The Importance of Franchisors Building Relationships With Their Franchisees

The Importance of Franchisors Building Relationships With Their Franchisees…

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“Over my forty-plus years representing franchisors, I have seen too many franchisors fail because they do not realize how important it is for their franchisees to succeed and make money.”

The Importance of Franchisors Building Relationships With Their Franchisees
By Gary Occhiogrosso- Founder of Franchise Growth Solutions, LLC.

When Onboarding new franchisees the franchisor should always remember that a common thread to success is the franchisor’s culture of support, co-operation, communication, education, and profitability with their franchisees. Building an ongoing relationship with its franchise community can mean the difference between growing a restaurant brand to hundreds of units or failing before ever making a mark in the industry.

Without these critical components in place, a restaurant franchisee can quickly go “off the rails” and compromise brand standards. It’s not long before many of these franchisees negatively redefine the brand. Poor service, improperly prepared menu items, lesser quality ingredients and overall appearance and cleanliness of the restaurant are just a few reasons why a healthy relationship with your franchise owner is essential.

It Starts At the Beginning.

Creating the proper franchisor /franchisee relationship builds success for both. This relationship building must begin right from the start. Successful restaurant franchisors know that ramp-up time and getting a new restaurant profitable takes smart planning and hard work by both the franchisor and the franchisee. The training, support, communication and ongoing assistance the franchisee receives early on in the relationship can set the tone for the entire term of the franchise agreement.

One of the most crucial steps a franchisor can take begins when selecting a franchisee. Franchisors should conduct an in-depth interview as part of a thorough vetting process. Along with the obvious discussions such as past management and business experience, time commitment to the operation and funding, franchisors must also explore the core business values of the franchise candidate. Spending this time upfront to examine the candidate’s vision, expectations and the overall business plan goes a long way into understanding if the potential franchisee shares common goals with the franchisor. It is also the first step in building brand value and a robust, lasting business relationship.

Increase Your Communication And Reduce Your Failure

New businesses can fail for a variety of reasons. Although the vast number of restaurant failures are due to undercapitalization, it could also be the result of substandard operations, inefficient marketing, poor location and changing consumer trends. In addition, a failure in a franchised restaurant may be the result of the franchisee working outside the franchisor’s branded system. Franchisees can destroy their business by implementing procedures and introducing products that are counterintuitive to the brand image. Franchise owners often lack the time, experience and money to do proper research on a new product or a new procedure, never realizing that it may disrupt the entire system. Conversely, franchisors must always be aware and teach the idea that “everything touches everything else.” Building a healthy relationship and a clear channel of communication with the franchise owner can often prevent franchise owners from circumventing the system in the first place.

Harold Kestenbaum noted franchise attorney who has specialized in franchise law and other matters relating to franchising since 1977 explains: “Over my forty-plus years representing franchisors, I have seen too many franchisors fail because they do not realize how important it is for their franchisees to succeed and make money. Franchising is a two-way street, and to be a successful franchisor, you, as the franchisor, must understand this and make it happen. Franchisors cannot be successful if they think that it’s only them who should make money. Ray Kroc knew that franchising could only work if the franchisees made money along with the franchisor. Supporting your franchisees from the outset, and not when they are choking is imperative and franchisors need to realize this. One such way to make this collaborative effort work is by creating a franchisee advisory board. Franchisors with more than ten franchisees need to implement this without the franchisees asking for this. A franchisee advisory board will show the franchisees that you are trying to make them be a part of the system and that you want their input. Franchising is not an autocratic method of doing business; it is a collaborative method of doing business.”

Looking in the Mirror Helps

It’s easier to blame the franchisee for failure than franchisors like to admit. Franchisee behavior is often a reflection of the franchisor. Some franchisors are quick to dismiss why proper onboarding, relationship building, creating brand value, and adequate franchise support are vital to the success of the new business. When a franchisee loses confidence in the franchisor, it is complicated to turn back. Franchisees stray or “go rogue” because franchisors fail to supply the “rails” that the franchisee must run on.

An open, working relationship between the franchisor and the franchisee is the most important aspect of brand success. Franchisors must take a very active role in the franchise operation, perhaps more than they want. Supplying great tools, conducting superior training, regular visits to the restaurant to evaluate the goals and progress of the business is a crucial commitment a franchisor must make. Communication, transparency, ongoing coaching and counseling are the essential elements of relationship building. The ROI for these efforts will be opening hundreds or even thousands of franchised restaurants locations.

Are you looking for Capital or Deal Flow in the franchising space??

This session will consist of a panel discussion covering how to position your franchise company for Private Equity investment and what PE firms look for in a Franchise company acquisition or strategic partnership.

Are you looking for Capital to build your Franchise Company???
– OR –
Is your Investment Firm looking for deal flow in the franchising space??

By Gary Occhiogrosso
Founder of Franchise Growth Solutions, LLC.

On Friday, June 1st, I will be moderating a panel at the IFE in NYC. It will be comprised of Franchisors and Private Equity associates. Please see below for details and please let me know if you’d like to attend the meeting. If so, contact me here or at [email protected] & I’ll send you a FREE PASS to the Expo.

10:00 AM – 11:30 AM
+/- Private Equity Investing and Franchising
Room: 1B05
Moderated by: Gary Occhiogrosso, Managing Partner, Franchise Growth Solutions
Panelists: Roger Lipton, President, Lipton Financial Services; Grant Marcks, Vice President, Head of Business Development, Atlantic Street Capital; Kirk McLaren, MBA, CTP, CPA, Georgetown University
This session will consist of a panel discussion covering how to position your franchise company for Private Equity investment and what PE firms look for in a Franchise company acquisition or strategic partnership. In addition, there will be plenty of “networking” time for both Franchisors and Private Equity attendees to meet & network. This is a great opportunity for Investors and Franchisors to meet face to face and discuss current and future opportunities.
Sponsored by Franchise Growth Solutions, LLC. www.frangrow.com

FREE PASS To the International Franchise Expo in NYC
USE PROMO CODE FGS at: https://r1.events-registration.com/IFE2018/?source=FGS
YOU ARE INVITED BY
Franchise Growth Solutions
Booth #340
USE PROMO CODE FGS

This session will consist of a panel discussion covering how to position your franchise company for Private Equity investment and what PE firms look for in a Franchise company acquisition or strategic partnership. In addition, there will be plenty of “networking” time for both Franchisors and Private Equity attendees to meet & network. This is a great opportunity for Investors and Franchisors to meet face to face and discuss current and future opportunities.

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#networking #businessdevelopment #financialservices, #franchiseconsulting #strategicpartnerships #ife #capitalization #dealflow #investments #acquisitions #privateequity #howto #franchising #pe #positioning #officers #universities, #moneyraise, #Franchisesales,#expansion, #capital, #NYC, #Sharktank,

Acai Express – A simple franchise concept with a track record of success

Acai Express – A simple franchise concept with a track record of success…Acai Express – Growing through our mission of providing fresh 100% “Grade A” Acai that we directly import from Brazil…Acai Express – A franchise for everyone

Pink Dragon Bowl

Mira lo rico que se ve al preparar un Delicioso #PinkDragonBowl de Acai Express. La combinación perfecta de pitahaya con tus frutas favoritas, granola y miel!!!

Posted by Acai Express Superfood Bowls on Tuesday, May 2, 2017

By Hector Westerband
Founder Acia Express

Watch the video and call 917 991 2465
https://www.youtube.com/watch?v=nO4zKCn0qOU#action=share

Acai Express is not just another business selling healthy concoctions. Instead, we are a lifestyle.
Our mission is to promote a healthy existence by serving up a lifestyle brand of body beneficial goodness. Our lifestyle-based acai bowls are created for the active and health conscious in mind. On our menu you will find the “Surfer Bowl” for our fellow surfers, the “Yogi Bowl” for our beloved yogis and the Wolfpack Bowl” named after a Jiu-Jitsu school in Puerto Rico.

Whether it’s just deciding to eat better and exercise or engage in fun and natural activities, Acai Express would like to take this journey with you.

With all fresh fruits and mostly organic products, our acai bowls, pitaya bowls, smoothies and natural juices are sure to impress all of those with healthy souls and curious hearts.

When and where was Acai Express founded?

Acai Express was founded by Hector Westerband in July of 2013. An avid surfer in his homeland of Puerto Rico, Hector set out to bring the healthy living lifestyle, formed around the powerful and nutrient-rich acai berry, to everyone on the island. With the success of his first food truck in Guaynabo, Puerto Rico, Hector saw the tremendous growth potential and soon thereafter expanded his brand to offer franchise opportunities.

Now Acai Express is venturing into the USA market, to continue to promote this healthy way of life and provide quick service nutrient-rich food alternatives to those seeking a healthy and active lifestyle.

What exactly is Acai?
If you’re wondering what exactly an acai berry is, imagine a cross between the coloring and size of a grape and a blueberry. Acai is a small and seeded, reddish-purple berry. These berries are harvested from 70-foot tall palm trees located near South America’s Amazon River.

Many fruits have high sugar content and acidity which provides some protection against oxidizing and turning brown. However, the acai berry’s low sugar and low acid levels speeds up the oxidization process thereby losing their nutritional benefits more quickly. So, to maintain the nutritional value and to prohibit them from being oxidized, once the berries are picked and processed, they are flash-pasteurized and then promptly frozen for transport. Noted as being beneficial for health, these little berries pack a punch of powerful antioxidants, fiber, monounsaturated fats, iron, calcium, vitamin A and anthocyanins.

If you’d like to know more contact us at [email protected] or call 917 991 2465

THREE SIGNS A FRANCHISOR NEEDS TO CONSULT A FRANCHISE LAWYER

FRANCHISEE DISCONTENT CAN ALSO MORPH INTO LITIGATION. FRANCHISEES CAN SUE FRANCHISORS FOR A VARIETY OF REASONS, SUCH AS NON-DISCLOSED OPERATING COSTS AND FOR OPENING TOO MANY FRANCHISES IN A GEOGRAPHIC AREA

THREE SIGNS A FRANCHISOR NEEDS TO CONSULT A FRANCHISE LAWYER
By Harold Kestenbaum

Franchisor liability is often based on agency relationships, and vicarious liability is a form of liability without fault. This means that a person injured at a franchise location can file an action against the franchisor as well as the franchisee. For example, A Wisconsin Arby’s franchisee hired a work release inmate who walked off the job and shot his ex-girlfriend and her fiancé at a Wal-Mart. The women lived, but her fiancé was killed. The franchisor and franchisee were sued for negligence in hiring and supervising its employed work release inmate.

Read the entire article here: https://franchisegrowthsolutions.com/blog-1/

Next Life Phase – Starting a Business After Ending A Career

Dean is deciding whether to find another job with the security of a regular paycheck and benefits, or start his own business. He finds information on the internet helpful but wishes there was a Big Brother-like program pairing people and businesses to help him sort through the options.

Starting a Business After Ending A Career
Making Lemonade: Starting a Business After Ending A Career

By: Liz Sumner, M.A., CPC

What do you do when the money tree starts sprouting lemons?

It’s increasingly common these days to find middle-aged, mid-level managers suddenly faced with huge shifts of circumstance. Down-sizing, bubble-bursting, plant-closing, and consolidating are just some of the forces creating a class of sudden solo-preneurs.

At 50-something you face particularly difficult job-hunting challenges. Your salary range is high. Your network is decent after so many years, but jobs at your level are few. You’ve been there, done that, and thought you were finished with all that new trick-learning.

A big upset like job loss can provide a shift of perspective – an opportunity to take stock. What is really important? What do you want to pursue at this point in your life? Is being your own boss the way to go?

I spoke with several silverbacks to share their wisdom gleaned from these life changes with a new member of the pack.

Dean turned 50 in January of 2005. In May he was fired from his position as marketing director of a high-tech firm. He’s angry at the ease with which an employer could let him go.

“Control is a big issue for me. Do I really want to have someone tell what, where, and how? It seems like I work a lot but don’t reap the benefits. If I were on my own I’d have all the benefits and all the risks.”

Dean is deciding whether to find another job with the security of a regular paycheck and benefits, or start his own business. He finds information on the internet helpful but wishes there was a Big Brother-like program pairing people and businesses to help him sort through the options.

Carl was 51 when the ordinance plant where he was safety manager closed its doors.

“I had a lot of friends in the business. I could have easily picked up another job but I would have had to relocate halfway across the country. I didn’t want to do that.”

Bob was an engineer whose position was eliminated after 23 years with the firm. This sent him into a deep depression that lasted for months.

“I couldn’t even drive.”

With the help of his psychiatrist, Bob recognized what was most important in his life-his wife, his son, and his lifelong hobby, bird-watching.

“My doctor told me to go bird-watching every day. While out there on the wetlands I had a vision. I couldn’t go back to the corporate life.”

It takes a lot of stamina and belief in yourself to move ahead with plans for a business. Carl spoke of his state of mind at the time:

READ THE ENTIRE ARTICLE HERE: https://franchisegrowthsolutions.com/blog-1/

Author Bio
Liz Sumner, M.A., CPC, of Find Your Way Coaching specializes in mid-life reassessment. Are you happy with your direction? Do you feel good about yourself? Are you fearless? Joyful? Energized? You could be. Visit www.findyourwaycoaching.com or call 603-876-3956 for more information.

Article Source: http://www.ArticleGeek.com – Free Website Content

FOUR TIPS TO STARTING A SUCCESSFUL FRANCHISE

Have a successful model. It is impossible to create a franchise program without having at least one successful operation, a pilot, if you will. It is not feasible to think that if your core business loses money and is unsuccessful, that a franchisee will be any different.

INTRODUCTION TO FRANCHISING
FOUR TIPS TO STARTING A SUCCESSFUL FRANCHISE

By Cambridge Who’s Who Lifetime Member and Contributing Author Harold Kestenbaum

My name is Harold Kestenbaum, and I am a franchise attorney. Many of you may want some information about what a franchise attorney does. I realize that franchising is not a well-known sector of the legal profession unless you work in the industry as either a franchisor or a franchisee. Here is how I became involved in franchise law.

In 1977, at my third job out of law school, I worked for a solo practitioner in Manhattan who represented many corporate clients, some of whom were publicly traded. One company happened to find the opportunity to franchise their business. One day my boss said to me, “Kestenbaum, I need you to learn about franchising opportunities, so that you can handle our franchise client.” Not knowing what in the world he was talking about (I had done everything but franchise law up until then) I found every book I could on business franchising information (there was no Internet in 1977) and for the next four years I immersed myself in franchise law. When New York State passed a new franchise registration law in 1981, I decided that it was time for me to become a solo franchise attorney and resigned my position. I have been practicing franchise law ever since.

Based on my years of franchise experience, I wrote a book, So, You Want to Franchise Your Business, that delves into the opportunity a company embarks on the franchise path. It includes the dos and the don’ts of how to franchise your business. In my book, my co-author, Adina Genn, and I discuss what makes a company have the right opportunity for franchising and how to go about turning a successful business into a franchise company. Here are a few key tips from my book:

1. Have a successful model. It is impossible to create a franchise program without having at least one successful operation, a pilot, if you will. It is not feasible to think that if your core business loses money and is unsuccessful, that a franchisee will be any different. It is imperative that your franchisees be successful, otherwise franchising opportunities will not work.

2. Make sure your business model is replicable. You must be able to build clones of your operation, otherwise, the system will not work. Have you ever seen a McDonald’s without the infamous golden arches? That is just one example, but it goes beyond the look. It is the method of operation that must be duplicated in order to have the opportunity to franchise.

3. Attain capital for your franchise. You must have capital in order to roll out the franchise program. You cannot believe that franchising will cure your cash flow issues, you need to have money in order to roll out the program. Do not view the program as a way to fund an undercapitalized business model.

4. Prove your model works! The concept that you are trying to franchise must be lucrative. You must demonstrate that your concept works before you try to offer it to the public as a franchise. If the business model is a failure, your franchisees will inevitably fail as well. Franchising can be a wonderful business opportunity, but your initial model must work first, otherwise franchising will not be possible.

Why franchise your business? That is a very good question. But to those of us in the business, the answer is quite obvious. If you want the opportunity to grow your business beyond one or two stores, and you cannot afford to build more units at, for example, $500,000 each, then what better way to grow than to let a franchisee buy a franchise and build the unit himself or herself for that amount, and you simply receive the weekly royalty of 5% or 6% of gross revenues? Franchising is a vehicle for growth using the capital and human resources of someone else (the franchisee). How great is that? It is simple, yet complex. The franchising relationship goes much deeper than building the unit and collecting royalties. It is a starting place for companies that want to grow but do not have the internal capital or human resources, like Starbucks, to do it by themselves.
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END OF ARTICLE

Learn how to FRANCHISE YOUR BUSINESS and collect royalties! www.franchisegrowthsolutions.com

Roger Lipton’s Writeup – Domino’s Pizza

Foreword by Roger Lipton for Franchise Money Maker

The following write up about Domino’s Pizza describes a truly “Best of Breed” franchised restaurant chain. Their same store sales gains have been without peer over the last five years, store level economics are excellent. Most of the growth is overseas because the US market is largely developed and/or committed to existing US franchisees. However, there is an important lessor here, in terms of the opportunity with delivery/takeout in a consumer environment that increasingly values convenience. Small footprint locations like Domino’s are emerging as the best Franchise Money Makers among restaurant companies.

DOMINO’S PIZZA April 12, 2017 Corporate Research DOMINO’S PIZZA,
Roger Lipton

DPZ: Company Overview (2016 10-K) (Jan’17 Analyst Day Slides &16Q4 Slides)
Domino’s Pizza is an Ann Arbor, Michigan-based pizza restaurant chain, which, as of its 16Q4 operated and franchised 13,811 units globally, generating an estimated $9.5B in sales (about 1.5M pizzas/day), making it the world’s second largest pizza chain (after Pizza Hut) and the number one U.S pizza delivery company. About half (49%)the sales are produced by the 5,371 domestic stores (392 company, 4,979 franchised), while the remainder is produced by 8,440 franchised stores in over 80 markets around the world.

In 2016 DPZ’s revenues were $2.4B which were derived from company stores (17.8%), royalties and fees from franchisees (12.6% domestic, 7.2% international) , with the remaining 62.4% from sales of food supplies and equipment to company and franchise locations. We estimate the AUV’s of company units are slightly over $1.1M (or about $740/sq. ft., assuming average store size of 1,500 sq ft). We estimate domestic and international franchised unit AUV’s are about 20% and 30% lower, respectively, than domestic company locations. Disclosed average store level EBITDA of domestic franchisees is about $134K, up from $61K in 2009, about 15.2% EBITDA store level margin for domestic franchisees. (These figures are presumably net of royalties, fees and advertising fund contributions). The cash investment for leasehold improvements, furniture, fixture, equipment and signage for a new store at upper end of the range provided in Franchise Disclosure Documents and other materials is about $410K, so the $134k EBITDA store level margin would represent a 32.6% store level cash on cash return for domestic franchisees.

The supply chain provides pricing and distribution scale and uniform ingredient quality to participants. It operates 18 regional dough manufacturing and food supply chain centers in the U.S., one thin crust manufacturing center, one vegetable processing center and one center providing equipment and supplies to certain of the domestic and international stores. It also operates five dough manufacturing and food supply chain centers in Canada and leases a fleet of more than 500 tractors and trailers. As such, it makes approximately twice weekly deliveries of food supplies and equipment to over 5,600 system units, including all company stores and 99% of U.S, & Canadian franchisees. It passes through its prices paid with a small markup to participants and shares a portion of profits with franchisees, which nets out to a segment margin of about 8%. The supply chain segment’s relatively low EBIT margin and capital intensity are a drag on consolidated margins and free cash flows, making them lower than other highly franchised peers. Arguably, DPZ could boost margins by leaving supply responsibilities to franchisees, as, say, DNKN does, but it would lose scale advantages for both their own and franchised stores (less of a concern for DNKN with virtually no company stores). It would also diminish its ability to control quality. Perhaps most importantly, it would lose an important touchpoint with its franchisee partners. (We’re not so much trying to decide the correct strategy as to point out key differences in strategies from other highly franchised peers.)

Domino’s has gone through a series of development stages since its founding in 1960. Its current stage is a brand revival which dates to the end of 2009 when it scrapped its original pizza recipe in favor of a line of premium (and distinctly better tasting) pizzas featuring higher quality ingredients and a wider variety of toppings such as roasted red peppers, spinach and feta cheese in addition to the traditional favorites. The company has gone counter to industry trends by avoiding LTOs which complicate a menu with a stream of new products. Instead it has concentrated on providing consistency and value with a limited and uncomplicated core menu of pizzas, baked sandwiches, pastas, chicken items (like wings), breads, beverages, deserts & extras (sauces). In the past 4 years DPZ has added just 3 items: Specialty Chicken in 2014 and Marbled Cookie Brownie in 2015 and salads (Classic Garden, Chicken Caesar and Chicken Apple Pecan) in August ‘16.

The current brand revival stage is also supported by DPZ’s “Pizza Theater” re-imaging of system stores (expected to be substantially complete in 2017); its innovative marketing (e.g. the iconic campaign trumpeting the scrapping of its former pizza recipe); and its use of state of the art technology to take the complexity out of operations and improve the customer experience. One of the first with on-line ordering, DPZ has since developed a digital platform, which is nearing utilization by the entire system, including international units, to manage internal operations (re-supply, scheduling, payroll, order accuracy, etc.) and customer-facing actions to simplify ordering, payment processing (with a range of payment systems in addition to credit & debit cards) and enabling order tracking (from prep through delivery) on virtually any communication device. Together with a sophisticated loyalty program, the platform provides a rich source of data for its robust marketing initiatives. Not content with 50% of domestic sales transacted via digital orders and the fast growing international acceptance, the company is continuously improving the platform. For example, in 2016 it launched a “Zero Click Ordering” app, seemingly the penultimate in ordering ease (the ultimate being that your order appears by just thinking about it).
The proof of the brand revival is in the numbers. From 2009 through 2016, domestic system revenues have grown at an 8.4% annual rate on domestic system comps averaging 7.4% (including 24 consecutive Q’s with positive comps) and 6.9% international comps (91 consecutive Q’s of positive comps!). Most of the unit growth has been international (11.0% CAGR since 2009). Although management believes there’s room for 1,000 more domestic units, it is very selective about granting new franchises and the annual domestic unit growth (company and franchised stores) since 2009 has been only 1.0%. During the same period EBIT, EBITDA and FCF have grown at annual paces of 13.0%, 12.4% and 16.5%, respectively. Long term, the company expects global retail sales will grow at 8% to 12% on domestic comps of 3-6% and international comps of 6-8%, while net global new unit growth will be 5-7%. If it achieves its top line targets, margins will continue to expand and net income and free cash flows will grow at a double digit pace.
Domino’s, like many of its highly franchised peers has borrowed heavily to finance share repurchases. The company’s ratios of total debt to 2016 EBITDA and lease adjusted debt to 2016 EBITDAR at 4.4X and 4.9X, respectively, are comparable with its peers. Cash flows from operations of $287.3M net of $58.6M cap ex, generated free cash flows of $228.7M in the year, or a FCF margin of 9.2%. DPZ returned $374.2M to shareholders in 2016, nearly $74M in dividends and $300.3M in share repurchases. In 2016 DPZ spent $300.2M to repurchase 2.8M shares (average price $106.60, or a 5.7% reduction of shares outstanding at the end of 2015) against about $15.2M proceeds from about 1M stock options (average exercise price $14.69, or a 2.1% increase in shares outstanding).

DPZ: Current Developments (16Q4 Release) (16Q4 Conf Call Transcript)

The fourth quarter provided another exceptional performance, with domestic same store sales up 12.2%, international up 4.3%. This represented the 92nd consecutive quarter internationally and 23rd for domestic locations. The full year results are noted in the table above, impacted by expenses related to the Company’s recapitalization and the 53rd week in the fourth quarter of 2015. 2016 was a record year in terms of new store growth, with 171 new domestic stores and 1110 new international locations. In the 4th quarter: 104 domestic stores opened and 6 closed. 487 international stores opened and 26 closed.

The fourth quarter eps YTY gain of $0.33 (28.7%) as adjusted for the New Year’s calendar shift, included negative influences from higher interest expense ($.03/sh.), higher tax rate ($.04), foreign exchange ($.03). Positive influences were share repurchases ($.12) and improved operating results including $.02 from the calendar shift of $.31.
The company’s major initiatives continued in the fourth quarter. Capex was allocated toward aggressively building out their technology capability, 102,000 shares were repurchased (at $160/share) for $16.4M, $18.2M was returned to shareholders as dividends, and $9.6M worth of debt was repaid.

In terms of the future, the successful strategy which has produced such outstanding results, as described above, remains in place. Management provides no short term guidance, but has raised certain long term (“3-5 year outlook”) parameters slightly. Domestic same store sales growth is expected to average 3-6% annually (up from 2-5%). International same store sales growth is expected to grow at 3-6%. (unchanged). Net unit growth (overall) is expected to grow 6-8% (up from 5-7%). Global retail sales growth is expected to build at 8-12% annually (up from 7-11%).

About the Author:
Roger Lipton is an investment professional with over 4 decades of experience specializing in chain restaurants and retailers, as well as macro-economic and monetary developments. After earning a BSME from R.P.I. and an MBA from Harvard, he began following the restaurant industry as well as the gold mining industry. While he originally followed companies such as Church’s Fried Chicken, Morrison’s Cafeterias and others, over the years he invested in companies such as Panera Bread and shorted companies such as Boston Chicken.
For more information please contact: WWW.ROGERLIPTON.COM ORWWW.LIPTONFINANCIALSERVICES.COM

RETAIL ECONOMICS – ITS ABOUT COMPS, COST OF GOODS, & LABOR

Article contributed by www.rogerlipton.com – Roger’s (unfiltered) Restaurant and Retail Review – While this discussion reflects upon trends for publicly held restaurant companies, it should be useful for franchisees and potential franchisees to consider.

RETAIL ECONOMICS – ITS ABOUT COMPS, COST OF GOODS, & LABOR
By Roger Lipton

2017 SUMMARY BELOW – 19 RESTAURANT COMPANIES
There are four major components of profits for restaurants (and retailers):

Revenues (made up by same store sales, price and menu mix, and traffic)

Cost of Goods (food and paper)

Labor Cost (Store level managers and crew expense, including benefits)

Occupancy expense, consisting of minimum rents adjusted for volume overages, and common area management charges (CAM) when appropriate, normally also including utilities, real estate insurance and real estate taxes. Occupancy expense is important, usually at 6-8% of sales (if you’re lucky), but nowhere near the 30 points, give or take a few points, that make up both Cost of Goods and Labor. For this piece, suffice to say that occupancy expenses are trending higher, clearly not helping store level margins.

This discussion, however, is primarily meant to summarize restaurant executives’ expectation for revenues, cost of goods, and labor expense in 2017, which represent larger variables than occupancy expense. In that effort, we have excerpted the numbers presented below from the most recent corporate reports (including conference calls) from each of the companies shown below.

For context, over the last couple of years, while labor costs have marched consistently upward, commodity costs have reliably been a “partial offset”. At the same time, store level traffic has been challenged, which obviously puts store level margins at risk if one or both of these major line items increase as a percentage of sales. Very few restaurant companies have shown increases in traffic during 2016. Typically, it goes like this: Same store sales were up 2-3%, price and menu mix increases were 2-4%, so traffic was up (maybe 1%) or down (probably 1-3%). The labor percentage was up anywhere from 50-150 basis points, partially offset by commodity deflation of 25-100 basis points. The table above shows the commentary from nineteen publicly traded restaurant companies. You can see that the “good times” in the form of lower commodity costs seem to be behind us. Almost all the companies are looking for cost of goods to be flat or UP, rather than down.

You can also see that the labor percentage is often expected to be up by 3,4 or 5 percentage points, which would translate to 90-150 basis points of margin if the labor percentage is 30%. Suffice to say we are moving to the top of the previous range rather than the bottom.
Lastly, the table shows that comp sales expectations are (perhaps conservatively, perhaps not) estimated at 1-2% (higher at PNRA and TAST), and that implies continued traffic challenges since menu prices will generally be a couple of points higher.

Putting it all together, traffic and sales will be challenged, labor % will be up, probably by more than in ’16, commodity % will be “flattish”, less of an “offset” than in ’16. Occupancy expense, FWIW, won’t help either. For good measure, it will be difficult to raise prices at the store level, when grocery prices seem well controlled, which has no doubt helped to contribute to the sluggish store traffic we have been recently experiencing.

About the Author:
Roger Lipton is an investment professional with over 4 decades of experience specializing in chain restaurants and retailers, as well as macro-economic and monetary developments. After earning a BSME from R.P.I. and an MBA from Harvard, he began following the restaurant industry as well as the gold mining industry. While he originally followed companies such as Church’s Fried Chicken, Morrison’s Cafeterias and others, over the years he invested in companies such as Panera Bread and shorted companies such as Boston Chicken.
For more information please contact: WWW.ROGERLIPTON.COM ORWWW.LIPTONFINANCIALSERVICES.COM

If you have any questions relative to the above information, don’t hesitate to contact us.
Roger Lipton

ALERT: 10 legal issues for restaurant operators to watch


photo credit:Mario Tama/Getty Images

From minimum wage legislation to predictive scheduling, here’s what to expect on the legal front in 2017

10 legal issues for restaurant operators to watch
Article link courtesy of Nation’s Restaurant News.
Written by Jordan Berstein

Jordan Bernstein is a partner at the law firm of Michelman & Robinson LLP in Los Angeles, focusing on the restaurant industry. Taylor Burras is an associate with the law firm. This article does not necessarily reflect the opinions of the editors or management of Nation’s Restaurant News.
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With the election of Donald Trump as president, labor-related stress that restaurant operators have experienced in recent months may soon relax. However, new federal, state and municipal regulations will impact operators in 2017. Regardless of federal policy, restaurants will face uncertainty when it comes to employment and regulations.

Here are 10 legal developments that should be front and center for operators this year:

Read the entire article here:
http://www.nrn.com/workforce/10-legal-issues-restaurant-operators-watch?NL=NRN-02_&Issue=NRN-02__20170202_NRN-02__542&sfvc4enews=42&cl=article_1_3&utm_rid=CPG06000002460545&utm_campaign=14453&utm_medium=email&elq2=6c67573ba8544aec81dcf8424caebec2

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