UPS's acquisition of MBE is still playing out

From Mail Boxes Etc. to The UPS Store, a quick history; or, 27 years in 90 seconds or less.

Mail Boxes Etc. sold its first franchise in 1980, its first area franchise in 1982, and its first international master license in 1988. In 1997, the brand, with approximately 3,400 stores, was purchased for $267 million by US Office Products (USOP), a $3.5 billion company looking for synergy between its wholesale products and MBE's retail outlets.

But it didn't work out as planned. In August 2000, USOP announced plans to divest MBE, a wholly owned subsidiary, through an IPO. That didn't work out either, and in March 2001 MBE was sold to UPS, lock, stock, and barrel for about $192 million - this time with the hope of combining the shipping and organizational strengths of UPS with the brand's now 4,300 stores. (Historical note: USOP itself, in Chapter 11, was acquired two months later.)

When UPS bought the company, MBE was "in essence on the verge of bankruptcy," says Tom Crockett, vice president of worldwide sales and marketing for Mail Boxes Etc. Inc., the franchisor for The UPS Store. Crockett joined the company in 2004. Prior to that, he'd spent 15 years with McDonald's, rising to senior director of strategic planning and innovation for the company's Eastern U.S. division.

The year before, in 2003, when the reconstituted company introduced The UPS Store brand, about 90 percent of MBE stores in the U.S. rebranded. Today about 98 percent have done so, says Crockett, with 182 still displaying the MBE logo. Mail Boxes Etc. Inc., owned by UPS, remains the franchisor for both brands, together the world's largest franchise network of retail shipping, postal, and business service centers, with 5,875 locations in 40 countries.

While the number of U.S. retail locations has grown slightly since the 2001 acquisition, (it stood at 4,460 as of April 30, 2007), the transition from MBE to UPS has not been without problems. Since the rebranding, at least three lawsuits have been filed from franchisees, including one from 150 disgruntled franchisees who have been joined by at least 50 more. Complaints include lower profit margins causing franchisees to operate at break-even or less, and problems with pricing, service, and other business decisions. UPS disputes these claims, which continue to be a thorn in the side of the $47.5 billion shipping and logistics giant.

For those still happy with The UPS Store brand and seeking franchising opportunities, single-unit growth continues, although there is not much room for new multi-unit development since the brand is fairly built out in the U.S., says Crockett. However, opportunities for multi-unit purchases do arise when an existing owner is ready to sell two, three, or more stores.

And there has been turnover since the acquisition by UPS. According to WSJ.com (the Wall Street Journal Online), May 8, 2006: "From 2002 to 2005, a total of 1,936 stores either were transferred to new franchisees or had their franchises canceled, terminated, or not renewed. Last year there were 513 such changes, representing 11.7 percent of the retail outlets then open." That seems to have settled down, with turnover reported in the more usual 5 percent range.

The UPS Store does not lend itself to ownership of a large number of stores. It has a lot of moving parts and demands more attention than a fast food brand, for example. The largest single franchisee has perhaps a dozen locations, and there are only a few that size among the 4,460 U.S. stores. Of those owning more than one unit, the majority own three to five, says Crockett.

Instead of regional offices or regional directors employed by the franchisor, The UPS Store uses an area franchise model, which Crockett describes as "kind of a hybrid." There area about 42 to 45 area franchisees, he says, who have purchased an area of the country to develop. Within that area, they recruit new franchisees, get them signed, and provide them with support, training, site selection, opening, etc.

While they receive a portion of the franchise fee and ongoing royalties, area franchisees are not master licensees or subfranchisors: the franchisor, Mail Boxes Etc., Inc., must approve all new franchisees. Area franchisees also must own or operate one or more locations themselves. An added wrinkle, says Crockett: "We also have multi-unit area franchisees." That is, area franchisees with more than one area.

The franchisor supports its single-unit owners in the usual way, managing the brand identity, culture, training, and operations from corporate in San Diego. It also supports its area franchisees by providing them with that information to disseminate to the franchisees in their territory. "They turn around and support us," says Crockett, who calls area franchisees the "arms and legs in dealing with the franchisees."

New franchisees, in addition to in-store training in their area, still attend the franchisor's eight-day comprehensive "university" at its San Diego headquarters, where they learn about such back-office necessities as a business plan, a marketing plan, financials, technology, procedures, etc.

Customer buys the concept

You may have been among the hundreds of millions worldwide who saw Bill Anderson on TV, though it's unlikely you remember him. Anderson was in a Super Bowl XXXIII commercial in 1999, the year his Denver Broncos beat the Atlanta Falcons in Miami, 34-19. (More memorable perhaps, is that it was Denver's second consecutive Super Bowl victory and that John Elway, in his last game, was named MVP.)

The commercial was part of Mail Boxes Etc.'s "See Your Small Business on the Super Bowl Search" campaign. Anderson, who bought his first MBE franchise in 1996 in Philadelphia, had nominated a student from the Wharton School at the University of Pennsylvania, across the street from his store. The student, Jeremy Kraus, had applied the microbrewery concept to super-premium ice cream, later starting a short-lived company called Jeremy's MicroBatch Ice Creams.

Anderson's own journey into franchising - and MBE in particular - began as a customer. He'd started a company with a partner doing electronic health care claims processing in the early 1980s. After about five years, they had a parting of the ways, as partners will, over the future direction of the firm. Anderson moved on and spent the next eight years as a marketing director in specialty health care.

This job put him on the road about 80 percent of the time, where he found himself using MBE with increasing frequency. His wife, who also had a job requiring a lot of travel, also used MBE. Over time, they both became impressed with the services - and the service - the brand provided. As often happens, traveling got old. It was time to look for work closer to home.

When he began his search, Anderson says he was "not so much interested in a franchise than a model and operating system that worked." He thought of Mail Boxes Etc. "That type of business really appealed to me."

Anderson spent about two years investigating the company, even visiting MBE's headquarters in San Diego. "I was impressed at every turn," he says. He spent time with franchisees, got financial information, and built a financial model. "It made sense," he says, and started looking for an opportunity.

Anderson says he had learned the pitfalls of working in a partnership when partners disagree, as well as the downside of getting in bed with venture capital companies who could then exert control. He was ready to do it on his own.

"Franchising and small business made sense to me," he says. There was, of course, the question of a franchise fee and ongoing royalties, new to Anderson. "Would I rather not pay it? Of course, but you pay for what you get," he says. What he got of course (versus starting an independent Bill's Pack and Ship Store), was a proven system, a recognized brand, operations manual, training, field support, etc.

Armed with a store directory, he began looking for opportunities in a 50- to 60-mile area surrounding his home in Princeton, N.J. "I didn't want just any old location in a shopping center. I wanted a unique location," he says. At the time, Philadelphia had only one store - the one across from the UPenn campus. Anderson visited the store and says he "fell in love" with it.

His first question was, "Is this store for sale?"

"Yes, it is," was the owner's response.

"I'd like to buy it."

That was 1996. About a year later, in August 1997, using revenues from the first store, he built a new second store in downtown Philadelphia about two miles away. In January 2000, he bought his third store, in Trenton, N.J.

Anderson says this is not a system that lends itself to massive ownership, primarily because "the complex set of business services offered requires more than average overview and management." He manages one store himself and has "really good managers" in his other two stores, one with him for eight years, the other for four.

While he still spends a lot of time with them, to lighten that load Anderson uses remote management techniques where he can - augmenting telephone and email with "internal technology that permits me to see financial transactions in any store in real time, and identify and get information about difficult or problem shipments, and deal with them." Using his experience in systems, he's also developed management and operational processes to deliver financial and manager's reports. "I can't be in three places at once. That's one of the first challenges," he says.

His biggest challenge, as it is for many, is personnel, again "because of the diversity and complexity of the business model and some of the product offerings."

Anderson is a strong believer in getting involved, and served on the UPS Store Franchisee Advisory Council for eight years, his last three as chair. Also, he says, "I was fortunate enough to be the franchisee representative to the IFA, from the moment I got on." As the new guy, he says, he was appointed by default - which turned out to be "a tremendous growth opportunity for me."

He took that ball and ran with it, serving as chair of the IFA Franchisee Forum, as well as on the Executive Committee, the Nominating Committee, Convention Committee, the FranPAC Advisory Board, and the Franchise Relations Committee. He still is on the Franchisee Forum and IFA's board of directors.

Memorable first job: McDonald's at 15 years old. I got my start into franchising at an early age.

Professional tip: Treat your customers and your employees the way you want to be treated.

Key education: All educational opportunities are important. I was fortunate that my mother identified education as the one resource she gave my brother and me. And she sacrificed a great deal to do that.

Role model(s): My immigrant grandfather who built a chain of restaurants from nothing. He came over in 1907 from Greece, not speaking a word of English, and died a wealthy man who had many successes.

Currently reading: The Entrepreneur Next Door, by Bill Wagner

Others say you are: A hard worker

Business news sources: New York Times; NPR - Marketplace, The News Hour

Favorite web sites (besides your own): google, epicurious, travelandleisure

Franchise systems (besides your own) that are creative: 1-800-Got-Junk?, Cereality, and Shred-it. Whoever thought of putting a gigantic shredder in a 28-foot truck?

Favorite quote: "If you don't make dust, you eat dust."

Best advice anyone ever gave you: Listen more, talk less.

Best advice you ever gave anyone: Listen more, talk less.

Biggest project for the year: Remodeling all three stores.

What you do to unwind: I love to travel. My wife and I do it as much as we can. You always have business on your mind, but on an airplane when the door closes there's no turning back, you have to relax. I try to play golf because it takes total concentration, and it's a beautiful walk in the park. And cooking - I can stand there for hours and not have my mind drift to work.