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Edward Ryan's picture

Focus Brands: Auntie Anne's Franchisees

IFranchise Group President, David Hood, makes 3 important statements on Auntie Anne’s acquisition:

  1. Of the brands Roark has in place, Auntie Anne's is by far the strongest as far as the quality of franchisee relationships.
  2. I don't think you can say that about any of the other brands Roark has, for Roark to maintain that will be a challenge — not because they have bad intentions but because it is a different type of organization looking at the brand.
  3. For the franchisees that have been at Auntie Anne's for a long time, they probably knew that when the business was sold by the founder five years ago that the business would be sold again.

Mr. Hood’s 3rd statement provides slight insight into Focus Brands' acquisition of Auntie Anne's. The founder of Auntie Anne’s, Anne Beiler, and her husband Jonas, are active philanthropist today. Their family roots are based on Pennsylvania Dutch culture which became Auntie Anne's franchise culture. Franchisees were considered to be friends and extended family members of the Beiler Family.  Auntie Anne’s franchise culture encompassed a uniquely different, yet effective, Franchisee Advisory Council (FAC) that fostered a special relationship between franchisor/franchisee unlike any other fast food franchise system in the "bakery and snack" category. Auntie Anne’s actually charged a fee to offset the cost of maintaining the FAC. Therefore, franchisee profitability was the concern and focus for the Auntie Anne’s founder and the franchisor’s management team.

Auntie Anne’s expansion was limited to public venues such as, shopping malls, sport arenas, airports, hospitals, etc. They do not have a franchise development history of traditional outlets.  The concept itself does not require a large footprint to operate within and can leverage real estate with other brands.  During the Start-Up Stage of its business lifecycle curve, management believed that increasing distribution through alternative channels (supermarkets) would create increased intra-brand competition pressure at the expense of its existing franchisee’s profitability. 

Shortly after franchising the Auntie Anne’s concept, David Hood, who was a Francorp consultant at the time, recommended that the existing FA be modified to protect franchisee profitability and integrity of the Brand.  Auntie Anne’s FA banned alternative distribution channels by specifically emphasizing a restriction on sales through supermarkets.

The company has been testing Auntie Anne’s Café to capture traditional store traffic levels by increasing its product offerings to attract business through different day parts – similar to the strategy of delivering an "All Day" Experience and/or a combination of brands under the same roof top – such as, the co-branding arrangements between Dunkin’ Donuts, Baskin-Robbins, and formerly, Togo’s. Unit level performance details related to Auntie Anne's Café concept are not reported.     

Auntie Anne’s is a good candidate for Focus Brands given their portfolio of brand holdings.  Roark Capital/Focus Brands’ primary growth driver is most likely coffee, since they happen to own Seattle’s Best Coffee.

Auntie Anne’s franchise culture was a win-win for both families – 1) franchisor, and 2) franchisee.

The unanswered questions are:

  1. What was the acquisition price?
  2. What EBITDA multiple was applied by Focus Brands?
  3. What was the market comparable used to support the premium/discount paid?
  4. How will the acquisition be financed?
  5. What are the franchisee doing to protect their interest?
  6. Was the FAC fee a component in Auntie Anne’s acquisition valuation?

David Hood’s final remark suggest that the questions above are better left unanswered until the acquisition is fully consummated, and then, “hopefully, Roark won't do anything to mess it up.”  

Franchisees need to understand the valuation components supporting this deal. Franchisor's limited transaction disclosure is a Franchisee’s writing-on-the-wall that they have entered the Decline Stage in their business lifecycle curve.

Ray Borradale's picture

Since there is no reference

Since there is no reference to Focus brands having a significant problem with disputes Auntie Anne’s may not end up as a good example of why franchisees should ensure that an IndFA represents their interests.  But it should anyway.

There is no guarantee of the maintenance of a quality relationship after buy out and early days never indicates what will be the evolution of new relationships based in the different interests of all stakeholders.  Focus has many brands and the structure to operate automatically changes how franchisee interests fit with those of the new franchisor.

Auntie Anne’s is now within a more complex structure and franchises in such a situation just need to be smart enough to keep up with a new level of business sophistication and adapt to forever changing conditions and considerations to protect their interests. Right now is a good time for AA’s franchisees.

In these days of so many major buy outs and the incursion of so many investment companies devoid of the people passion that typically grew the initial franchise relationships, it is absolutely critical that today’s brands have an IndFA FFAwith the emphasis on ‘independent’.

I’m not a fan of franchisee representative bodies being indebted to the franchisor.

michael webster's picture

The Sale should be of Concern to Auntie Anne's Franchisees

Any time a charismatic and successful franchise leader sells their business, franchisees have to realize that they in a dramatically different relationship, with different pros and cons.

The only franchise leader that truly understood this was Colonel Sanders:

"When Colonel Sanders sold Kentucky Fried Chicken, he feared his franchisees would lose control of their own businesses and the future that they were working toward and in which they had invested.

So he encouraged them to unite to protect the franchisees that he considered part of his own "family" and to give the franchisees a voice in the future development of a concept which would prove to be far greater than was envisioned at the time.

This brought about several small meetings with early franchisees and in 1965 the Southeastern Kentucky Fried Chicken Franchisee Association was formed and formally organized in Atlanta, Georgia. Ten years later, the AKFCF (our national association) was incorporated in the same city."

This is a very important moment in the Auntie Anne's franchise system, and for their leader's legacy of Light to endure.

I know that Sam Beiler was promoted in 2005 to CEO/President as the result of the sale by the original owners, Anne and Jonas.   Will he survive this sale, and will the franchisee's regional councils continue to have decision making power and input.?  As a franchisee, I would be very concerned about how much power the regional councils would continue to have.

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