Atlanta Bread: Franchisee Unit Closure, Loan Defaults Noted

Atlanta Bread franchisees have some of franchising's worst financially performing shops in that they are the hardest pressed to pay back their loans backed by the federally-funded Small Business Administration. That's in all sectors of franchised establishments, not just restaurants.

Likewise, half of the 66 U.S. Small Business Administration-backed loans made to Atlanta Bread franchisees since 2001 have failed, according to a 2011 study* by Blue MauMau, an online publication that tracks the franchise industry. The loans totaled $32.8 million, with the federal government losing $5 million. By SBA loan failures, Atlanta Bread ranked 11th on the website’s list of the 25 worst-performing large franchises. The list is based on companies whose franchisees received at least 50 SBA-backed loans from 2001-2010, according to Blue MauMau.

Our own Don Sniegowski is well quoted.

Generally, one can find poor store level economics and poor franchising expansion strategy present in these situations. Founder/franchisor Couvaras notes that conditions are better now, and defends the decision to franchise. What the AJC writer did not note is the recent rush by the Georgia legislature to shore up "franchisor perogatives" in view of franchisee non-competes.

Read the full article at Atlanta Journal Constitution.

*Editor's note: The study is actually not a Blue MauMau survey but a report that was given directly from the Small Business Administration's office to Blue MauMau. It records failure rates to pay SBA-backed loans by brand.

Franchise Relations

John, I think the point by the accountant Robert Wagner is important:

"“The problem with franchising is it creates problems,” said Robert Wagner, a longtime Atlanta accountant for restaurant businesses. Franchise firms not only have to woo customers, but “maintaining good relations with franchisees is incredibly difficult,” he said.

Top management sometimes can’t keep up with a rapidly growing network, resulting in mistakes such as poor location choices for new outlets.

Worse, franchise firms may concentrate too much on selling franchises rather than making sure the underlying businesses are healthy."

It is difficult to maintain good relationships if you are trying to manage by contract, sell using brokers, and have no detailed earnings 19 claim.