LOCAL ECONOMIC SNAPSHOT | FRANCHISING

More entrepreneurs bet on businesses they bought
By KAREN ROBINSON-JACOBS
Staff Writer krjacobs@dallasnews.com

Franchising took a hit during the economic downturn as lenders and consumers held tight to their purse strings. Now more Americans, weary of the corporate layoff cycle, are looking to franchising for stability. The number of franchised establishments is expected to grow by 1.5 percent this year in the U.S. after three years of decline, according to the International Franchise Association. Many Dallas-area brands also are expanding. North Texas is home to more than 45 franchisors — companies that sell franchises offering up everything from frozen yogurt to carpet cleaning.

Strong growth rates
Among the 15 North Texas franchising companies that grew the fastest in 2011 according to research firm FRANdata, about half posted double-digit growth rates. Growth is largely contingent on available financing, which has improved post-recession. A strong growth rate indicates that potential franchisees are interested in a brand and lenders aren’t overly skittish.

Franchised locations*
RED MANGO
400% 300% 400% 300%

KNOCKOUTS
400% 300%

WHICH WICH

LIQUID CAPITAL
400% 300%

HOMEVESTORS OF AMERICA
400% 300%

48.8%
200% 100% 0 N/A 200% 100% 0

27.9%
200% 100% 0

25.8%
200% 100% 0

19.4%
200% 100% 0

13.7%

’07 ’08 ’09 ’10 ’11

’07 ’08 ’09 ’10 ’11

’07 ’08 ’09 ’10 ’11

’07 ’08 ’09 ’10 ’11

’07 ’08 ’09 ’10 ’11

Shrinking concepts
Five North Texas franchisors posted double-digit declines in the number of U.S. franchised outlets last year as some chains tried to bounce back after a restructuring. Bonanza was part of a Plano-based restaurant company that sought bankruptcy protection in 2008. Blockbuster sought bankruptcy protection in 2010.

Franchised locations*
BONANZA STEAKHOUSE
60% 40% 20% 0 -20% -40% 60% 40% 20% 0 -20%

BLOCKBUSTER
60% 40% 20% 0 -20%

COOKIES BY DESIGN
60% 40% 20% 0 -20%

POLLO CAMPERO
60% 40% 20%

GOLF ETC.**

0
-20%

-34.2%
’07 ’08 ’09 ’10 ’11

-40%

-17.1%
’07 ’08 ’09 ’10 ’11

-40%

-14.6%
’07 ’08 ’09 ’10 ’11

-40%

-11.4%
’07 ’08 ’09 ’10 ’11

-11.1%
’07 ’08 ’09 ’10 ’11

-40%

* Includes North Texas franchisors with at least 15 locations open in 2008.

** 2010 and 2011 are estimates

Largest Texas brands
Texas companies are among the largest franchisors in the world, according to Franchise Times, a trade publication. The company ranks the largest 200 franchisors based on global, systemwide sales. Here are some of the largest: Ranking 2 6 25 44 79 Company 7-Eleven Pizza Hut 2011 global sales $76.6 billion $12.6 billion -2% -7.1% 6.4% Percentage change 21.6% 7%

Loan failure rates
Many franchising websites post data from the Small Business Administration that show loan failure rates by franchised brand. The data has limitations, the SBA concedes. A FRANdata study found different results. LOAN FAILURE RATES*** Brand Fastsigns The Woodhouse Day Spa CiCi’s Pizza Jiffy Lube Rainbow International Restoration & Cleaning FRANdata 7.9% 21.1% 12.3% 4.4% 4.4% SBA data 16.2% 40% 27.6% 10% 6.3%

Chili’s Grill & Bar $4.3 billion TGI Friday’s Curves $2.6 billion $1.1 billion

*** Loans originated between Oct. 1, 2001, and Sept. 30, 2011. SOURCES: Franchise Times; FRANdata; SBA; Dallas Morning News research

The bottom line
“Buying and building a business is an active investment, and you need to be on top of it daily. In joining a franchise system, there are a lot of aspects to evaluate both from a financial standpoint and as a lifestyle choice. In running the business, you can’t sit back and think the money is going to roll in.” “There is an advantage in going with a well-known brand. If you see companies that are generating strong or double-digit growth, those are numbers to be looking at. The top two systems — McDonald’s and 7-Eleven — are churning out growth and they’re doing it on international sales.” “A gazillion factors can impact sales. Still, it’s wise to seek out as many data sources as possible before signing up. Due diligence on the front end can help produce a better investment. Civil courts are full of lawsuits filed when a franchisee’s sales don’t match expectations.”

Edith Wiseman, vice president, FRANdata

Beth Ewen, managing editor, Franchise Times

Karen Robinson-Jacobs, staff writer, The Dallas Morning News

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