Restaurant Franchisors Incentivize New Franchises

In these trying times, some franchisors have been willing to risk weakening their own financials in order to incentivize franchise growth.

Companies such as Papa John's International Inc. and Denny's Corp. are establishing lending programs, cutting back royalty fees and assisting their franchisees in other ways to push growth in new markets and help those in challenged ones, even if it hurts the company's (franchisor's) earnings in the short term… The chains that offer these deals are the ones that are experiencing strong returns with their new stores, so a location opened through such a program is less likely to fail. Also, the risk is lower for national brands, because it is usually older units—in areas where demographics have changed over a decade or two—that are closed. Under the Papa John's incentive program announced Thursday, qualifying restaurants opening in the U.S. in 2012 don't have to pay the franchise fee, saving them $25,000; receive $50,000 in equipment, including two pizza ovens; have their royalty fees waived through mid-2013; and earn a $3,000 food credit with the chain's food-distribution company. [via WSJ]

Wendy's, Jack-in-the-Box and Sonic are among other brands to offer incentives for new franchises.

Blue MauMau's frequent contributor John Gordon, restaurant unit analyst, is quoted in this article.