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Franchise 50 Index

Franchise index growth shows franchising better understood by investment community

Mr. Blue MauMau caught up with Professor Udo Schlentrich, director of the University of New Hampshire's William Rosenberg International Franchise Center, to ask a few questions on how franchise owners and potential owners should look at the Franchise 50 Index. Every quarter, the Rosenberg Center compiles the index that tracks the market performance of the top 50 US public franchisors, representing over 98 percent of the market capitalization of corporations engaged in business format franchising.

Mr. Blue MauMau:What is the significance of the Franchise 50 Index and its comparison to the S&P 500 for the franchise community? More specifically, how could it be a useful tool to franchise owners and prospective owners?

Professor Udo Schlentrich: The significance of the Fran 50 Index is that, by listing the stock performance of publicly listed franchised companies in a composite index and comparing it to the performance of S&P 500 companies, the financial community gains a general measure of how shareholders value franchise companies.

What could be of interest to prospective franchisees is to see how the financial performance and stock valuation of publicly listed franchise systems have performed over time. The market accords a premium to some companies based on their assessment of long-term projected growth and overall brand strength. A strong brand will most likely benefit franchisees through increased market share and bottom line earnings.

Mr. Blue MauMau: The Franchise 50 in the long-term is growing considerably more than the S&P 500. Any thoughts on why that is and what it means?

Professor Udo Schlentrich: Although the Fran 50 companies have out-performed the S&P 500 companies for the past 5 years, there is no guarantee that they will continue to do so in the future. We believe some of the reasons we have seen this growth is that franchising, as a business model, has become better understood and valued by the investment community. For example, franchised companies are, by their very nature, less capital intensive. In addition, the financial risk is largely borne by the individual franchisee. Also, franchisee-owned stores are seen to operate more effectively in a retail environment than corporate-owned stores — however, there is still some controversy on this subject.

Finally, many franchise systems have been able to effectively penetrate international markets, thus achieving additional growth and spreading economic and political risk.

Mr. Blue MauMau: Thank you very much, Professor Schlentrich.

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