Franchising in New England

Rhode Island, which in recent years has been lauded for its job and productivity growth, saw its unemployment numbers skyrocket last month. “In the 10 years that I have lived in Rhode Island, we have had an economic development policy that has been directed toward failure,” said Edward M. Mazze, a professor of business administration at the University of Rhode Island and a former dean of the business school.

In the Boston Globe Eric Moskowitz  writes:

“Even more than the gleaming new condos or the boom of restaurants and stores in the heart of this old mill city, the regular WaterFire festivities are held up as a signature of the rise from industrial decay, drawing jubilant crowds and their money. But as thousands thronged the bonfire spectacle this month, some noticed a troubling, if subtle, absence: shoppers.

We were slammed with people, but nobody had any bags in their hands,” said Eli Fernandez, who works at a cellphone kiosk in Providence Place, a vast mall that opened in 1999 as a centerpiece of Providence’s renewed prosperity.

There are other clues of something amiss. In residential neighborhoods around the city, a litter of “For Sale” signs. In nearby West Warwick, a young waitress pawns jewelry to make ends meet because tips are declining. To the south, in the mill village of Peace Dale, a food pantry for the needy sees a near quadrupling in the number of families enrolled in its emergency meals program - from 261 enrolled a year ago to 905 now. “Every day there’s new people,” said Susan Gustaitis, executive director of the Jonnycake Center. “It’s not slowing down.”

Rhode Island, just a few years ago celebrated for job and productivity growth, is suddenly reeling - with some indicators showing the worst economic climate in 17 years. According to figures released yesterday by the Bureau of Labor Statistics, unemployment ballooned in September to 8.8 percent, the highest rate in the nation, and the state’s annual job-loss rate was un equaled. Even Providence, the capital city that has drawn national headlines over the past decade for its downtown renaissance, is looking at a housing collapse and retail contraction.

“It’s real bad, man,” said Joel Diaz, who works at the Providence Place phone kiosk with Fernandez and who knows several people who have lost jobs, faced foreclosure, or both. “Some are just going crazy now because of it.”

It is a precipitous fall for a state that three years ago boasted the highest job and productivity growth in New England, and it has set off a flurry of blame. Public officials are scrambling to retool economic development policies and defend the state’s image, contending that Rhode Island has been pulled down by national and international currents; the sudden downturn reflects temporary growing pains, they say, as the state tries to move from manufacturing to an information- and innovation-based economy.

 

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New coalition advocates national nutrition standard for chain restaurants, detailed nutrition information for consumers.

A coalition of interested parties and foodservice establishments announced today that it will support federal legislation that provides consumers with detailed nutrition information in chain restaurants and other foodservice establishments using a uniform national standard.

Legislation has been introduced by Senator Tom Carper (D-Del.), Senator Lisa Murkowski (R-Alaska), and Congressman Jim Matheson (D-Utah), which provides consumers across the country with nutrition information in a uniform, predictable way.

The Coalition for Responsible Nutrition Information (CRNI) was formed to ensure that consumers across the country will have access to detailed nutrition information when they dine out. Americans are becoming more health conscious and have a growing interest in the nutritional value of the food they eat. The Coalition is launching with more than thirty companies and associations that represent restaurant owners and franchisees, food manufacturers, distributors, suppliers, business organizations and health organizations.

“We believe consumers who visit chain restaurants should have access to detailed written nutrition information in a consistent and convenient manner. The only way to make sure this happens is by creating a uniform, national standard,” said Dawn Sweeney, President and CEO of the National Restaurant Association. “When different rules exist in various parts of the country, it makes it difficult for consumers to compare options. Consumers deserve a federal standard that provides access to the same nutrition information no matter where they are or where they live.”

Recently, several cities, including New York and Seattle, passed menu labeling laws requiring restaurants to provide consumers with calories or a limited range of nutrition information. This approach will not provide all consumers with all of the detailed nutrition information they may want when they dine out. In addition, providing limited nutrition information on a city-by-city or state-by-state basis creates a patchwork quilt of confusing and contradictory local regulations.

In addition to numerous state restaurant associations and state retail associations, Coalition members include Auntie Anne’s Pretzels, Blue Cross Blue Shield of Florida, Brinker International, Burger King, Carlson Restaurants Worldwide, Darden Restaurants, Domino’s Pizza, Dunkin’ Brands, Grocery Manufacturers Association, International Dairy Queen, International Foodservice Distributors Association, International Franchise Association, McDonald’s, National Chicken Council, National Council of Chain Restaurants, National Fisheries Institute, National Franchisee Association, National Restaurant Association, National Turkey Foundation, OSI Restaurants LLC., Sonic, and White Castle.

For a complete list of members got to: CRNI Members

Darrell Johnson of FRANdata presented the 2009 Franchise Economic Forecast at the Franchise Updates September Leadership & Development Conference  (download your copy of the FRANdata report here). Darrell reports that the the economic downturn is clearly going to impact many aspects of franchising, none more so than access to capital. The capital markets are effectively shut down right now, forcing banks to put loans on their balance sheets. Even if that changes soon, banks will be slow to open up lending channels in the face of the downturn and after the unprecedented capital losses they have encountered in the mortgage markets.

Planning for next year is becoming more challenging than for any year in this decade, however, there are some trends and patterns to be seen as we head into the 4th quarter of 2008 that give an indication of where things are headed next year for the franchise community.

The exception is SBA lending, which still has a vibrant secondary market and should see a significant increase in activity as banks turn business customers towards their SBA lending units. In general, banks are becoming much more conservative in their lending programs, both with regard to underwriting criteria and with loan terms, assuming they are willing to lend at all.

While capital access is an ongoing issue, franchise development clearly is slowing for other reasons as well. Combined with flat or declining system-wide revenues for many brands, the emphasis in 2009 will naturally turn more to the cost side of the business. We are seeing an increase in interest in bench-marking many areas of franchise activity.

2009 will present some unique challenges to the franchise community. Having reliable information with which to base planning decisions is a primary role of FRANdata. The compensation survey came about as a result of inquires from franchisors. We listen, find ways to fill in the data gaps, convert data to information, and give you a better basis to make critical business decisions. Give me a call with your questions, issues and thoughts.

Download the 2009 Franchise Economic Forecast given at the September 2008 Leadership & Development Conference

Private employment among small businesses increased by 28,000 in September, according to the ADP Small Business Report released today. 

While large businesses have lost more than 170,000 jobs over the last six months, small businesses are seeing their employment sector grow. Over 200,000 small business jobs have been created in that time.  New data shows a continuation of this trend.

Additional information about small business employment, including charts on monthly job growth and employment levels, along with historical data, is available at ADP National Business Report.

• Total small business employment: +28,000
• Goods-producing sector: -16,000 small business jobs
• Service-providing sector: +44,000 small business jobs

“Employment among small-size businesses, defined as those with fewer than 50 workers, advanced 28,000 during September.  This month’s growth was up from August’s revised increase of 17,000, and offers a continued sign of resiliency among small-size businesses when compared to the job losses experienced at larger firms,” said Joel Prakken.

It will be interesting to see how the credit crisis effects small business employment in the next few months.

Paul Ziobro of Dow Jones Newswires reports in SmartMoney that GE Capital’s franchise finance arm is becoming more stringent in pricing and issuing loans for new franchisees, a pullback by one of the largest lenders to restaurant operators in the latest sign that Wall Street’s turmoil is spreading to small businesses.

While GE Capital spokesman Stephen White stopped short of saying there was a total freeze on lending to new franchisees, he said the franchise finance arm has become more critical in initiating new loans but continues to do business with existing customers.

“We are still active in the restaurant industry and we continue to quote deals where it’s competitive and appropriate,” White said. “In this environment, we’re taking a longer look and even a closer look than we have in different times and that just makes sense.”

Stephen Vaughan, chief financial officer of Sonic Corp. (SONC), told Dow Jones Newswires Thursday that franchisees of the drive-in chain have been notified by GE Capital’s franchise finance arm that it will temporarily stop financing new loans to Sonic franchisees. GE Capital is one of Sonic’s approved lenders.
Other restaurant industry deal makers have said in recent days that they have been turned away from GE Capital’s franchise lending practice when seeking new loans.

Sharon Zackfia, a restaurant industry analyst, said in an investor note Friday morning that GE Capital has halted new franchisee franchising, although it will continue to honor pre-existing financing agreements.

The action by the financing division of General Electric Co. (GE) is the second major lender to the restaurant industry to pull back this week, following news that Bank of America Corp. (BAC) has declined to increase existing loans to McDonald’s Corp. (MCD) franchisees, whose U.S. base is in the midst of installing equipment for sales of lattes, cappuccinos and other drinks.

Such moves could impede plans by restaurant operators to remodel existing stores, install new equipment, open new locations or convert existing company-owned stores to franchised locations, Zackfia said. She cited Sonic and Panera Bread Co. (PNRA) as two chains with a heavy reliance on franchise growth that could be most affected.

“While clearly other sources exist for franchisee funding options, the recent pullbacks of two of the main lenders in the arena are disconcerting, to say the least,” Zackfia said. GE Capital and Bank of America are two of the largest national lenders to restaurant franchisees and restaurant deals. Other major lenders include Wells Fargo & Co. (WFC) and Wachovia Corp. (WB).

Credit conditions have become tight in the restaurant industry over the last couple of years, as major lenders helped finance a hefty diet of loans backing leveraged buyouts and expansions. “Financing for the larger transactions is not as prevalent as it was a year-and-a-half ago,” said David Epstein, principal at the investment bank J.H. Chapman Group LLC.

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Martin Desmarais of IndUs Business Online authored a Special Report: Education Franchising where he states that the influx of new franchise concepts in all segments of the industry over the past several years has left many franchisors dizzy from trying to keep up with the competition. The franchise education sector has likewise seen its share of new concepts, but the growing demand suggests that there is plenty of room for all and franchisors are worrying less than their counterparts about the competition and focusing on expansion.

Education franchise stalwart Kumon North America, consistently ranked as a top brand in the tutoring category, continues to roll on in North America with more than 1,800 centers and 250,000 students enrolled. Worldwide, there are 4 million students studying at more than 26,000 Kumon Centers in 45 countries.

In the first half of this year, Kumon North America increased its new center openings 37 percent compared to the same period last year with openings in Seattle, Atlanta, New York, New Jersey, Connecticut and Philadelphia, according to the company. Kumon expects to open an additional 68 Kumon centers this year. In the past five years, the average Kumon center enrollment increased 55 percent, and overall, the company has 80,000 more U.S. students than in 2002, the company said.

The Teaneck, N.J.-based Kumon North America attributes its success to its franchisees and employees and their passion for educating children.

“Kumon franchisees often leave the corporate world for a rewarding career to help children and their communities,” Deven Klein, vice president of Kumon franchising, said in a recent statement about the chain’s growth. “Education is vital to a community’s prosperity and Kumon instructors have a strong conviction for improving society through education.”

The Kumon Method of learning was founded 50 years ago in Japan by Toru Kumon, a teacher and parent who wanted to help his son do better in school. Kumon’s belief that every child possesses untapped abilities and the potential to excel remains central to Kumon’s philosophy. Today, Kumon franchisees help students improve their math and reading skills with daily practice and self-paced advancement.

New entrants into the education franchise segment have shown an ability to jump right into the fray and find some success.

The Lexington, Mass.-based Chyten Educational Services, which was started in 1998, but began franchising last year, has already opened half-a-dozen franchise locations to add to its five corporate centers. All current locations are in Massachusetts. Services offered include: standardized test preparation, subject tutoring, application essay writing, educational psychological testing and school partnership programs. All of its tutors are required to have a minimum of a master’s degree and have teaching experience.

According to the company, it will have 25 to 35 franchised locations throughout the United States by the end of 2008.

“In just seven or eight months, we’ll have doubled the size of our company through our franchising program. We’re building on the foundation of the original five centers and the reputation we’ve achieved as the leading provider of tutoring and test prep services in the Commonwealth,” Neil Chyten, founder and chief executive officer of Chyten said in a statement. “Our franchise owners are high quality people who believe in the principles of providing quality educational services to the youth of Massachusetts. We’ve raised the standards in the industry and we’re bringing a new way of educating young people to more and more communities throughout the Commonwealth.”

“This is the most competitive educational environment for high school students applying to college in our history. Students need every advantage they can get to help them get into the college of their choice. We provide very high quality tutorial services, as well as the most unique and successful methods of helping them raise their SAT and ACT scores,” he added. “Now, as we expand, we’ll be able to help even more students throughout Massachusetts achieve their goals of getting accepted into the college they most want to attend. We’re proud of what we do, and we’re particularly proud to be able to help more and more students as we continue our expansion.”

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This information was submitted by Barbara Arena of CIT Small Business Lending.

Senate bill S.2920 is to authorize and improve the financing and entrepreneurial development programs of the Small Business Administration, and for other programs was introduced in April and added to the congressional calendar, where is sits…  Contact your Congressional representative to get this moving!

Highlights include:

· Reauthorizes programs for FY2008-FY2010

· Maximum 7(a) loan would increase to $3,000,000 {with maximum guaranty of $2,250,000 (75%)}

· 7(a) and 504 loan program maximums would be available to a qualified borrower (meeting eligibility requirements of each program) under each program. (Maximum 7a would increase to $3,000,000; 504 remains unchanged – up to $4 million depending upon business)

· Alternative Size Standard definition:  7(a) loans may use tangible net worth (< $8 million) and net profit after tax (< $3 million) definitions (reserved for 504 loans) as an alternative to the 3-year revenue or # of employee definitions currently used to meet the “small business” size standard.

Click here to access FULL pdf version (warning a 214 page document)

Carey Goldberg in the Boston Globe reports that all of Massachusetts may soon become a trans fat-free zone.

The state’s public health commissioner responded enthusiastically yesterday to a lawmaker’s request that his agency impose a statewide ban on the artery-clogging fat in all restaurant food.

Last month, California became the first state to outlaw restaurant use of trans fat, found commonly in doughnuts, french fries, and chicken nuggets. Boston, Brookline, and Cambridge have also passed prohibitions. The Legislature came close to adopting a ban this summer but ran out of time.

“It is our responsibility to the residents of the Commonwealth to remove this poison from the food supply,” state Representative Peter J. Koutoujian, cochairman of the Legislature’s Joint Committee on Public Health, wrote to Public Health Commissioner John Auerbach yesterday.

Auerbach ardently supports the idea of a ban on trans fat, he said in an interview. The evidence is overwhelming that the artificial fat contributes to heart disease and other serious health problems, he said.

In his previous job as Boston’s public health chief, Auerbach pushed for the ban, which enters its first phase Sept. 13: All food-service establishments must stop frying, grilling, or sauteing foods with oils that contain partially hydrogenated vegetable oil.

In the coming days, Auerbach said, he will look into whether his agency has the regulatory authority to impose such a ban and also confer with the local health officials who would enforce it. Auerbach said he plans to visit New York City, where a ban on trans fat was approved in 2006, and learn from its experience.

“I believe that this kind of a measure would be as significant as the state’s historic ban on smoking in workplaces, in terms of its affecting all of the residents of the state and in terms of reducing a contributing factor to a deadly disease,” Auerbach said.

Koutoujian said he did not know with certainty that the state Department of Public Health has the authority to impose the ban by fiat, but the agency “has wide-ranging powers, and I believe that this prohibition may just fit within those powers.”

The Massachusetts House of Representatives passed a statewide ban on trans fat in June, but the Senate did not vote on it before the Legislature closed its formal session at the end of July.

If he were to wait for legislative action, Koutoujian said, it might take another year or two. In that time, “hundreds of people may die from the continued ingestion of trans-fat,” he said. “The federal government says there is no safe level of trans fat.”

The bill faced virtually no opposition. Peter G. Christie, president of the Massachusetts Restaurant Association, testified to the Legislature last year that if public health officials said trans fat needed to be removed from food, “the question would only be how and when.”

New England franchisees have donated over $7 Million for the Jimmy Fund

Dunkin’ Donuts store owners in New England Monday raised just over $800,000 for the Dana-Farber Cancer Institute’s Jimmy Fund through proceeds generated from the 11th Annual Dunkin’ Donuts George Mandell Memorial Golf Tournament and Auction. The event, organized by Dunkin’ Donuts Northeast Distribution Center (NEDCP) and held at The International Country Club in Bolton, Mass., is consistently the Jimmy Fund’s highest-grossing fund-raising tournament nationwide.

Dunkin’ Donuts franchisees and vendors in the Northeast have donated over $7 million to fund the work of “Rising Stars” physicians at Dana-Farber Cancer Institute (DFCI) since the program’s inception in 1998. Selected annually by DFCI, “Rising Stars” are doctors leading breakthrough cancer research as yet not backed by federal funding.

“This event is successful every year through the generosity of our franchisees, vendors, Dunkin’ Brands and DCP employees,” said David Liguori, Tournament Chairman and COO of Dunkin’ Donuts National DCP. “Even in a challenging economy these incredible and passionate people come through for the Jimmy Fund. And because the tragedy of cancer is pervasive, we want to contribute in any way that we can to help Dana Farber Cancer Institute battle this insidious disease.”

Nancy Rowe, director of the Jimmy Fund Golf Program adds, “The commitment by Dunkin’ Donuts is extraordinary and is vitally important to the work of Dana Farber. We are so grateful for their continued devotion to the Jimmy Fund and the priority they give it. It serves as a vivid example of selfless commitment at its best.”

More than 200 golfers participated in the tournament and approximately 300 people attended the dinner/auction. Sadly and in an ironic twist of fate, this year’s event took on special meaning for the Dunkin’ Donuts family with the May 30th passing to cancer of John Henderson; long-time franchisee and driving force behind the annual tournament and support of the Jimmy Fund. An emotional special presentation honoring his legacy highlighted the evening’s dinner capped by a sentimental remembrance by Dr. Lee Nadler, Senior Vice President, Experimental Medicine at Dana Farber Cancer Institute.

The Dunkin’ Donuts George Mandell Memorial Golf Tournament began in 1998 in honor of George Mandell, a Dunkin’ Donuts franchisee who died of cancer.

The Massachusetts Restaurant Association (MRA) has announced that MRA Board member Tom Galligan recently took the top spot. He’s chairman, president and CEO of Papa Gino’s Holdings Corp., NEFA Member and a company with more than 5,000 employees and more than 350 Papa Gino’s and D’Angelo Grilled Sandwiches restaurants.

Galligan has been an active member of the MRA for 10 years. As chairman, Galligan said in a statement, he will focus on boosting membership, strategic planning and promoting members through such programs as “Stars of the Industry,” which is an appreciation program for hourly employees.