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This auditory gifted bird is hearing strong rumors from a reliable source that Arby's is looking to sell as many as a thousand* of its company-owned restaurants to large multiunit franchise owners who are in the restaurant business.Arby's, who was recently bought out by Roark Capital from Wendy's, will likely package its company-owned restaurants into hundred and two hundred location deals to sell to franchise buyers.
The company is expected to shop for buyers as it attends this week's MUFSO Supershow, a gathering of restaurant chain executives and multiunit operators that starts today in Dallas.
Arby's refranchising efforts of selling company locations to franchisee buyers would strongly alter its mix of company-owned to franchised units from 1,100 restaurants to around 100 company eateries. The current 30 percent of company owned stores in the chain could dwindle to just over 3 percent.
When asked about Arby's dramatic change of mix from corporate-owned to franchised restaurants, one prominent restaurant analyst paraphrases from British playwright George Bernard Shaw that those who know how to do, do. Those who can't, teach. The franchising version of that saying is that those who know how to operate profitably will expand company operated stores. Those who can't, refranchise. The clandestine consultant clarifies: "If franchisors over-franchise, then they risk not having enough skin in the game to outcompete those brands who do. There are few from Arby's corporation who take care of real customers. The brand will drift. It will not be as nimble to innovate."
The savvy specialist explains that the ubiquitous units of Starbucks can turn on a dime while shrimpy PJ Coffee's system, which is a hundred percent franchised, cannot. The gastronomy guru of business thinks that systems with 20 to 30 percent of company eateries have a good balance of franchising expansion and hands-on operating knowhow. For example, McDonald's makes it a point to have 20 percent of its chain as company-owned. In contrast, in the hundred percent franchised system of Subway, franchisees have historically had to compensate for a franchisor with no skin in the restaurant game by franchisee-owned cooperatives taking over national purchasing and brand marketing. Arby's chair, Jon Luther, comes from the Dunkin' chain in which franchisees lead, direct and manage the brand's entire supply chain through a franchisee cooperative.
Unfortunately, Arby's has no such independent franchisee association or national franchisee cooperative. Those complex franchise institutes often take years to develop.
Arby's could make the announcement as early as this week's MUFSO Supershow in Dallas. However, it may need a little more time before it begins to actively sell, which likely will be by the time the Restaurant Financing show hits in November.
Why is Arby's selling its little babies?
Because nowadays restaurant profits are hard but the money from selling franchise licenses to large multiunit operaters is easy. Private equity firm Roark Capital and Arby's have likely analyzed that short-term they can make more money selling licenses to established multiunit owners and collect future royalties rather than invest their own money into the hard business of running restaurants.
The Great Recession and its aftermath hasn't been exactly easy on franchisor Arby's.
*UPDATE Oct 1, 2012, 11:00 p.m. — Blue MauMau received a phone call and the following statement in an email from Arby's public relations firm Fishman PR regarding Oscar P. Hoot's franchise rumor blog that Arby's wants to sell up to a thousand company-owned restaurants. Verbally, the editor was told considerably less. The editor then asked by how much? How many company restaurants did Arby's want to refranchise instead of 1,000? For example, would the correct number be 800 company-owned restaurants that would be offered to franchisees in the next six weeks? 500? This is the emailed answer we received.
We would like to correct the inaccurate speculation reported in BlueMauMau regarding Arby's plans to sell the majority of its company-owned stores. Contrary to what was reported, Arby’s is not looking to become a purely franchise system. Rather, we are looking to sell certain company-owned stores in markets designated for growth, but the strategy is contingent upon a variety of factors, including market conditions. We plan to retain a healthy percentage of company-owned stores in the Arby's system.
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