That is the question and the answer can be complex and demands thorough assessment
Conventional wisdom has it that young franchises are jumping on the area developer bandwagon to grow quickly and establish their presence in the most efficient way.
As usual, conventional wisdom has it partly right. Using area developers and multi-unit franchisees is a way to grow fast, but it's not for everyone, and not all franchisors are jumping in with both feet. Smart franchisors are taking it slowly, finding the right partners, and making sure that the concept will be well served.
Area Developer talked to three franchisors - Liberty Fitness, Juice It Up! and Salad Creations--and several of their area developers to get a sense of how this trend is working out in practice.
Two of these franchisees - Liberty Fitness and Juice It Up! were reluctant to go the area developer route, at least at first. Salad Creations made the decision early to use a combination of area developers who would also be multi-unit operators.
Exploring the success of area developers
When Larry Sidoti founded Juice It Up! in 1995, he planned to have multi-unit owners and single operators for his specialty juice bars. But as he observes the industry and learns more every year about his business, he is reconsidering the idea of area developers.
Sidoti, also vice president of development for Juice It Up!, says he is leery of the AD model that just signs someone over the phone if they can slap down a check. "A few franchisors have pulled that off, but it's fraught with problems," he says. "There are lots of lawsuits out there, because slapping a large chunk of money on a territory and not being as discerning about who is taking it on, can create a desperate situation.
"We have a different philosophy; we are willing to consider multi-unit deals or area developer deals if someone has the wherewithal, experience, and willingness to learn. We also encourage multi-unit development by offering our franchisees discounted deals."
Also at issue when considering multi-unit owners and area developers, is that Juice It Up! is "not as streamlined as, say, a sandwich shop. We have to be smarter about our real estate decisions," Sidoti says. "With juice bars not yet in the mainstream category of fast food, you're totally at a convenience level. You'll go grab a smoothie across the street."
But there's a different level of service in the juice bar category, he says. "It's like with coffee - it's the experience you have when you go to a coffee house. It's not just the great coffee; it's the experience you have there. The same applies to juice bars. In fast food restaurants, you don't have high expectations - you just want the order right. But in juice bars, you have higher expectations. We have to have franchisees with that kind of mentality - people who are more ingrained in the community, connected to the community, and dedicated to quality and customer service."
Sidoti has thought long and hard about the role of area developers in growing the franchise. He says that he hasn't yet found the person or group with the wherewithal and the experience to do that for Juice It Up!, recognized as southern California's original smoothie and juice bar, but he's willing to entertain any legitimate plans.
However, potential ADs will need to keep in mind that there are a finite number of sunbelt states - an important issue until juice bars become as mainstream as sandwich shops - and should not underestimate the challenges of distribution and brand building, he adds.
Juice It Up!, which currently has 120 units selling its blended-to-order fresh fruit smoothies, fresh-squeezed juices and other beverages, has grown at an average of 37 percent for the past five years, Sidoti says. In 2007, it will open up to 50 juice bars - to date, its largest number of units in a year. "Right now, we have commitments and are under development with 46 stores for 2007," he adds. Plans are to have 500 juice bars open by 2010.
Juice It Up! currently targets warm-weather states, such as Arizona, California, Nevada, Texas, Florida, and Tennessee.
A new outlook
Liberty Fitness CEO Linda Burzynski recently has changed her mind about the value of using area developers - due primarily to William Monk, who has contracted to build at least 44 Liberty Fitness clubs in North Carolina over the next half dozen years or so. He is one of six new area developers for the company. (See story in box)
"Before, I wasn't a big fan of area developers," she says. "I think certain systems are conducive to them and certain ones are not. The Liberty Fitness experience is such a high-end experience that I wanted it to grow quickly and to ensure its quality.
"Meeting William Monk convinced me to do it. He pointed out that he knows North Carolina, has lived there for years, and has the leadership ability and experience to go faster and with more quality there. It's so important with an emerging franchise like Liberty Fitness to get that local support."
She also likes the idea of the informal partnership between a franchisor and an area developer, she adds. "An area developer is working with you, splitting initial franchise fees and ongoing royalties. It gives you someone who's working side by side with you; legally, it's not really a partnership. But it's the closest thing to it in franchising. And we're like-minded when it comes to quality."
That level of trust in her six area developers - all, coincidentally, men who came by way of brokers - means she shares everything, "other than HR files," with them. "Even though they're all new to franchising, they are seasoned executives with phenomenal business backgrounds, and all are men of character and integrity. We're supportive and open, and it's worked out well."
Burzynski, who came to Liberty Fitness as CEO in July 2005 and has lost 40 pounds on the program, says she is especially pleased with the results she is already seeing where existing clubs are working with area developers. "It's an added comfort level for me as CEO. We're seeing wonderful results. In addition to the support from our home office in Austin (Texas), we now have the laser-beam support of someone on site more often. We could never have afforded to have such high quality support on site without these guys."
She plans to round out her team of area developers at 10, probably before 2008. "I don't plan to do everything with area developers. We'll close it out at 10, and then take a fresh look at it. We'll keep our core ADs in place, and the rest of the clubs we'll put in company-owned area developers, taking care of Liberty Fitness employees who have been loyal and helped us to grow."
Because she doesn't like "a layer between me and the unit franchisee," Burzynski will continue to interview - face to face - every potential franchise, including multi-unit owners, and will personally award the franchises. "Our ADs will not grant agreements. The agreements we have with them are separate and have nothing to do with the individual franchises we award. And our unit franchisees understand full well that they have direct access to me at all times; they have my office, cell, and home phone numbers and my email address, and are encouraged to use them," she says.
Burzynski, who has expanded Liberty's business model to include multiple revenue streams, plans to award 40 to 50 unit franchises in 2007. The big-target states are those states contracted to area developers: Texas, North Carolina, Ohio, Florida, Long Island (New York?), and Michigan. She expects to have 1,500 units within five years. "I'm here for the long haul," she says.
AD-ready from the start
Jeff Levine was an established restaurateur/entrepreneur when he founded Salad Creations is 2003. He had started two concepts, Lulu's Bait Shack and Brother Jimmy's BBQ in New York.
But as his life changed, and he married and had children, he decided he needed a fresher approach to food and life.
Now 38, and with four children, the oldest of whom is 5 and a half, Levine says he regularly eats at Salad Creations, and even has passed on the desire to his children. The oldest eats at Salad Creations at least once a week.
After a few years of developing the concept Levine, by now living in south Florida, decided that franchising was the way to go.
"I had never been in the franchise business," he says. "I was introduced to my partner who has been in the business maybe 30 years and had a bunch of different franchise companies." Robert A. (Bob) Spuck, now vice president and in charge of franchise development, had a long history in franchising, and still owns WineStyles, which has 150 franchise locations.
"I specifically designed Salad creations to be a franchise business," Levine says. "I wanted to learn the business and grow the concept the proper way."
So he spent about six months "kind of dating" Spuck, sitting down and talking. He had three Salad Creations stores open and operating. Since he has convinced Spuck to take over franchise development, the company has sold 59 franchises and brought on 23 area developers. Plans are to open 40 more stores this year.
"Bob's background was area developers," Levine says. "We looked at the subway model, which is similar in investment and style. We thought the salad market was about to explode and we thought the fastest way was to get ADs. We've been inundated and have had to turn people away."
He's planning eventually to have about 100 area developers in the U.S., and is already expanding internationally with openings in Trinidad, Mexico, Dubai, and Kuwait - using area developers. Eventually, he says, he expects the franchise to be bigger internationally than it is domestically.
Many of Salad Creations' area developers had other brands at some time, "so they have experience, which is tremendous for us," says Levine. "Some retain the other brands, some don't. Most of them seem to stay with us."
Unlike most other franchisors, Levine is using a test to weed out candidates for area developer. It was developed for the salad chefs, whose job involves a lot of customer contact while an order is being filled. That requires a lot more abilities than the usual chef, particularly multitasking.
"In the beginning, we developed our interview for the salad chefs," he says, because "there's tremendous interaction between chefs and customers. We work hard to get them to be real personable. That's difficult in QSR: Will they look you in the eye, will they smile when they talk to you? We then angled the psychological model to area developers. We're still trying to figure out the best traits and what we're looking for."
The test, developed by a psychologist who is now on staff, seems to work.
One interviewee scored a 97 on the test, seven points higher than anyone else ever had. "The general manager of the store said, â€˜You should meet this guy.' And I did, and I thought he was special, and we hired him on the spot to be assistant manager. From there he became the manager, then the assistant director of training, and now he's director of training."
Levine says the test gets people involved and sets the culture and expectations.
The area developers get trained just as the regular franchisees do, and then they get four days specifically for area developers.
"Once the AD gets a store open in his territory, he can then take over that royalty stream and oversee that restaurant. They don't get royalties until their store is open. The way our AD is viewed is he's our partner in that territory. We're 60-40 partners on everything that goes on in his territory."
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