Last year, we put the spotlight on two prominent franchisors that were in the midst of selling off well-known brands from their operations due to a desire to focus on their more profitable brands. A year later, those sales have now been completed.
In January 2011, YUM! Brands announced that they were seeking a buyer, or buyers, for their A&W All-American Food Restaurants (#54) and Long John Silver’s (#61) brands. At the time, CEO David Novak explained in a company press release that YUM! Brands didn’t believe Long John Silver’s and A&W Restaurants fit into the company’s long-term growth strategy.”10
After putting the two brands up for sale, YUM! concentrated on growth internationally, especially in China. YUM! now has over 4,000 KFC and Pizza Hut stores in the China. In addition, YUM! announced in April of 2011 that it was planning on acquiring Little Sheep Group Ltd. in an effort to gain an even stronger foothold in the Chinese market, which has a reputation of being hard to penetrate for outsiders.11
By the end of September, buyers were found in A Great American Brand, LLC for A&W and LJS Partners LLC for Long John Silver’s. Coincidentally, both of the buyers are independent franchisee associations for the respective brands. Financials weren’t disclosed for the new deals, but according to Bloomberg Businessweek YUM! bought both Long John Silver’s and A&W for $320 million in 2002.
Also in January 2011, Wendy’s/Arby’s Group announced that it was “exploring strategic alternatives,” which meant in translation that company executives were open to selling off the Arby’s brand (#57) to concentrate on its Wendy’s (#23) operation.
When asked to comment on the move at the time, Nelson Peltz, chairman of Wendy's/Arby's Group, explained in a statement that “despite Arby's positive momentum, the reality is that the Wendy's brand, given its relative size and scope, is the key driver of shareholder return, and we believe we should focus on the execution of the compelling growth opportunities at Wendy's.”12
In July, Wendy's/Arby's Group announced that it had completed the sale of Arby’s Restaurant Group, Inc. to a buyer formed by Roark Capital Group. However, the company didn’t split completely from the Arby’s brand as it maintained 18.5% common stock interest in the Arby’s business within the transaction, which was estimated to be worth $430 million.13
The transaction signaled the end of era on another front as well as the company changed its name to The Wendy’s Company, and announced a consolidation of its world headquarters in Dublin, Ohio at the beginning of December, moving from the space it occupied in Atlanta, Georgia.
Finding Ways to Finance
|Light at the End of the Tunnel, But Not There Yet: Financing issues will continue to [effect] the franchise industry in 2012. The global economy is a bit rocky, and it doesn’t take much to scare lenders off. Today’s franchise buyers should still plan on filling out several loan applications; lenders are still quite paranoid. Things are better than they were two years ago, but for franchising to grow on a global basis, a lot more loans need to be approved. ~ Joel Libava, “The Franchise King,”|
Over the last year or so, lending institutions have been loosening the purse-strings when it comes to gaining financing. It’s still a challenging road to travel for prospective and current franchisees alike when it comes to finding sources of credit, but the outlook is brighter than it was just a couple years ago.
Some franchisors have adapted to the current lending environment by taking matters into their own hands. This includes measures like partnering with lending institutions to gain more favorable terms for their franchisees, creating in-house lending operations, or adjusting their franchise models. These different franchise models have taken the form of tiers of investments levels franchisors can offer to prospective franchisees. In a January 2012 interview with the Wall Street Journal, IFA President and CEO Steve Caldeira said, “Many investors have difficulty finding credit to build out full-size stores. There has been an explosion of different franchise models within the same brand.”14
There are also instances of franchisors getting even more creative to pull new franchisees into their network, including running contests. Yes, contests to win a franchise outlet that in cases can be worth in the hundreds of thousands of dollars.
Franchisees are also turning to other options in addition to or in place of traditional funding channels, including the Internet. Considering the way social media plays a part in everyday life, it’s not surprising that franchisees and lenders seeking each other are connecting online. One such website for these connections is Boefly.com, a site that is strikingly similar to online dating sites. Prospective franchisees and other small business funding seekers create an account with the service (a membership fee is required) then create a loan request for potential lenders to view. Once the loan request is complete, Boefly matches the request up with “compatible lenders” who will review the requests sent to them and contact those they find suitable to complete the loan process with. The method has been embraced by over 1,500 lenders hosted on the site, including popular franchisors Dunkin’ Donuts, Arby’s, Baskin Robbins, Hardee’s, Planet Beach, Matco Tools, and Great Clips among others.
Emerging International Franchise Markets
A lot of attention has been paid to emerging markets over the past several years for franchise and general business development, particularly the “BRIC” markets of Brazil, Russia, India and China. And there’s very good reason for the interest. “[Ninety-five] percent of the world’s potential consumers are beyond U.S. borders,” says Kristin Houston, leader of the U.S. Commercial Service Global Franchise Team.15
However, while it’s the larger countries that are receiving the most attention, smaller countries within emerging markets have future growth potential that simply shouldn’t be ignored.
A number of the countries that warrant consideration can be found in regions once unified, but have since dissolved into historically-new entities. Places such as the former Soviet Union, former Yugoslavia, and other countries in Eastern Europe fit into this description. According to the East Europe Franchise Association, the region – that also includes some countries geographically located in central Europe as well – is a vast and emerging marketplace for franchising consisting of 30 countries with over 450 million people.
Specifically within this area, Houston points to the countries of Ukraine, Slovakia, Poland, Hungary, and the Czech Republic. These five countries have experienced approximately 67 percent franchise growth in the last few years alone. The sectors of retail, automotive services, real estate, education/training, hotel and hospitality, and quick-service restaurants are currently the most in-demand franchise areas.
Locations such as Vietnam and Indonesia also are appealing to franchisors seeking to grow globally.
Increasing disposable income, a high interest in American brands, and rapidly growing populations make these two Asian countries fertile ground for franchisors. Indonesia adds approximately three to five million people a year to its already staggering population of 240 million, and Vietnam boasts a population of about 90 million.
The possibilities are so intriguing that a 10-day U.S. Franchise Trade Mission was made to visit the two nations to explore the opportunities present and generate local interest. The mission included 19 franchise brands and consisted of economic and legal briefings, meetings with government leaders, real estate development site tours, examinations of current franchise operations, and “matchmaking” sessions between potential business partners.16
One of the companies that took part in the mission was Top 100 newcomer Johnny Rockets. Johnny Rockets Sr. Vice President of International Development Steve Devine praised the trip, especially the opportunity to match up with a franchisee with the necessary local experience and desire to grow their brand into the region. Of the trip, Devine commented that during the mission, “we signed an agreement with a franchise partner with significant experience in the restaurant and hospitality industries to open five Johnny Rockets restaurants in Indonesia over the next five years. She understands our business, and appreciates [the unique attributes of the Johnny Rockets experience].” He wasn’t alone. There were many reports of franchisor satisfaction about the trip and the way it was conducted.