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Q & A: Denney on MBE Worldwide's Plans for Alphagraphics

Quick print shop franchisor Alphagraphics announced on October 4 that it had been bought out by Italy-based MBE Worldwide for $61 million. MBE Worldwide’s corporate development and strategy director Tim Denney spoke with Blue MauMau about his firm’s acquisitions of Postnet and Alphagraphics and what franchisees can expect.

In May of this year MBE Worldwide bought Colorado-based Postnet International Franchise Corporation, with Postnet’s CEO Steve Greenbaum retiring and MBE Worldwide's chairman and CEO taking his place. Then this month it acquired Alphagraphics, a franchisor that provides the business format model and rules for nearly 280 franchised quick print shops worldwide.

Parent company MBE Worldwide was founded in 1993 in Italy as an international sub-franchisor for San Diego-based franchisor Mail Boxes Etc. Inc. In 2001 Atlanta-based UPS bought out franchisor Mail Boxes Etc., subsequently beginning the uneasy rebranding of its franchise owners into The UPS Store. The franchisor kept the franchise contracts for nearly 4,700 franchises in the U.S., Puerto Rico and Canada, but it jettisoned the franchise licenses for the rest of the world. Italian sub-franchisor MBE Worldwide purchased those international franchising rights.

Denney is both a franchise owner and a franchisor. “I wear both hats,” he says. Sixteen years ago he bought the rights to be a sub-franchisor, or what San Diego’s Mail Boxes Etc. internally calls an international master licensee. A sub-franchisor has the right to act as a franchisor in a specific country for Mail Boxes Etc.—to sell franchises and to receive royalties and fees from franchisees in its territory in exchange for providing them with business support.

SNIEGOWSKI: I understand you are a franchisee. How many MBE store units do you own?

DENNEY: I am a master licensee [a sub-franchisor]. I started the Mail Boxes Etc. concept in Germany in a partnership with Paolo Fiorelli back in 2001. We own our own corporate center in Berlin, which is the only company-owned store in the German network. So, I am a franchisee and I now work for the franchisor. I wear both hats as does Paulo Fiorelli because we have our own corporate stores in several countries.

We started as a master licensee and ended up buying the company from UPS in 2009.

We have four company-owned stores. We have one in Italy, one in Germany, one in France, and one in Spain. Those were all countries in which we started the MBE concept from scratch and built a network in each of those countries as a master licensee.

When Mail Boxes Etc. was still Mail Boxes Etc. in the United States, the franchisor sold master licenses for international development. The Fiorelli family started in Italy in 1992, they started as a master licensee in Spain in 1999 and they started in Germany in 2001. They took over the master license of Austria in 2003 and then we started the master license arrangement in France and Poland in 2012.

Over those years we started our own master licensee company for promoting and developing the network of Mail Boxes Etc. In between all of that, in 2009 we ended up buying the company from UPS. UPS bought it from Mail Boxes Etc. in 2001. There is sort of an odd development in there for the master franchise. In the U.S. Mail Boxes Etc. was sold to UPS in 2001. They ran the business until 2009 when we ended up buying all the international businesses at Mail Boxes Etc. from UPS. They kept the rights to the franchise system in the U.S., Canada and India. What they did in 2004, 2005, 2006 is that they rebranded the concept in the U.S. and Canada so that the approximately 4,000-odd Mail Boxes Etc. centers in the U.S. then became The UPS Store.

In 2009, everything outside the U.S., Canada and India was bought by us, which included our own company as a master licensee with approximately 1,200 centers worldwide. Then we grew it until we did these acquisitions in 2017 to about 1,600 centers.

SNIEGOWSKI: Big picture, why does this acquisition of quick print shop franchisor Alphagraphics Inc. by European shipping retailer MBE Worldwide make sense? What are you trying to solve?

DENNEY: The reasons we have been looking for acquisitions is really twofold. One is we claim to be a global company. After all, the name of our company is MBE Worldwide. We have master licenses in 25 to 30 countries around the world. But we did not have any presence in the U.S. market. The United States is an important market for anyone that is going to be a worldwide company. We strategically decided that we needed to have a presence in the United States, but because of the acquisition of MBE by UPS we were forbidden to operate under the Mail Boxes Etc. brand in the United States.

So, the best way to expand in the U.S. is through acquisitions.

MBE Worldwide can apply the same franchising metrics that we use at Mail Boxes Etc., which Alphagraphics and Postnet also have for their markets. These give us 900 locations in the U.S. that we did not have before. We are now in 41 different countries around the world. We are building the only worldwide network of business service centers in which all are in the business services industry and they are all connected. They may not have the same brand name, but we offer the same types of services and products, the same types of customers, under the same philosophy of the way we want to do business. Instead of 1,600 centers we now have 2,600. That's the whole purpose of expanding.

SNIEGOWSKI: But where is the fit between Alphagraphics and Postnet? Why put these two in your portfolio of franchising acquisitions?

DENNEY: We bought two very strong companies with two very strong brand names in the U.S. that focus on different segments of the business services industry. They have many of the same cultural attributes in being franchise oriented, customer services oriented, and value as opposed to price. They are focused on the small- and medium-size business as their main customer base and less on the walk-in customer. If you put all those things together, both companies work perfectly with Mail Boxes Etc. as what is called co-brands in our portfolio of business service enterprises.

SNIEGOWSKI: Postnet’s CEO Steve Greenbaum left the franchising company that he co-founded after you bought it. Do you anticipate changing Alphagraphics management?

DENNEY: We have made a commitment that the management team and everything else will stay in place. I don’t see why that should change.

The business is in good shape. The current management team is responsible for that accomplishment. MBE Worldwide will go through a period of time to get to know everyone a lot better, not only the senior management, but also the entire staff. I do not anticipate any significant changes right off the bat because the [Alphagraphics Inc.] business is running well. If it is not broken, we do not need to fix it.

Management is not something I see changing in the short term.

SNIEGOWSKI: You’ve mentioned your involvement in MBE Worldwide’s origins. What was that experience like—taking the business template that San Diego provided to you and then having to translate that template and assumptions that were largely developed in the U.S. to be used in Germany, Italy, Spain and elsewhere?

DENNEY: The original business model of Mail Boxes Etc. that developed so successfully in the United States did not translate directly in Europe. The main difference was the model in the U.S. was primarily a consumer-based retailing concept, where people came into a retail store to do their printing, copying and using a mailbox.

Paolo Fiorelli
Paolo Fiorelli, chairman and CEO of MBE Worldwide

When we started in Europe in 1992 that model did not work as well. We realized that we needed to take the same business concept in terms of the tools, product and services, but then turn the concept around to focus commercially on small- and medium-size businesses by actually leaving our centers to visit, call on, and recruit businesses in a community.

The model that we pursued in Europe from the very beginning was a completely different model than the retailing one that was used by the franchisor in the U.S. We focused more on the small- and medium-size businesses in the community to offer our services and find the solutions to their business needs as opposed to waiting for foot traffic to walk into a retail store.

Most of our centers in Europe focus on shipping logistics and micro logistics. That accounts for some 80 percent of our revenue in Europe. The rest comes from primarily graphic design, print, mail box rentals and retailing office supplies. We do have some stores in our network that are graphic design and print oriented. But in general store revenues are about 80 percent from the shipping logistics side of our business.

SNIEGOWSKI: Trademarks and competition are two different issues. Mail Boxes Etc. Inc. has the trademark rights for the United States and Canada. Were you banned from using another trademark in the U.S. market that had services that competed with Mail Boxes Etc./The UPS Store? What if you bought a competitor in the U.S.?

DENNEY: No, not at all. That is exactly why we acquired the two companies (Postnet and Alphagraphics) in 2017 because we strategically decided that we wanted to be in the U.S. Up until then we had no presence in the U.S., not because it was opposed by UPS, but rather our growth efforts focused on Europe and other parts of the world.

As part of our agreement with Mail Boxes Etc., signed in 2009, we cannot operate in the United States under the Mail Boxes Etc. brand name

As we continued to grow and get bigger, we knew we wanted to have a presence in the U.S. The best way to do that was not to grow organically, having to start from scratch with using another brand name, which would have been different than Mail Boxes Etc. or MBE. We decided to look at companies in the U.S. that offered similar products and services and that have a strategic fit with MBE Worldwide. That is how we found Postnet and Alphagraphics.

SNIEGOWSKI: Your mention of co-branding makes me think of co-branding at the franchise level. Will franchisees be able to co-brand, that is to say, half of a store can be a Postnet, and then pay you additional money so that the other half can offer Alphagraphics products. I’m thinking of a Taco Bell / KFC co-branded store that offers consumers both choices at a single quick service restaurant location. Franchisees can buy the rights to both. That gives franchisees more business development options. Do you have co-branding in mind at the franchise level?

DENNEY: No, I do not see that developing.

Alphagraphics is a respected brand and company and so is Postnet. We intend to keep the companies and brands separate. However, we do anticipate having synergies from the brands learning from each other. It is pretty obvious that the business of Alphagraphics is 100 percent graphic design and print. It is only 15 to 20 percent of Mail Boxes Etc’s business. Clearly, we can learn from them about the graphic imprint business and at the same time we can offer the potential of other products and services to them in order to maybe expand their product portfolio and their overall revenue.

Those are things that we have to work on going forward. That is not the initial plan from day one, which is to maintain the three separate companies and brands as separate entities and to continue to develop the three franchise concepts as they were individually developing before we acquired them.

SNIEGOWSKI: MBE Worldwide has four company-owned units in Europe. You operate your own centers, which helps you understand logistics and print retailing. Do you plan to keep those four company-owned units?

DENNEY: Absolutely. In order to talk with franchisees at the same level, if you’re not running your own company-owned center, you are always open to the charge from franchisees that you don't know what you are doing, or that the business is different that you imagine and theorize. I can talk one-to-one with any franchisee in our network because we are actually running our own stores. But at the same time we believe in the franchisee entrepreneurial model, which means we are only running one store in the countries where we started to prove the business model in that country. We have no intention to open more company-owned stores. We believe in the model, which is why franchising in general and MBE has been so successful. It is the franchisees that provide the motivation for our customer base and businesses to grow. We will never leave that because franchises are the cornerstone of our business. We believe in that deeply.

SNIEGOWSKI: In that respect Alphagraphics in the United States and Canada, as well as Postnet, are different from MBE Worldwide. These two firms do not have company-owned stores such as you do. The stores in their systems are completely, a hundred percent, franchised. Will you nudge these two to have a few company-owned stores just like you? In that way, these two franchisors will have concept stores where they can have complete control in order to experiment, understand and push the retailing and marketing envelope for print and parcel service retailing.

DENNEY: No, no.

We started with our own company-owned store in countries where we started from scratch. So our company-owned store in Germany is the first store that we [the subfranchisor] started. The first store in Italy was the store that we started. And the first store in France was the first store that the company started. That was important when we introduced the business concept in international markets.

In the U.S. these two models are already established in the overall industry, the many players in the industry and in the two that we have acquired in the industry. Alphagraphics and Postnet are established brands. There is no need to prove the concept to [franchise] buyers. They [the franchise models of Alphagraphics and Postnet] have been around enough and been proven enough that there is not that need.

We are running a few of our own just in different places that we started for different reasons.

SNIEGOWSKI: For the franchisees in Alphagraphics, how will they benefit from the acquisition of their franchisor by MBE Worldwide?

DENNEY: First and foremost, we are not about to change their world overnight. They have an excellent business. They have proven that they know how to promote and sell and develop customer relations in the graphics design and print business. And they do it extremely well. MBE Worldwide is not anticipating changing that formula in any material way short term. One thing that Alphagraphics franchisees can feel comfortable with is that their franchisor’s parent company is an extremely experienced franchisor in the franchising industry. Their franchisor is not owned by any entity whose main business is not franchising. They were owned in the past by a financial-oriented company. Dealing with like-kind is a big difference [from that] in that we bring franchising and print experience to the table in not only what we have, but in our ability to listen and learn from each other to make the business better for everybody.

We expect to learn from them [Alphagraphics franchisees and franchisor] and I hope they expect to learn from us. It is not just MBE versus Alphagraphics or MBE versus Postnet. All of us have valuable business experiences that I hope we will share and learn from each other so that our business service offerings, regardless of the brand that it is under, will be done in a better, more efficient way for our customers.


Disclosure: This reporter worked for Alphagraphics Inc. a decade and a half ago

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Don Sniegowski is editor of Blue MauMau, the daily news journal for franchise & small business owners. Call him at +1 (270) 321-1268, tweet @bluemaumau or email don@bluemaumau.org.