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As Burger King, KFC, Arby's and Applebee's sell off company-owned restaurants to franchisees, reporter Jonathan Maze writes that franchisors are increasingly refranchising. He rightly blogs on Restaurant Finance Monitor that this can be a warning sign of franchisors that are weak in restaurant business knowledge.
Investors like franchising, and they frequently push older systems to run fewer stores, which are capital intensive, and focus on managing the brand and collecting royalties. Brand management is more profitable than is store operations.
Refranchising does provide an opportunity for large franchisees. It's already fueling an incredible amount of consolidation, which is creating some mega-sized franchisees, who've been able to buy stores awfully cheap. And in many cases operators do a better job of making the stores profitable than did the franchisor. Yet refranchising increasingly gets franchisors away from the business of running restaurants, or in DineEquity's case away from it completely. Franchisors that don't run their own restaurants risk taking steps that don't work in the eyes of franchisees. And they become divorced from store-level profitability on which operators rely.
Meanwhile, the shrinking Ruby Tuesday chain is trying to buck that trend. It says it is a restaurant operator at its core.