2010 Growth Prospects: Two Franchisors Discuss Capital, Incentives, and Strategy

We asked two franchisors if they're seeing signs of economic recovery - and how what they see is affecting their plans for recruiting new franchisees in 2010. One is in the rapidly growing healthcare services field, the other in the highly competitive pizza sector. See if any of their perceptions or programs can help your plans for growth in the coming year!

Shelly Sun,
co-founder and CEO,
BrightStar Franchising

We are seeing positive signs of economic recovery, which is helping to mitigate the fear candidates have. We are planning for increased growth in 2010 based upon strong unit performance, the growth of our industry, and solid validation. We are leveraging Process Peak's virtual brochure and pipeline catalyst to drive an interactive process and the ability to evaluate all metrics during the sales process to optimize results and selection. We are focused on selecting the best franchisees -- franchisees who have the right experience and are compassionate and well-capitalized.

The biggest challenge we see in 2010 in meeting our goals is access to capital. We are focusing on franchisees who have a 401(k) they can use. SBA loans continue to be slow to process, and most banks are not really writing them because of the cap on fees and low interest rates. As an organization, we are spending time in Washington, D.C., lobbying our politicians to improve access to capital because that is the single biggest issue holding back economic recovery, existing franchisee expansion, and new franchise sales.

In 2010, we will launch a conversion program to enter markets where we do not yet have franchisees. We have begun to narrow our broker relationships, choosing to develop stronger and deeper relationships with fewer broker networks. This allows us to improve the results for our broker partners and for ourselves. We are spending the time with the brokers to ensure they know who we are looking for, and to maximize opportunities to select the right franchisees with better conversion ratios.

Based on the positive signs of economic recovery we are seeing and a slow improvement in the access to capital, in 2010 we plan to add 120 new franchisees domestically and 5 international masters. We are building up our team to meet the increased growth in 2010.

Madison Jobe
Vice President of Development
Pizza Inn, Inc.

While we are seeing some positive signs in our business, comparable buffet restaurant sales have trended ahead of the pizza segment average, which is encouraging, but the development environment is still difficult. Many experts are not predicting a "thawing" of the credit market until well into 2010, some say the third or fourth quarter.

To address both the current difficult environment and what we anticipate to be an improving economy in 2010, we are offering an incentive for development of new buffet Pizza Inns. For a limited time (October 1, 2009 through March 31, 2010), we are offering a 50 percent reduction in our initial franchise fee, from $25,000 to $12,500; and a 50 percent reduction in royalties for years 1 and 2, from 4 percent to 2 percent. Royalties in years 3 and beyond will be the standard 4 percent.

This incentive will allow us to aggressively recruit new candidates to become franchisees, and also to offer additional incentives to current franchisees to continue or reenergize their growth plans. Given the current and anticipated economic environment, we believe that a 2 percent positive addition to the bottom line in years 1 and 2 will be favorable to new development. The new agreements have to be fully executed, fees paid, and the new location opened within one year of the date of the agreement.

Specifically, the incentive was designed to provide a strong offer to current franchise operators in other systems who are seeking opportunities for growth outside their current concepts, those with current restaurant experience, preferably with an infrastructure in place to grow a new brand. It also was designed for Pizza Inn franchisees who are looking for growth opportunities and realize the positive impact a reduction in fees and royalties can make in the first few years of startup operations.

In the past several years, Pizza Inn had been very broad and general in the search for franchise prospects. Restaurant experience and full-time involvement was not a prerequisite to becoming a franchisee. But given the difficult development environment, and specifically the limited financial resources available today, we are much more focused in our search. The opportunity to successfully finance a first-time franchisee of a new brand with no prior restaurant experience is almost nonexistent today at our level of investment.