCUS SHIFTS TO WOMEN 18

19 Women in the Workforce 19

20 Women: Saviors of the World Economy? 20

21 Women Wake Up to Franchising 21

22 FOCUS ON LIFESTYLE 22

23 El Pollo Loco Rings in the New Year by Introducing Five New Meals Under 500 Calories Chick fil A stealth about healthful menu changes Jack in the Box Expands Its Healthier Menu Options by Introducing Egg White & Turkey Breakfast Sandwich Sbarro introduces skinny pizza TGI Fridays Offers Lighter Choices 7 Eleven makes push into fresh foods A look behind Chuck E. Cheese s gluten free rollout Consumer demand for veggies growing Wing Zone targets women with Skinny Dippers Why the McWrap Is So Important to McDonald s 23

24 Fitness Franchises Muscle Up 24

25 Green Businesses Can Go Forever! 25

26 FOCUS ON EDUCATION 26

27 1. Harvard University 2. Stanford University 3. University of California, Berkeley 4. Massachusetts Institute of Technology (MIT) 5. University of Cambridge 6. California Institute of Technology 7. Princeton University 8. Columbia University 9. University of Chicago 10. University of Oxford 11. Yale University 12. University of California, Los Angeles 13. Cornell University 14. University of California, San Diego 15. University of Pennsylvania 16. University of Washington 17. The Johns Hopkins University 18. University of California, San Francisco 19. University of Wisconsin Madison 20. Swiss Federal Institute of Technology Zurich 27

28 Competitors Still Beat U.S. in Tests 28

29 29

30 Mathnasium Opens Record 100 New Learning Centers in 2013 Entrepreneur Magazine Ranks Kumon No. 1 Education Franchise for 13th Consecutive Year Primrose preps preschoolers for future academic success Tutor Time child care programs give children an early edge 30

31 FOCUS ON MINORITIES 31

32 Percent of U.S. Population By Race and Hispanic Origin Source: U.S. Census Bureau, Population Division 32

33 Minorities as a Percent of Total US Population 45.00% 40.00% 35.00% 30.00% 25.00% 20.00% 15.00% 10.00% 5.00% 0.00%

34 Census: White Majority in U.S. Gone by

35 Census: Non English Language Use Has Tripled 35

36 Minority Business Ownership: Franchises and Non Franchises 20.5% 14.2% Franchised Business Non Franchised Businesses 36

37 FOCUS ON MIGRATION 37

38 Figure A 1. Number of Movers and Mover Rate: number (in thousands) Mover Rate Number of Movers 38

39 Figure A 2. Number of Movers and Mover Rate: number (in thousands) Mover Rate Number of Movers 39

40 Americans on the Move Again 40

41 Dennis Wieczorek, Partner DLA Piper LLP (US) 41

42 WHAT S HAPPENING RIGHT NOW? TRENDS FRANCHISORS ARE FACING TODAY 42

43 The Institutionalization of Franchising 43

44 Institutionalization of Franchising Financial Markets Have a Better Understanding of Franchising Public companies Securitization Private equity 44

45 Institutionalization of Franchising Private Equity Numerous transactions Purchase from founder Purchase from another P/E firm Attractive because Predictable revenue stream Growth model Modest capital needs 45

46 Institutionalization of Franchising Private Equity But not all roses Prominent bankruptcies Restructurings at others Many relate to acquisitions before crash in

47 SOCIAL MEDIA 47

48 Social Media Key element of many franchise programs Most often to reach customers and create loyalty (and consumer facing programs are important to franchise sales) Social media as replacement for traditional media? 48

49 Social Media Differences among franchise systems Need social media policy (ops manual, agreements) Most common franchisee can use social media but subject to some overall franchisor control Legal issues Truth in advertising Defamation Franchise laws Endorsements 49

50 Social Media Importance to Franchise Sales Robust sites allow interaction with candidates Blogs Validation from existing franchisees (lessens need for phone intrusions) 50

51 Social Media Who is watching your brand on social media? Staff Outside service Without unifying policies, could create chaos 51

52 The Government Is Here To Help You 52

53 Employment Government Help Health care Fast union elections (in lieu of card check) Wage hour laws franchising as a fissured industry 53

54 Intersection With Employment Law Can a franchisee be an employee of the franchisor? Massachusetts case minimum wage and other requirements IFA working on a statutory change Some favorable decisions in other states But plaintiffs lawyers are expanding cases to other franchise systems 54

55 Government Help Operations Menu labeling What you can sell N.Y.C. beverage law Where you can locate local zoning restrictions 55

56 Financial matters Credit Government Help IFA working with SBA to facilitate use of Franchise Registry Taxes Only going up and continuing uncertainty regarding debt and spending 56

57 Government Help Franchising Legislation percolating in several states IFA fought off CA bill New activity in MA, ME, NH and PA 57

58 The Affordable Care Act 58

59 Affordable Care Act Unless very small (less than 50 employees), it applies to many franchisors and franchisees Setting up additional entities doesn t help attribution rules 59

60 Affordable Care Act Understanding the law Determining financial impact Retaining employees dealing with the competition Public relations issues 60

61 Majority of US Franchises Now Owned by Multi Unit Franchisees As of 2013, 54% of all US franchised locations are operated by multi unit owners Over 10% of multi unit owners are multibrand 61

62 % franchises owned by multiunit franchisees? Multi unit ownership: 82% in QSR 66% in Personal Care 58% in Auto related Lowest % in travel, computer related and photography 62

63 Franchisee Associations and Advisory Councils Recent FRANdata survey Sample of large, medium and small franchise systems Large: 500+ Medium: Small:

64 Associations and Councils Large franchisors only 18% reported no association or council at all Medium 28% had none Small 74% had none 64

65 What Does This Mean? Multi unit franchisees continue to grow and now predominate Nearly all franchise systems, except very small ones, have franchisee associations or franchisee advisory councils 65

66 What Does This Mean? Maturation and institutionalization of franchise systems Sophisticated and large franchisees Greater balance in relationship Voices are heard 66

67 What Does This Mean? United in concerns about government intrusion IFA blends voices together Recognition that franchise legislation hurts the brand, thereby damaging franchisee and franchisor alike 67

68 An Observation About Franchise Litigation Anecdotal evidence that franchise litigation is down. Why? ADR used instead? Era of good feelings? Sophisticated franchisees recognize that litigation hurts everyone but the lawyers? 68

69 John Hamburger, President Franchise Times 69

70 Franchise Times 200 The Top 200 Franchise Brands Ranked According to Worldwide Sales and the Number of Domestic and International Units 70

71 Restaurant Finance Monitor 200 The Top 200 U.S. Restaurant Franchisees Ranked According to Annual Sales and Number of Franchised Units 71

72 Franchise Times 200 Rankings SystemwideSales $577 Billion $326 Billion Locations 472, ,457 Franchise % 87% 81% International % 36% 27% 72

73 What have we learned? Revenue growth is from two sources: International expansion The preferred use of domestic franchising, rather than company store development. Franchising follows the trends Sandwiches, fast casual and fitness are growing faster than average 73

74 The Top 10 Franchises Revenue Company Worldwide Sales McDonald s $88.3B 7 Eleven $84.8B KFC $22.8B Subway $18.1B Burger King $15.8B Hertz $13.8B Ace Hardware $12.5B Pizza Hut $11.6B Circle K $10.7B Wendy s $9.4B 74

75 The Top 10 Franchises Locations Company Worldwide Locations 7 Eleven 49,503 Subway 38,318 McDonald s 34,480 KFC 18,198 Pizza Hut 14,357 Burger King 12,997 H&R Block 12,619 Hertz 10,600 Dunkin Donuts 10,479 Jani King 10,277 75

76 10 Year Sales Growth Company 7 Eleven McDonald s KFC Subway Tim Horton s Burger King Dunkin Donuts Pizza Hut Domino s Pizza Hilton Hotels Worldwide Sales $51.8B $46.7B $12.6B $12.4B $4.8B $4.5B $3.9B $3.7B $3.4B $3.4B 76

77 10 Year Total Unit Growth Company Worldwide Locations 7 Eleven 25,069 Subway 20,760 KFC 5,836 Dunkin Donuts 5,041 McDonald s 4,392 Liberty Tax 3,211 Domino s Pizza 3,025 Pizza Hut 2,327 Baskin Robbins 2,276 Coverall Cleaning 2,117 77

78 10 Year International Unit Growth Company International Locations 7 Eleven 23,162 Subway 9,733 KFC 6,690 McDonald s 3,789 Domino s 2,945 Burger King 2,505 Baskin Robbins 2,351 Pizza Hut 2,170 Century 21 2,104 Dunkin Donuts 1,745 78

79 10 Year System Sales Growth Company Worldwide Sales Jimmy John s 1785% Wingstop 1136% Plato s Closet 938% Buffalo Wild Wings 816% Liberty Tax 648% Home Instead 526% Zaxby s 512% Panera Bread 411% McAlister s Deli 323% Tim Horton s 286% 79

80 Growth Trends Sandwiches Company Worldwide Sales Jimmy Johns s $1.26B Einstein Bagels $455M McAlister s Deli $419M Firehouse Subs $385M Jersey Mikes $334M Corner Bakery $301M 80

81 Growth Trends Fitness Company Worldwide Sales Massage Envy $960M Planet Fitness $675M Anytime Fitness $484M Snap Fitness $390M 81

82 Growth Trends Fast Casual Company Worldwide Sales Five Guys $1.13B Qdoba $541M Wingstop $457M Moe s SW Grill $445M Jamba Juice $445M Noodles & Co. $355M 82

83 Franchise Times 200 Franchise Concentration % Franchised % 67/200 57/200 >90% 115/200 98/200 >80% 138/ /200 83

84 Restaurant Finance Monitor Versus Revenue $26.3 Billion $17.0 Billion Locations 20,331 16,271 Multi Concept 89/200 83/200 84

85 Monitor 200 Largest Franchisees Company Annual Sales Flynn Rest. Group $1.19B Applebee s Taco Bell NPC International $999M Pizza Hut Wendy s Summit Rest. Group $656M IHOP Applebee s Carrols Rest. Group $539M Burger King Bridgeman Foods $530M Wendy s Chili s Covelli Enterprises $482M Panera Bread Strategic Restaurants $415M Burger King Boddie Noell $412M Hardee s Sun Holdings $393M Burger King Popeye s Harman Mgmt Corp. $351M KFC 85

86 What have we learned from the Monitor 200 study? Multi concept franchisees are growing The primary concept is a large brand Growth is coming from consolidation, not new unit growth Lenders, PE firms, lower margins and high remodeling costs are driving consolidation 86

87 What s The Future Look Like? International development is the best opportunity for growth Low interest rates and capital availability are fueling franchising Private equity funds are steadily increasing their investments in franchisees Capital migrates to the large brands 87

88 THE GROWING INTERNATIONALIZATION OF FRANCHISING 88

89 International Growth The 200 Top Franchisors now have 36.2% of Their Units Outside the U.S. Courtesy of Franchise Times 89

90 International Growth The Larger the Franchise Network, the Higher the % Outside the U.S. Courtesy of Franchise Times 90

91 International Growth But Not Just the Giants... And Not Just Food Service... And Not Just Hotels... Service and Retail... 91

92 Does your company currently either franchise or operate locations in international markets? 92 92

93 Does your company plan to accelerate or start new franchise operations in international markets? 93 93

94 How important is international to your company s future success? 94 94

95 WHY IS THIS HAPPENING, AND WHY IS IT HAPPENING NOW? 95

96 THE LEGAL ASPECTS OF INTERNATIONAL FRANCHISING 96

99 Laws Applicable to Franchising February 2014 Blue = Disclosure Law Green = Relationship Law Red = Disclosure & Relationship Laws Black = Other The Americas Antigua and Barbuda Barbados Brazil Canada Alberta Manitoba New Brunswick Ontario Prince Edward Island Mexico United States Federal Several States Venezuela (competition law) Does Not Include: Europe EU (competition law) Within EU Belgium Estonia France Latvia Lithuania Italy Romania Spain Sweden Non-EU Albania Belarus Georgia Moldova Russia Ukraine Western Asia Azerbaijan The Middle East Saudi Arabia (commercial agency law) Africa South Africa Angola Tunisia Central Asia Mongolia Kazakhstan Kyrgyzstan Turkmenistan South Pacific Australia Indonesia Malaysia Asia China Japan Macau South Korea Taiwan Vietnam Codes of conduct which do not provide for governmental or private enforcement, even if promulgated under governmental authority. Bodies of law (e.g. competition, intellectual property, etc.) which also cover franchising, unless explicitly mentioned. Registration requirements that exist in many countries under various laws (e.g., franchise, foreign exchange, intellectual property, competition, etc.). 99

100 BEYOND THE NUMBERS 100

101 101

102 American Exceptionalism : Time For A Reality Check 102

103 But 103

104 104

105 OUTSIDE THE BOX 105

106 WHAT? HOW? WHERE? 106

107 107

108 Betting Against Franchising 108

109 109

110 110

111 Q & A 111

112 Contact Information John M. Hamburger T: Steve Joyce T: Dennis E. Wieczorek T: Philip F. Zeidman T:

113 113

114 DLA Piper LLP (US) gratefully acknowledges the following: 114

115 Give Us Your Feedback! Log on to the IFA App. Find our session under the appropriate day on the Schedule Tab. Click on the green button that says Tap here to take a survey for this event. Follow along with the instructions. It will take just a minute or two but will help us for future programming! Thank you!! 115