2004 was a big year of change in franchising.
Even the FTC thought so -- when it issued its proposed changes to the FTC Rule and requested comments. The franchise community responded provided dozens of comment letters to the agency, both applauding and questioning certain new requirements. The changes to the FTC rule have not yet been promulgated, but the comment period is now closed. To view the proposed changes and the comments, click here.
Bread is back on the menu -- After a difficult spike in low-carb eating, some carb-dependent concepts - like pizza, bagels and ice cream -- are breathing a sigh of relief as life appears to be returning to normal and people returning to carbohydrate-rich diets. Some time in mid-year, the low-carb craze plateaued and people began visiting their local pizzerias again. Time will tell how this change will affect the success of concepts based on low-carb products.
In Memoriam -- The franchising community was shocked this year by the sudden passing of James Cantalupo, McDonald's CEO, in April at a franchise conference in Florida. After Mr. Cantalupo's death, Charlie Bell was named McDonald's CEO, but recently resigned his post to focus on his battle with colorectal cancer. Jim Skinner is now the CEO for McDonald's.
Krispy Kreme falters, then plummets -- In 2003, Krispy Kreme, the Wall Street darling praised for its near-perfect U.S. expansion, hit a high in its stock price at nearly $50 per share. After riding a three year wave of media love, the company hit a wall in 2004 (I like a mixed metaphor once in a while). This February, the company announced that it would buy back four large franchise territories, a move that had some market analysts scratching their heads. In April, analysts began to criticize the company's strategy and the stock price started to come down. In May, shareholders filed suit against the company and in July, the SEC announced an informal probe that became a formal investigation into the company's accounting practices in October. By November, when the company announced a $3 million loss for the third quarter, the company's stock had dropped more than 75% to $9.30 per share.
FLSA Class Actions -- In other class action news, several franchise chain operators have been caught in class actions over claims that they violated the Fair Labor Standards Act in the operation of corporate restaurants. According to the lawsuits, some companies do not pay managers overtime because they believe them to be exempt employees under the FLSA. Class action lawyers read the law differently, claiming that if the managers are performing non-managerial duties 90% of the time, they deserve overtime pay. CKE paid $9 million in an FLSA class action settlement, and similar cases were filed against Pizza Hut, Ryan's Family Steak Houses and Claim Jumper Restaurants.
NPR radio aired an interesting story today about wine makers' reluctance to discuss the role of technology in the winemaking process. Because winemaking is viewed as an old world art, vintners often eschew any connection with modern technology, but most wineries make good use of advanced processes available. In the midst of this cloaked technology, however, comes a wine retailer that uses technology to market itself and its wines. VinoVenue is a San Francisco lounge/retailer that offers wine tasting through self-serve wine bars and the use of smartcards. The bar offers wine-tastings in one-ounce portions and in a variety of prices and qualities and uses the self-dispensing technology to offer customers an opportunity to "try before you buy." One more reason to want to live in San Francisco -- although the company's founders may explore a national roll-out of the concept based upon their success in San Francisco.
With the low-carb wave receding, Hardee's has unveiled a new burger on the block that combines both carbs and fat -- the Monster Thickburger. Beginning with the ingredients -- which include four pieces of bacon, three slices of cheese, two-thirds of a pound of ground beef, mayonnaise, butter and a bun, the burger offers what Hardee's calls a "monument to decadence." With 1,420 calories and 107 grams of fat, the Monster Thickburger does not appear to be the panacea for obesity we'd all hoped for. The Center for Science in the Public Interest called the original Thickburger "Food Porn" and referred to the Thickburger family of products "prehistoric," bringing a much-needed Flintstones visual to the Hardee's experience. In its original Thickburger statement, a CSPI executive director said "A good rule of thumb is that if a burger needs a comma in its calorie count, it’s virtually impossible to fit into a healthy diet." CSPI's most recent pronouncement called the new product the "food equivalent of a snuff film."
The one constant in dieting is cheating, even by Atkins adherents. Many businesses that depend on the sale of carbohydrate-laden foods are now breathing a tentative sigh of relief that the Atkins craze may be loosening its vise-like grip on America. This article from businessweek.com reports that Panera and other carb-selling companies, like Papa John's and Buca de Beppo, show an increase in their stock prices after a long, dismal, Atkins slide or Scarlet A-induced flat sales. The article cites a Morgan Stanley study showing that the percentage of Americans on a low-carb diet declined from 12% in January to 10% now. Other analysts seem to agree that the peak of the Atkins diet occurred in January.
A PricewaterhouseCoopers report was released today on the franchise industry. The report examined franchising in 2001 -- finding that franchises amounted to more than 750,000 establishments and almost $10 million in revenue in the United States. The report can be accessed here at the International Franchise Association's website.
Hold the Bun -- Low Carbs Give Lettuce a Boost. Here's another article on the low-carb efforts of some fast food restaurants to cater to their low-carb dieters. Hardee's introduces "The Low Carb Thickburger" wrapped in lettuce to the great joy of lettuce farmers everywhere. In-n-Out Burger also introduced a similar low-carb burger to provide Atkins friendly menu items to its customers.
The Future of Credit. In a story from smh.com in Australia, the author describes the revolutionary technology that will make credit cards obsolete. Based on fingerprint analysis technology, a San Francisco based company, Solidus Networks, Inc., has created a device that reads a customer's fingerprint and links it with the customer's credit or debit card account. The customer need only present valid identification and seven-digit password to pay for his purchases. The Thriftway in West Seattle is testing this pay-by-touch system, while McDonald's is testing it in California and Blockbuster is testing the machines in Texas and New York.
The Future of Auto Dealerships. In a blog entry on October 7, we included an entry in the Wall Street Journal in which J.D. Power III advocated the development of auto superstores that would provide customers with comparable products from different manufacturers under the same roof. We haven't quite gotten there but this story from the Dallas Business Journal suggests that Dodge, Chrysler and Jeep are headed in the right direction. Chrysler has announced a dramatic departure from its traditional dealership requirements with the introduction of its Project Alpha program. The manufacturers now encourage metropolitan dealers to sell all three brands from one location rather than from multiple dealerships. Project Alpha has been introduced on a voluntary basis only but dealers involved in the program indicate that it's a more profitable way to operate the multiple dealership concept and it gives customers one place to shop for all of their Jeep-Dodge-Chrysler needs.
Franchise Frontier -- Dating Services. The growing numbers of singles -- from the newly-divorced to the confirmed bachelor/bachelorettes, combined with an increasing public openness toward new ways to meet people, have apparently created a successful industry of matchmakers. Many of these matchmaker companies, from It's Just Lunch to Equally Yoked Christian Introductions, are franchises operated by local matchmakers in a national dating system. This article profiles the growing dating service industry in Arizona.
Eating Trends and Investment Trends. Following up on two things -- (1) we're not an investment blog, and (2) the longevity of trends and trendy dining habits - here's an article from bizjournals.com that discusses the concern of some analysts (or skeptics, as they're called) about businesses based on dieting or other trends. Yesterday's blog entry included an article posing similar questions about the longevity of premium ice cream concepts, which despite the fat crusade seem to be thriving (with some exceptions) as customers continue to pay a lot of money for a premium ice cream cone. Today's article takes a hard look at the investment risks that may be involved in some very popular franchise concepts, including Castus, Inc. -- the low carb grocery store chain that's enjoying success in a post-Atkins world -- and Curves for Women, the country's fastest growing franchise.
Gym Concepts on the Rise. In the wake of the obesity litigation and stunning statistics about fat Americans, the fitness industry appears to be growing strong. Curves for Women has been recognized as one of the fastest growing franchises in America (see blog entry from August 5). North of the border, two brothers who opened a number of 24-hour gyms in Ontario, have now developed Expressfit for Women, modeled after the Curves 30 minute workout. The company now has 47 clubs and has moved into the United States. The company intends to have 500 clubs open over the next 5 years.
Payment Systems & Franchising. Two articles discuss the growth potential for developing payment systems within commercial businesses generally and QSRs specifically. The Green Sheet discusses the reluctance of QSR franchisees to use electronic payment systems for their customers without a push from the franchisors. In money.telegraph, the author profiles a British company looking to modernize the age-old practice of barter and use a franchising network to accomplish that goal. Bartercard allows members to trade excess capacity for credits in the member network; members may then use the credits to buy goods or services from other members in the network -- from wedding planners to designers to lawyers and accountants. Bartercard is looking to expand through franchising -- its goal is to develop 22 franchisees by the end of this year.
Healthier fast food: The New Haven Register writes about fast food's move towards more healthy food options, citing McDonald's Happy Meal fruit test, KFC's "Laptop Pack" and marketing towards children in the article "Hold the mayo, give me some of that fast-fruit salad instead."
Upscale trend helps Taco Bell: Taco Bell's sales have increased, reports the Mercury News, due in part to the addition of more upscale, pricier items on its menu. The article notes that "Taco Bell has quickly gone from the weakest to the strongest of the fast-food chains owned by Louisville, Ky.-based Yum! Brands, Inc."
New careers in franchising: MSNBC follows former corporate executives into their new careers in the piece "Former Execs Go Franchising." The piece discusses the required initial investments, the push to open multiple locations as a strategy for profitable franchising, and the transition from corporate life into franchise operation.
The kiosk advantage: Entrepreneur.com discusses franchising in a kiosk environment in "Cart Blanche."
Healthier Happy Meals: Yahoo! News offers details on McDonald's plans to test a version of its Happy Meal involving fruit instead of french fries. A trial run for "Apple Dippers," apple slices that can be dipped in caramel, is planned for this summer.
Fat Suits Affect Marketing Trends: Unhealthy food has become a risk factor for its producers, in light of the elevated concern about obesity and big-food lawsuits. The Salt Lake Tribune reports that restaurant chains and snack manufacturers alike are changing marketing strategies in response to the threat of litigation: McDonald's will test a Happy Meal this summer containing fruit instead of french fries, Kraft has plans to cap the portion size of single-serve snack foods, and Frito-Lay is about to eliminate the trans-fatty acid component of its products.
"Rising demand for fresh, quick alternatives to traditional fast food has put smaller restaurant chains like Baja Fresh, Pick Up Stix and La Salsa in a major expansion mode in Southern California with an eye to taking the trend nationwide," writes the Los Angeles Daily News.
"Weight-Loss Franchises Pursue Fat Profits," reports the Wall Street Journal's Startup Journal.