en Q & A: Denney on MBE Worldwide's Plans for Alphagraphics <!-- google_ad_section_start --><p>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&rsquo;s corporate development and strategy director Tim Denney spoke with Blue MauMau about his firm&rsquo;s acquisitions of Postnet and Alphagraphics and what franchisees can expect.</p> <!--break--><!--break--><p>In May of this year MBE Worldwide bought Colorado-based Postnet International Franchise Corporation, with Postnet&rsquo;s CEO Steve Greenbaum retiring and MBE Worldwide&#39;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.</p> <p>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.</p> <p>Denney is both a franchise owner and a franchisor. &ldquo;I wear both hats,&rdquo; he says. Sixteen years ago he bought the rights to be a sub-franchisor, or what San Diego&rsquo;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.&mdash;to sell franchises and to receive royalties and fees from franchisees in its territory in exchange for providing them with business support.</p> <p><strong>SNIEGOWSKI: I understand you are a franchisee. How many MBE store units do you own?</strong></p> <p><strong>DENNEY</strong>: 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.</p> <p>We started as a master licensee and ended up buying the company from UPS in 2009.</p> <p>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.</p> <p>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.</p> <p>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.</p> <p>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.</p> <p><strong>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?</strong></p> <p><strong>DENNEY</strong>: 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.</p> <p>So, the best way to expand in the U.S. is through acquisitions.</p> <p>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&#39;s the whole purpose of expanding.</p> <p><strong>SNIEGOWSKI: But where is the fit between Alphagraphics and Postnet? Why put these two in your portfolio of franchising acquisitions?</strong></p> <p><strong>DENNEY</strong>: 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.</p> <p><strong>SNIEGOWSKI: Postnet&rsquo;s CEO Steve Greenbaum left the franchising company that he co-founded after you bought it. Do you anticipate changing Alphagraphics&nbsp;management?</strong></p> <p><strong>DENNEY</strong>: We have made a commitment that the management team and everything else will stay in place. I don&rsquo;t see why that should change.</p> <p>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.</p> <p>Management is not something I see changing in the short term.</p> <p><strong>SNIEGOWSKI: You&rsquo;ve mentioned your involvement in MBE Worldwide&rsquo;s origins. What was that experience like&mdash;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?</strong></p> <p><strong>DENNEY</strong>: 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.</p> <div class="photoright"><img alt="Paolo Fiorelli" src="/sites/default/files/resize/Paolo%20Fiorelli%20-%20Chairman%20and%20Chief%20Executive%20Officer%20MBE%20Worldwide%20-%2016%205%202017-330x330.jpg" style="width: 330px; height: 330px;" width="330" height="330" /> <div class="caption">Paolo Fiorelli, chairman and CEO of MBE Worldwide</div> </div> <p>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.</p> <p>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.</p> <p>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.</p> <p><strong>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.?</strong></p> <p><strong>DENNEY</strong>: 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.&nbsp;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.</p> <p>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</p> <p>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.</p> <p><strong>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&rsquo;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?</strong></p> <p><strong>DENNEY</strong>: No, I do not see that developing.</p> <p>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&rsquo;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.</p> <p>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.</p> <p><strong>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?</strong></p> <p><strong>DENNEY</strong>: Absolutely. In order to talk with franchisees at the same level, if you&rsquo;re not running your own company-owned center, you are always open to the charge from franchisees that you don&#39;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.</p> <p><strong>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.</strong></p> <p><strong>DENNEY</strong>: No, no.</p> <p>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.</p> <p>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 buyers. They have been around enough and been proven enough that there is not that need.</p> <p>We are running a few of our own just in different places that we started for different reasons.</p> <p><strong>SNIEGOWSKI: For the franchisees in Alphagraphics, how will they benefit from the acquisition of their franchisor by MBE Worldwide?</strong></p> <p><strong>DENNEY</strong>: 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&rsquo;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.</p> <p>We expect to learn from them [Alphagraphics franchisees] 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.</p> <!-- google_ad_section_end --> Mergers & Acquisitions Fri, 20 Oct 2017 17:10:17 +0000 Don Sniegowski 16162 at Italy's MBE Worldwide Buys Alphagraphics <!-- google_ad_section_start --><p><img alt="Alphagraphics" src="" style="width: 670px; height: 377px;" width="670" height="377" />Utah-based Alphagraphics Inc., a franchising chain of quick print shops, announced October 4 that Italy-based MBE Worldwide has acquired 100 percent of the franchising firm for $61 million.</p> <!--break--><!--break--><p>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 United Parcel Service (NYSE:UPS) bought out franchisor Mail Boxes Etc., subsequently beginning the uneasy re-branding 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.</p> <p>In May of this year MBE Worldwide bought Colorado-based PostNet International Franchise Corporation, giving MBE a foothold in the U.S. market. This occasioned PostNet&rsquo;s CEO Steve Greenbaum retiring and MBE Worldwide&#39;s chairman and CEO taking his place.</p> <p>Quick print Alphagraphics says that MBE Worldwide plans to let it work as an independent company. It will keep its Alphagraphics name and current management team.</p> <p>That must come as a relief to Alphagraphics franchise owners. Shop owner-operators will not have to spend their money on new signage, logos and the re-imaging of their stores to another name. Their relations, trust and communication channels that franchisees have built with management over the years will stay intact.</p> <p>&ldquo;C<img alt="Alphagraphics U.S. franchise outlets up slightly" src="/sites/default/files/resize/AGUnits_0-320x321.png" style="width: 320px; height: 321px; float: right; margin-left: 5px; margin-right: 5px;" width="320" height="321" />ombining forces with MBE Worldwide creates unique opportunities to synergize with colleagues similarly steeped in managing a franchise-based network of entrepreneurs,&rdquo; said Gay Burke, Alphagraphics executive chairman.</p> <p>Alphagraphics has seen its fair share of &ldquo;synergizing,&rdquo; a word defined as combining two or more things that together do more than the sum of their individual parts. In acquisitions of franchising firms, that often means doing more with less. Since its buyout by Pindar and then Blackstreet Capital, Alphagraphics has gone from nearly 90 employees who supported franchising services in 2000 down to almost half that in 2017.</p> <p>There was a time that the quick print chain shrank in number of outlets too. In 2002 Alphagraphics had 242 franchises in the United States, according to disclosure documents that it submitted to U.S. regulators and franchise buyers. But by 2007 it had only 227 U.S. quick print shops, all franchised. In the last few years it has managed to grow modestly. By the end of 2016 it had 256 franchised quick print stores (see chart). With considerably fewer employees, the franchisor has still been able to slowly grow the system in the U.S. by a little less than 1 percent a year.</p> <h2><span style="color:#800000;">Franchisees hunker down to see what becomes of their franchisor</span></h2> <div class="photoleft"> <table border="1" cellpadding="1" cellspacing="1" height="254" style="width: 335px;" width="367"> <tbody> <tr> <td style="width: 327px;"> <p class="rtecenter"><strong>History of Alphagraphics Aquisitions</strong></p> <ul> <li><strong>1989</strong> &mdash; Commercial printer R.R. Donnelley &amp; Sons buys 25% share of Alphagraphics Inc.</li> <li><strong>2001 </strong>&mdash; U.K.-based commercial printer G.A. Pindar &amp; Son Ltd. buys Alphagraphics Inc.</li> <li><strong>2012</strong> &mdash; Private equity firm Blackstreet Capital buys Alphagraphics Inc.</li> <li><strong>2014</strong> &mdash;West Capital Resources, an affiliate of Blackstreet Capital, takes over Alphagraphics Inc.</li> <li><strong>2017</strong>&mdash; Franchisor MBE Worldwide buys Alphagraphics Inc.</li> </ul> </td> </tr> </tbody> </table> </div> <p>Alphagraphics franchise owners have been quiet in public over the buyouts of their franchisor. That is understandable. The franchise owners are not in a position to change new owners of their franchisor. Franchisees in this medium-size chain do not have an independent association that answers to franchisees in pushing the franchisor. Even if they did have an association with its affiliation of experts, attorneys and strategists whose mission would be to look out solely for their interests, most franchisee associations would not know how to influence the buyout of their franchisor, if the group should even find out that it is looking for a buyer. What Alphagraphics franchise owners have is a traditional advisory committee to give store-level recommendations to a franchisor that on a good day is willing to listen. A buyout of the franchisor is strategically way above anything that would involve store-level advice from franchisees.</p> <p>It makes sense that these print shop owner-operators would simply hunker down and keep silent about yet another acquisition of their franchisor. The question for shop owners going forward is, what does their future hold? Will Alphagraphics Inc. provide the same amount of support and service?</p> <div class="photoright"><img alt="Alphagraphics no longer has a presence in Japan" src="/sites/default/files/resize/acrossstreet2-320x320.jpg" style="width: 320px; height: 320px;" width="320" height="320" /> <div class="caption">Alphagraphics is no longer in Japan, but MBE Worldwide is there</div> </div> <p>A private equity firm often looks for franchisors with company-owned stores, which it can sell for substantial money to franchisees, a procedure called refranchising. But Alphagraphics has no company-owned quick print shops for its new owners to easily monetize.</p> <p>The advantage that franchisor MBE Worldwide brings to Alphagraphics after private equity firm Blackstreet Capital has purchased it is that MBE should be able to know where to get the most bang for the buck. It knows franchising. MBE Worldwide now has 2,600 franchises across the globe that it needs to support. In doing so, it can borrow resources and skills from its other franchising resources, and borrow from Alphagraphics as well, to help its other chains. MBE should have a feel on where it can consolidate franchise support and where it can improve the performance of the franchisor. Since print and logistics franchising is its core business, it should have different insights than a private equity firm on where and how to save costs for its franchising firms.</p> <p>That will be a challenge for MBE because Blackstreet Capital has been no slouch.</p> <h2><span style="color:#800000;">With an attractive bottom-line, Alphagraphics allows MBE to further enter U.S.</span></h2> <p>Despite a sluggish growth in outlet numbers, the franchisor has been able to grow its bottom line. Last year Alphagraphics Inc. had $2.5 million in net income, according to its independent auditor&rsquo;s report. That&rsquo;s up considerably from 2012, the year Blackstreet Capital bought it, when the franchisor had a substantial loss.</p> <p>Another area where Alphagraphics has struggled is international expansion. It currently is in four nations besides the U.S.&mdash;Brazil, Saudi Arabia, the United Kingdom and China, which includes Hong Kong. Internationally, its country count is down to under 40 percent of where it was during the turn of the millennium.</p> <p><img alt="" src="/sites/default/files/resize/AGNetIncome-320x321.png" style="width: 320px; height: 321px; float: right; margin-left: 5px; margin-right: 5px;" width="320" height="321" />Back in the U.S., could MBE combine both Alphagraphics and Postnet into a giant Mail Boxes Etc. chain, re-introducing it in the United States to gain a big bounce from consumers who remember the brand?</p> <p>No.&nbsp;</p> <p>&quot;UPS does possess trademarks for Mail Boxes Etc., MBE, and other related marks in the U.S.,&quot; said The UPS Store spokesperson Chelsea Lee to this journal. &quot;UPS also owns certain marks in Canada.&quot;</p> <p>That means that MBE cannot use the Mail Boxes Etc. name here.</p> <p>Might it combine both Postnet and Alphagraphics brands into a single larger brand that does not use the Mail Boxes Etc. name? That larger footprint of stores under a single name might give it more share of the American consumer mind.</p> <p>MBE Worldwide has also said it will not combine Alphagraphics and Postnet.</p> <p>&quot;We intend to keep the companies and brands separate,&quot; said MBE Worldwide&#39;s corporate development and strategy director Tim Denney in an interview with Blue MauMau. &quot;Alphagraphics and Postnet are established brands,&quot; he stressed. He added, &quot;As part of our agreement with Mail Boxes Etc. signed in 2009, we could not operate in the United States under the Mail Boxes Etc. brand name.&quot;</p> <p>MBE Worldwide may be able to help the franchisor develop internationally. After all, it knows how to sell print and parcel service retail franchises to Europeans. The proof of that is that MBE has gone from 1,200 centers worldwide in 2009 to about 1,600 at present. MBE has a presence in Poland, Germany and Japan, while Alphagraphics does not. Being there, it has a better understanding of those markets.</p> <p>MBE seems pleased with its latest American aquisition.</p> <p>&ldquo;Alphagraphics is an excellent strategic fit for MBE because of its entrepreneur-driven, people-centric, customer-first business model, which complements our MBE business and culture,&rdquo; said MBE chairman and CEO Paolo Fiorelli, echoing almost identical words from him in PostNet&rsquo;s press release when MBE acquired it. &ldquo;Also, Alphagraphics has earned a reputation for technological and service excellence in the highly competitive print, marketing and communications industry in the U.S.,&rdquo; continued Fiorelli. &ldquo;We are excited to welcome Alphagraphics to the MBE family and will work together to provide high-value solutions to our business and consumer customers across the globe,&rdquo; he stated.</p> <p>With the acquisition of both Alphagraphics and PostNet in 2017, MBE Worldwide has now expanded its locations to nearly 2,600 in 39 countries. It projects that the two will have combined system-wide sales, from which MBE draws its royalties and fees, of approximately $940 million for 2017.</p> <hr /> <p><em>Disclosure: This reporter worked for Alphagraphics Inc. a decade and a half ago</em></p> <!-- google_ad_section_end --> Service Alphagraphics Mail-Boxes-Etc MBE Worldwide postnet print shop franchisor quick print shops The UPS Store United Parcel Service Fri, 20 Oct 2017 15:35:03 +0000 Don Sniegowski 16161 at Leading Economic Index Dips for First Time in 12 Months <!-- google_ad_section_start --><p>A leading economic index for the United States surprisingly dipped for the first time in 12 months. The Conference Board Leading Economic Index (LEI) fell by 0.2 percent to 128.6 at the end of September, following a 0.4 percent increase in August and a 0.3 percent increase in July.</p> <p>Ataman Ozyildirim, director of business cycles and growth research at The Conference Board, said: &rdquo;The source of weakness was concentrated in labor markets and residential construction, while the majority of the LEI components continued to contribute positively. Despite September&#39;s decline, the trend in the U.S. LEI remains consistent with continuing solid growth in the U.S. economy for the second half of the year.&rdquo;</p> <!-- google_ad_section_end --> The Economy Thu, 19 Oct 2017 19:47:32 +0000 Don Sniegowski 16166 at Chain Coffee Shops Increase While Independents Close <!-- google_ad_section_start --><div class="photoright"><img alt="Cup of Joe" src="" style="width: 320px; height: 213px;" /> <div class="caption">photo by <a href="" target="_blank">Thomas Hawk</a></div> </div> <p>Java, cuppa Joe, go juice, hojo, or whatever one wants to call coffee, a ready-made cup of it is not far from reach for the majority of U.S. consumers.&nbsp; </p> <!--break--><!--break--><p> In addition to coffee served at restaurants and other foodservice outlets, there are 33,129 gourmet coffee shops in the U.S., a 2 percent increase in units from last year, based on a recent restaurant census conducted by The NPD Group, a leading global information company.</p> <p>Chain coffee shop units increased by 5.9 percent in the census period to a total of 18,445 units, NPD&nbsp; reports.&nbsp; It was the opposite story for independent coffee shops units, which declined by 2.2 percent for a total of 14,684 units.&nbsp; Total coffee shops grew by 2,990 units over the past five years, according to NPD&rsquo;s Spring 2017 ReCount restaurant census.</p> <p>Another way to look at the proliferation of coffee shops is to look at per capita or the number of coffee shops for every million people.&nbsp;Among metro areas Juneau, Alaska ranks the highest in density with 22 coffee shops serving the city&rsquo;s population of 32,519.&nbsp; Alaskan sibling city, Anchorage, is second with 170 coffee shops for a population of 431,231. In rank order, Bend, Oregon, Seattle, Washington, and Portland, Oregon follow with the most coffee shops per capita.</p> <p>Consumer demand for foodservice coffee appears to be in line with their access. There were 8.3 billion servings of coffee ordered at U.S. restaurants and foodservice outlets in the year ending August 2017, up 2.3 percent from the same period last year, according to NPD&rsquo;s ongoing foodservice market research. Regular or traditional coffee is still the most popular type of coffee with 4.4 billion servings ordered in the period but specialty coffee is not far behind with 4 billion servings ordered.&nbsp;&nbsp;&nbsp;</p> <p>&ldquo;Coffee chains are expanding units to meet consumer demand because they have the resources to do so,&rdquo; says Greg Starzynski, director- product management, NPD Foodservice.&nbsp; &ldquo;Greater consumer access to chain coffee shops makes it more difficult for independent coffee shops to compete, which is why we&rsquo;re seeing a drop in independent units.&rdquo;</p> <!-- google_ad_section_end --> Foodservice Tue, 17 Oct 2017 22:01:11 +0000 BMM Staff 16163 at NRD Capital to Buy Ruby Tuesday, Will Hang Its Name on Firm by Early 2018 <!-- google_ad_section_start --><p><img alt="Ruby Tuesday restaurant" src="" style="width: 320px; height: 180px; float: right; margin-left: 5px; margin-right: 5px;" />After reporting declining revenue and same-store sales for the quarter, Ruby Tuesday Inc. (NYSE:RT) announced on Monday that it has agreed to be acquired by NRD Capital, a private equity firm that is owned and led by franchisees&nbsp;and other experts who invest in franchising firms. </p> <!--break--><!--break--><p> NRD Capital will buy Ruby Tuesday for $146 million in cash and an assumption of $189 million in debt obligations.</p> <p>While the casual dining sector has experienced the worst of falling consumer traffic in comparison to other restaurant sectors, Ruby Tuesday of late looked as if it were in a state of free fall with no end in sight. For the most recent quarter that ended September 5, Ruby Tuesday reported on Monday that same-restaurant sales fell by 5.8 percent in comparison with the same period last year. Its total revenue dropped 15.3 percent. Seven company-owned restaurants ceased operations as well, but those were nothing compared to the shuttering of 95 underperforming restaurants in August 2016.</p> <p>The Ruby Tuesday restaurant chain is largely company-owned. It owns 541 restaurants and has 58 franchise locations.</p> <p>The casual dining company had a net loss of $9.8 million in its first quarter of 2017, significantly better than its net loss of $39.7 million in the same quarter in 2016.</p> <p>&ldquo;NRD Capital has a distinguished track record of achieving and maintaining profitable growth for restaurant concepts and will be an excellent partner to lead Ruby Tuesday going forward,&rdquo; Stephen Sadove, Ruby Tuesday&#39;s non-executive chairman, reassured shareholders.</p> <p>The acquisition by NRD meant that there would not need to be a Ruby Tuesday demise. The acquisition was unanimously approved by the casual dining chain&rsquo;s board of directors and is now subject to shareholder approval. With no time to lose, the acquisition is expected to be completed during the first calendar quarter of 2018.</p> <p>&ldquo;Our focus at NRD is investing in quality restaurant companies and providing strategic and operational expertise to create sustainable value. With a well-established brand, differentiated from other casual dining restaurants by its Garden Bar, we see significant opportunities to drive value for Ruby Tuesday,&rdquo; said Aziz Hashim, a multi-unit franchisee, a franchisor and the founder of NRD. The NRD Capital fund was established in 2014 by Hashim, who uses the store economic expertise of franchisees and store unit-level metrics to understand the health of a chain. In 2015 NRD bought out casual dining chain Frisch&#39;s Restaurants Inc.</p> <p>&ldquo;We are excited to be part of the company&rsquo;s next chapter,&quot; said Hashim. &quot;As a private company, we will be able to take a long-term view on Ruby Tuesday, allowing us to make investments in people, product, and customer experience, without public company constraints. This approach will enable us to reward everyone involved in our success, in addition to our investors.&rdquo;</p> <hr /> <p><strong>Related reading</strong>:</p> <ul> <li><a href="" target="_blank">Blog: 5 reasons Ruby Tuesday has to be sold</a> | Nation&#39;s Restaurant News</li> <li><a href="">As Ruby Tuesday continues to decline, it considers selling the company</a> | BMM</li> </ul> <!-- google_ad_section_end --> Mergers & Acquisitions Tue, 17 Oct 2017 03:55:33 +0000 Don Sniegowski 16158 at Roark Capital Buys Minority Stake in Culver’s <!-- google_ad_section_start --><p><img alt="Culver's better burgers and frozen custard" src="" style="width: 320px; height: 320px; margin-left: 5px; margin-right: 5px; float: right;" />Culver Franchising System Inc. has sold a minority stake to Georgia-based private equity firm Roark Capital Group. </p> <!--break--><!--break--><p> Wisconsin-based Culver&#39;s retains majority ownership of its company. The terms of how much of the franchising company was bought and for how much were not disclosed.</p> <p>Roark owns more than 61 franchisors and brands with multi-unit retail locations. It recently bought Jimmy John&rsquo;s. It is the parent company of quick service restaurant chain Arby&rsquo;s Restaurant Group and CKE Restaurants, a burger chain competitor of Culver&rsquo;s.</p> <p>&ldquo;For many years the Culver family has been discussing ownership succession planning with the desire to remain a family-owned business, stay privately held and proceed with thoughtful estate planning,&rdquo; said the company co-founder and board chairman, 67-year-old Craig Culver. &ldquo;We want to make sure we set up the next generation of the Culver&rsquo;s family and the entire franchised system for success,&rdquo; he stated.</p> <h2><span style="color:#800000;">Culver&#39;s franchise disclosure is better than most, but still not quite transparent</span></h2> <p>Culver&#39;s Franchise Disclosure Document, which was filed in 2017 with state regulators and given to prospective franchisees who are engaged in due diligence about the chain, listed only one franchisee lawsuit against it, from 2007. That lawsuit was settled. Culver&rsquo;s paid the franchisee $1.2 million for its franchise, or five times the restaurant&rsquo;s cash flow (not revenue) in 2005. That paints a rosy picture of only one lawsuit and of a franchisor who tries to help franchisees monetize their assets.</p> <p>On the other hand, there was a well publicized franchisee lawsuit in 2013, <em><a href="" target="_blank">Jones and Wilburn versus Culver Franchising System, Inc</a>.</em>, that alleged racial discrimination by Culver&#39;s against its franchisees, which was not disclosed.<a href="">*</a> If a prospective franchisee is about to legally commit himself to spend the next 20 years with a franchisor, he would want to know that there have been allegations that a franchisor has a bias against the development of new stores because of the color of the franchisee&#39;s skin.</p> <p>In the end, Culver&#39;s won the discrimination lawsuit.</p> <p>Still, embarrassing lawsuits should be disclosed by franchisors too.</p> <p>In regard to store-level financial performance, Culver&rsquo;s looks to be one of the most transparent burger chains. It has a lot to flaunt. The average gross sales of its 555 franchised restaurants and 8 company-owned restaurants in the United States that were open for at least 12 months as of December 31, 2016 was $2.25 million, according to its Franchise Disclosure Document that it filed this year. That is approaching the high restaurant gross sales levels of a McDonald&rsquo;s or a Chick-fil-A quick service restaurant.</p> <p><img alt="Culver Franchising System Inc has annually grown its net income" src="" style="width: 320px; height: 321px; float: right; margin-left: 5px; margin-right: 5px;" width="320" height="321" />However, disclosing bottom-line performance of a store&rsquo;s net income is what counts the most. Although Culver&rsquo;s did not reveal store-level earnings before interest, taxes, depreciation and amortization (EBITDA), which is a bottom-line proxy measure of cash income that is used to understand a store&rsquo;s return on investment, Culver&rsquo;s did reveal some store expenses as a percentage of gross sales. The company also went on to state that 45 percent of the stores met or exceeded its average gross sales of $2.25 million.</p> <p>Another measure of franchise health is the amount of store churn in a system. It is a measure of business risk for a franchisee. The total turnover of franchise units, commonly called franchise churn, is low, but it has recently ratcheted up. In 2016 Culver&#39;s had 16 franchises that transferred hands. That&rsquo;s double the number of the year before. That could be an indication that Culver&#39;s franchisees sense there is change in the air. They are a little more nervous than usual. Or on the contrary, it could simply mean that 2016&#39;s economy was a good time to sell compared to the years before. Looking at the total franchise turnover of Culver&#39;s competitors would give prospective franchisees a comparison to sense whether it was the economy that gave franchisees a reason to sell their business or whether there was something happening at just Culver&#39;s.</p> <p>There is another turnover metric &mdash; how many franchises have ceased operations. The franchisor lists only one of its franchised restaurants for the past three years has ceased operation &mdash; back in 2014.</p> <p>The result of its managing its franchise system is that Culver&rsquo;s Franchising System Inc. has managed to increase its net income over the past few years (see chart), according to its audited financial statements. That increasing net income trend, among other things, must have looked enticing to Roark.</p> <h2><span style="color:#800000;">Culver&rsquo;s assures that it will continue in a similar fashion</span></h2> <p>&ldquo;We will continue to operate the business similar to how we do today and are excited to have the ability to tap into Roark&rsquo;s knowledge base to build and enhance future capabilities as we continue to grow and develop future strategic priorities,&rdquo; says Joseph Koss, president and chief executive officer of Culver.</p> <p>Roark&rsquo;s senior managing director Erick Morris said of his firm buying into the family-run franchising business: &ldquo;We have long admired the Culver&rsquo;s brand and its commitment to culture, quality and service.&rdquo; Over 30 years old, the Culver&rsquo;s brand has more than 600 hamburger restaurants in 24 states. &ldquo;We are excited to be partnering with the Culver family and management team, and look forward to supporting the brand&rsquo;s continued success.&rdquo;</p> <!-- google_ad_section_end --> Foodservice Mon, 16 Oct 2017 19:49:33 +0000 Don Sniegowski 16155 at Franchisees File Major Suit against 7-Eleven for Its Extreme Control over Franchises <!-- google_ad_section_start --><p><img alt="" src="" style="width: 320px; height: 180px; margin-left: 5px; margin-right: 5px; float: right;" width="320" height="180" />The National Coalition of Associations of 7-Eleven Franchises, which represent nearly 7,000 franchised locations in the United States, today announced it has filed a proposed class action lawsuit against franchisor 7-Eleven, Inc. for not fulfilling its promise of treating franchisees as independent contractors and business owners.</p> <!--break--><!--break--><p>Filed in U.S. District Court for the Central District of California as a collective and class action, the NCASEF complaint names five individual plaintiff franchisees, Serge Haitayan, Jaspreet Dhillon, Robert Elkins, Manjit Purewal and Maninder &quot;Paul&quot; Lobana, on behalf of others. The lawsuit challenges certain provisions of the 7-Eleven Franchise Agreement, and seeks monetary damages, attorney&#39;s fees and costs and other relief for claims relating to unpaid overtime wages and unreimbursed expenses. Members of the Coalition assert that the franchisor has been increasing management control over franchisee operations outside their franchise agreements.</p> <p>The lawsuit includes allegations of violations of the federal Fair Labor Standard Act; California state wage and hour laws; federal Class Action Fairness Act for violations of the California wage and hour laws. As part of the complaint, NCASEF alleges 7-Eleven franchisees are employees, applying the six-factor test under Wage and Hour Division of the Department of Labor. The lawsuit states that 7-Eleven, Inc. &quot;openly admits&quot; in its franchise agreement that it retains &quot;a significant financial and marketing advisory role in the franchise business than in most other franchisee businesses.&quot; And it adds, &quot;This admission grossly understates the degree of Defendant&#39;s [7-Eleven&#39;s] control.&quot;</p> <p>One attorney representing NCASEF, Eric H. Karp of Witmer, Karp, Warner &amp; Ryan, said that the franchisees took this step only reluctantly after repeated attempts to resolve the difference between the parties, and to create a franchise agreement that would create a fair balance of the risks and rewards of the franchise relationship. He explained, &quot;The complaint alleges that the controls that 7-Eleven exerts over the franchisees are so pervasive beyond anything you would see in any other franchise system that they have become, in effect, employees. The company controls everything from the cash they generate to the hours they operate to the temperatures in their stores.&quot;</p> <p>The lawsuit also asserts that the franchisor is taking away the opportunity for franchisees to possess and/or control monies generated from franchised stores and directing franchisees to sell any good or service for less than the cost of acquiring and selling the same. It also claims 7-Eleven is requiring franchisees to use equipment it specifies to operate franchise stores. And that the franchisor is imposing a regressive royalty structure that penalizes franchisees for increasing sales, and transferring responsibility for paying credit card processing fees directly to franchisees.</p> <p>NCASEF Executive Vice Chair Jay Singh today expressed that franchisees have long complained that the brand has been chipping away at their profits, increasing their costs, and exercising more control over what is supposed to be an independent operation. He said conditions imposed by 7-Eleven, Inc. are threatening franchisee businesses, many of which are family operations. Singh declared, &quot;Many of our members have operated 7-Eleven franchises for decades and are gravely concerned not only for their future, but the future of the brand they love and have invested so much in.&quot;</p> <p>Singh also explained, &quot;We need to hold 7-Eleven accountable. We love this brand and are saddened by the way they have been treating the people who are the very heart and soul of the company.&quot;</p> <p>7-Eleven, Inc. did not respond to our request for comments on the NCASEF&#39;s purported class action lawsuit filed yesterday.</p> <p>The National Coalition of Associations of 7-Eleven Franchises was originally founded in 1973 by six franchisees, and today NCASEF is comprised of 46 Franchise Owners Associations (FOA) association members who represent more than 4,700 franchise owners in 33 states. The Coalition is funded through FOA member dues, proceeds from the national convention exhibitors and sponsors, advertisers in Avanti magazine, affiliate member dues, and presentation sponsorships at NCASEF board meetings.</p> <p>7-Eleven first introduced its retail convenience store concept in 1927, operating all units as corporate owned until 1964, when it acquired a chain of 126 franchised stores in California. Today, 7-Eleven and its controlling affiliates own 25,000 convenience stores worldwide, of which 7,800 are 7-Eleven&#39;s stores located within the United States. Approximately 1,500 are located in California, and the franchisor also maintains a principle business office in Bakersfield, California.</p> <hr /> <p><strong>Related Articles: </strong></p> <ul> <li><a href="" target="_blank">7-Eleven Sued for Representing Itself as Franchisor</a><strong> </strong></li> <li><a href="" target="_blank">7-Eleven COO over Franchisee Relations Leaves amid Turmoil</a><strong> </strong></li> <li><a href="" target="_blank">Franchise Terminations and Self-Inflicted Harm</a><strong> </strong></li> </ul> <!-- google_ad_section_end --><table id="attachments" class="sticky-enabled"> <thead><tr><th>Attachment</th><th>Size</th> </tr></thead> <tbody> <tr class="odd"><td><a href=" Complaint.Final_.pdf">NCASEF Complaint.Final_.pdf</a></td><td>495.48 KB</td> </tr> </tbody> </table> Legal claim & allegation 7-Eleven litigation Attorney Eric Karp executive vice chair Jay Singh franchisee class action NCASEF lawsuit against franchisor regressive royalty structure wage and hour law violations Fri, 13 Oct 2017 23:04:58 +0000 Janet Sparks 16151 at Arby's to Serve Venison and Elk Sandwiches on October 21 <!-- google_ad_section_start --><div class="photoright"><img alt="Arby&#039;s venison sandwich" src="/sites/default/files/u9/Arby%27s%20Venison%20Sandwich.jpg" style="width: 320px; height: 206px; float: right;" width="320" height="206" /> <div class="caption">Arby&#39;s&nbsp;venison sandwich /&nbsp;Arby&#39;s photo</div> </div> <p>​Arby&rsquo;s will be offering venison sandwiches nationwide on Saturday, October 21. The Atlanta, Georgia-based chain served limited edition venison sandwiches in five states last year, which were snapped up by an enthusiastic public within hours at participating restaurants, the company states.</p> <!--break--><!--break--><p>This time around every Arby&rsquo;s restaurant in the U.S. will have venison sandwiches on the menu, available while supplies last, although they are expected to sell out quickly. The thick-cut venison steak and crispy onions will be topped with a Cabernet steak sauce infused with juniper berries, served in a toasted specialty roll.</p> <p>&ldquo;The positive response to our limited offering of venison last year was so widespread and passionate that we knew we had to find a way to offer it nationwide,&rdquo; said Jim Taylor, Chief Marketing Officer of Arby&rsquo;s Restaurant Group, Inc. &ldquo;On October 21, we want hunters and meat enthusiasts across the country to visit their local Arby&rsquo;s and enjoy this amazing sandwich.&rdquo;</p> <p>Elk steak sandwiches will also be offered on October 21, but on a much more limited basis than the venison sandwiches. Only one restaurant in each of the elk hunting states of Colorado, Wyoming and Montana will have them. The elk steak will be in a toasted specialty roll, topped with blackberry port steak sauce and crispy onions.</p> <p>They will be offered to Arby&#39;s guests at the following locations:</p> <p class="rteindent1">&bull; 200 East 144th Ave., Thornton, Colorado 80023<br /> &bull; 2607 CY Ave., Casper, Wyoming 82604<br /> &bull; 2834 King Ave. W, Billings, Montana 59102</p> <!-- google_ad_section_end --> Foodservice Thu, 12 Oct 2017 05:07:29 +0000 BMM 16147 at