Economic Stimulators: Buy One, Get One Free

Retailers have never been shy about enticing customers to buy through all kinds of incentives. Now a franchisor has followed suit. During the last quarter of 2008, Seattle-based Emerald City Smoothie was offering a "buy one, get one free" franchise promotion. Seriously.

While many franchise concepts struggled to recruit during recent months, the marketing minds at Emerald City were thinking innovatively.

"The promotion was available to any new or existing franchisee who purchased a new franchise territory," says Julie Vance, vice president of operations at Emerald City Smoothie. "With each new territory sold, we would add an additional kiosk model unit to the deal for free." The promotion made some franchise buyers instant multi-unit owners.

She says interested franchisees simply paid the regular $30,000 franchise fee and got what amounted to a $50,000 total value. For perspective, a regular Emerald City Smoothie location occupies between 800 and 1,000 sq. ft. The kiosk model is only around 400 to 600 square feet and typically ideal for high-traffic locations such as malls, airports, fitness centers, or inside other businesses.

Vance says their team developed the idea as an innovative way to generate interest and attract new franchisees, despite the economy.

Several Offers You Can't Refuse

Late last year, Budget Blinds made prospective franchisees the proverbial offer they couldn't refuse: do $750,000 in annual gross sales within the first three full years in business, or they'll refund the $14,950 franchise fee through a 10-month royalty holiday. Of course, there are conditions, but the program is a bold initiative, and indicative of the thinking going on at Budget Blinds these days, according to CEO Chad Hallock.

The company also has enhanced its VetFran program for veterans of the U.S. armed forces. And during 2008, the Orange, Calif.-based franchise was recruiting former employees of struggling competitor 3 Day Blinds, which was closing locations and filed Chapter 11 in October. Hallock says the closings freed some quality people who had the skills to be excellent franchisees. And those who signed with Budget Blinds by year-end had access to preferred financing.

We asked Hallock to provide more details about the company's multi-tiered recruiting initiative.

MUF: What are some of the conditions for the royalty holiday program?

Hallock: The franchisee has to prove they've followed our system, including canvassing and local area marketing at levels we prescribe. We've proven our system works repeatedly, so we want new franchisees to embrace it and make it work for them. Franchises don't perform as well when they deviate from the system, for example, letting local area marketing investments slip or stopping canvassing activity.

MUF: Explain the special incentive for veterans?

Hallock: Our VetFran incentive is twofold. First, we've increased the discount for those honorably discharged veterans who pay cash to $14,950. For those honorably discharged veterans who choose to finance their franchise through Budget Blinds, we'll discount their investment by $7,500. Second, we're extending this VetFran incentive to active duty service members and their spouses.

MUF: How did the preferred financing program work?

Hallock: We extended the time on our financing program from 2 to 10 years for former 3 Day Blinds employees who invested in a Budget Blinds franchise by last December 31. They could finance up to $60,000 with us. We thought it would enable good people with the desired skill set to take control of their own destiny. Additionally, our regular financing program has been enhanced to allow prospects to finance $35,000 over 5 years (up from 2 years) at 10 percent.

MUF: How long do you expect to continue to make the offers available?

Hallock: The royalty holiday program is good for all prospective new franchisees who sign with Budget Blinds by December 31, 2009. The VetFran incentive has no expiration date, but we may choose to modify it some time in the future.

Applied Efficiency

Pizza franchising is known for being efficient--the ultra-competitive marketplace demands it. Take the order, cook the pie quickly, and get it in the customer's hands ASAP. Marco's Pizza is now applying efficiency to its franchisees' operations.

Don Vlcek, vice president of purchasing for Marco's Pizza, says the company has been experimenting with ways to manage costs and promote supply chain efficiencies from top to bottom. "Rising food and transportation costs have operators and franchisees looking to cut costs and streamline operations," he says.

Transportation is the first key area. Marco's has saved money by securing truckload delivery prices with vendors looking to establish a relationship with the fast-growing company. Vlcek says the company is reducing transportation costs with a combination of logistics solutions: purchasing in greater volumes to reduce freight cost per pound; getting nationally delivered pricing direct-to-dock; and seeking out equal-quality vendors closer to distribution centers in new territories. For example, by switching to once-a-week deliveries, a Marco's franchisee with five stores saves more than $3,500 per year ($750 per store).

Contracting is the second key to cost reduction. Marco's now saves money by contracting certain purchases in advance. Vlcek says significant savings have been achieved by locking in prices for key ingredients like flour, cheese, and pepperoni before food costs skyrocketed. "Flour savings will be more than $150,000 in a one-year period, and cheese and pepperoni contracts will yield savings of more than $20,000 each," he says.

As food costs climbed, Marco's franchisees have begun to weigh and count their deliveries more carefully to make sure vendor shipments are exact. One franchisee recently noticed a short count, prompting the vendor to cancel a 10 percent chain-wide price hike.

Pricing tiers show about a 2 to 4 percent decrease in cost when order volume doubles. The brand's growth has helped reduce its order costs and will continue to do so: the chain is set to more than triple its current number of stores by 2010.

Finding Funding

It may seem counterintuitive, but business expansion during tough economic times can make good business sense. In fact, some franchisors are specifically looking to recruit new operators in today's volatile marketplace.

Great Clips, the Minneapolis-based franchise, awarded 30 percent more franchises in 2008 than in 2007. And in late 2008, the company announced further expansion plans for 2009 and introduced a new financing partnership making millions of dollars available to growing franchisees.

"Our aggressive growth plans are part of Great Clips' North American development strategy, which includes expanding in existing markets while entering new cities," says Ray Barton, CEO and chair of Great Clips.

The company has teamed up with InSource Business Finance to create a $14 million fund devoted exclusively to financing Great Clips franchisees. The fund will be used for financing build-outs for new or existing franchisees, salon acquisitions, business debt consolidation, and refinancing.

"Having worked with Great Clips franchisees for many years, we are incredibly excited about the availability of this fund," says Brian Link, president and founder of InSource. "In today's credit market, many franchisees have called us expressing concern over what they read in the papers. This fund represents our commitment to the Great Clips brand and to its continuing success."

Published: January 24th, 2009

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