UPS Shows Advantage of the Franchising Model

A UPS story circulated through the mass media on how The UPS Store had the best competitive advantage among retailers as measured in return on investment capital (ROIC), according to a study released by Kanbay Research Institute (KRI). Because of the interactive nature of news on our franchisee network, our site experienced strong pushback from our readers on the ambiguity of the KRI study. In response, Mr. Blue MauMau contacted Ms. Shayda Noblitt, KRI's Communications Coordinator to seek clarification.

Mr. Blue MauMau: Does the UPS Store having the highest Return on Invested Capital refer to individual franchisee stores or to the UPS organization?

KRI: The study refers to analysis of consumer interviews that experienced The UPS Store nationwide, as well as analysis of UPS financial data. Specifically, the rankings are based on two types of data:

1) Consumer ratings about how well retailers with store fronts, such as The UPS Store (not MBE stores), Apple Stores, Macy's, Target, etc. were meeting consumer desires.  The consumer interviews were conducted in Oct-2006 and Nov-2006, and a consumer must have been to a retailer within the previous 6 months. 

2) Those retailers rated in the top two tiers by consumers were then ranked by their company's ROIC (return-on-invested-capital).  Because UPS or MBE does not publish financials for The UPS Store, the rankings use the corporate financials.  This is similar to Macy's not being published by FDS and other companies that don't publish specific division financials.

Mr. Blue MauMau: Since franchisees invest of their own savings into their retail outlets, any corporate investment into a franchised system like The UPS Store would see considerable leverage on their [corporate UPS'] own investment dollar as compared to other retail chains. It would be like comparing apples to oranges. Would you please clarify?

KRI: The purpose of the study was to provide business leaders -- primarily CEOs of multi-store chains -- with innovative ideas about how to build competitive advantage.  If a franchise business model works well financially for a retailer like The UPS Store, other retailers may want to consider this option.  An emerging retail chain might look at The UPS Store for ideas, as well as successful restaurant chains like AppleBee's and McDonald's.  While an apples to oranges analysis may be true from an individual franchisee's perspective, the analysis may prove invaluable to the head of a multi-store chain.  And although UPS or MBE does not publish financials for The UPS Store, calculations of the ROIC for UPS overall does capture some of the earnings from the franchised system.