Why not to buy into a franchise!!!!

This forum is great for any operator to obtain vital information in the areas such as marketing, training, food cost/profit maximizing. This is not one of those posts. I want to appologize to those who are bored with my post if you read further. I just need to vent to someone else besides my wife, who is becoming rather tired of the same conversation. I am involved with a franchise. Our store’s sales are around 14,000/week. We give our franchisor 6.5% and our overhead is killing us. We are nearing the end of our lovely 4 year journey and I can’t help but feel resentful of our franchisor. Our pizza is at the upper tier of the pricing category, example 22.10 for a 16" deluxe. We have a good product and we have went every direction with marketing: doorhangers, box toppers, upsell contest, val pack, direct mail. (Obviously Kamron’s book) Our franchisor has pulled the plug on advertising. They believe “if you build it they will come” We are struggling. We owe several months of royalties. We agreed that if we could send them the 1.5% for advertising then they would keep our name in the mix. Now let me preface this by saying that I believe their advertising is, well for lack of a better word worthless. Anyway, they placed an ad in a local paper in the stl that has a following. They mentioned all 9 locations, but they felt the need to leave our name off of the ad. Now I know what you are thinking, we do owe them some money. What I want to know is why they think they can eliminate us from the ad without atleast contacting us and letting us know, which still would anger me greatly. Please, let me know if I am overreacting. Also, to add fuel to MY fire. They have placed a franchise within our protected 3 mile territory. I am not making this up and yes we are legally investigating our options. The point to this whole message is that if you are looking to get into a franchise or looking to franchise your business. Then lets do yourself a favor and please make sure that the vision for your business matches that of the franchisor or the interested party. I appreciate your time and I will let you get back to your regually scheduled programming…Hope everyone has a great day!! BTW did I mention that my partner is my mother-in-law…

Sorry for your situation. I assume you’re dine in, since $14K with delco is pretty nice. I would get with a lawyer ASAP.

. . . what was that tax thingy again? . . . .

WA Dave might need to pass along the violin for this one. Talk about a passle of hard luck to being dealing with. I feel for you, pizza brother. Owing bills and having a “gut punch” when you’re not looking doesn’t make sleeping any easier.

Have they already opened the franchise in your protected area, or is it just sold?

I think you should run, not walk, to an attorney. But I fear that if you are behind several month’s worth of royalties, you may not have a protected territory anymore. We just sold our first franchise, so I am by no means an expert… but our FA states that Franchisees go into default after being 10 days late. The can remedy it within 30 additional days and not have any consequences (other than fees and interest.) After that 30 days, the Franchise agreement is terminated and we take control of the lease. That’s why I ask if it’s already built or just under development.

Aside from the legal and franchise issues…

We’re in about the same price tier as you; we’re $21.99 for a 16" Supreme. Doorhangers, Box Toppers and Val Pak do pretty much nothing for us and never have. Direct mail (menus) works very well for us and we also run weekly upsell contests. But the other stuff has been money down the toilet for our type of product.

People willing to pay $21.99 for a pizza are not the same people that are ripping open their Val Paks and keeping boxtoppers to save a few bucks on their next order. Even with an aggressive coupon, you’ll still be too expensive for that crowd. Are you going to send out a coupon for free breadsticks and a salad? That’s not going to make a die-hard coupon user order from you when you’re pizza is still $20.00. They’ll go to the Big 3 and get the same thing for $13.00.

It took me a while (and a lot of wasted money) to realize the above. I started to think of my pizza joint as a restaurant. Think about a great steakhouse in your town. When was the last time you went there because you had a coupon? Never. You go there because they have great food, and you don’t care much what the price will be. That’s our type of customer.

Unfortunately, I found that “build it and they will come” is how it works for shops like us. When you can’t drive people in with price you need to wait for the word-of-mouth to build you up. Market your quality, send out your menus to houses that match your demographics and make sure your product and service are top-notch.

On another note, what kind of overhead do you have? $14,000/wk is a lot of sales. If I was at that level I would be cash flowing over $200,000 per year, and I have the largest rent bill of anybody I’ve ever seen post on here.

Anyway, just my opinion. It sounds like we’re very similar in terms of our business models.

Sorry but I know this all too well…

  1. just because you win a lawsuit doesn;t mean you will get paid anything.
    even if your awarded $$$$

  2. your best solution is to minimize losses…adding legal fees won;t help.

  3. work with the franchisor to find another buyer for your store…they don;t want to close it either…

4)if You have not paid roy/ adv…you do not have clean hands…

  1. stay away from COURT …the only real winners will be the lawyers who get the fees…

  2. I would assume others are as upset as you…if so…then round em up and start a mini class action suit…(its not truly class action) but multiple
    parties…

hire one lawyer and pay him each store…

DO NOT GO it alone…the fees will eat you up…

  1. DO you have any back payroll taxes…??THE IRS will take you to the grave…the franchisor will not be your biggest problem…

SORRY

SAL

Piper wrote:

[Unfortunately, I found that “build it and they will come” is how it works for shops like us. When you can’t drive people in with price you need to wait for the word-of-mouth to build you up. Market your quality, send out your menus to houses that match your demographics and make sure your product and service are top-notch]

I understand what you are saying, as we were the opposite. We waited for 3 years and they came, but loosing 4-6,000 per month they were not coming fast enough. So, we threw out some coupons and are sales did increase, but I believe it was too little to late. Our rent was $7,900 before we negotiated a small decrease to 5,397. We have a 4,500 s.f. and the utilities are a pain. $1,075 gas bill last month and 2,300 electric bill. Sales tax @ 7.075% and royalties @ 6.5%. Food cost usually @ 33% The percentages start to run out rather quickly.
[/quote]

Obviously, I do not know how to “quote” someone. Can someone please give me a clue.

thank you!!!

Sal

Luckily we are in good with the irs. We are actually using this as leverage against the franchior. Our lawyer did tell us that going to courts would leave only 1 winner and that would be the lawyers. Maybe we have an honest one???

I just click the quote button along side everyones reply and then edit out any unimportant or unrelated stuff.

Being located near you, I believe you are not the only franchisee of this company having difficulty. Obviously the HWY 94 store closed, even though he was packed on the weekends. And I understand the Mexico Rd store is having difficulty. Also, having 5 years experience managing an IMOs, I can tell you we had the same difficulty until sales got to $17000 - $20000 per week. Hopefully your labor is in the 17% range, with 33% food cost, otherwise things won’t get better either.

I can tell you we got to those sales with very superior customer service, not advertising. I knew most of the customers, even when we filled all 100 seats on the weekend, and spent a significant amount of time at each table, …and we kept 30 minute delivery times, with 7-10 drivers on weekends.

If you can’t compete with advertising, or your menu items, compete with what you’ve got…service.

How in the world can you be running a 33% food cost while selling pizzas for $22.

Amen! If you’re paying 6.5% royalty (sounds like only 1.5% is advertising royalty), the franchisor should not be making any more money off of you. If your cost for a 16" specialty is $7.33, you need to get some bids from other food suppliers - I’m guessing that you’re required as per your agreement to buy only from one supplier, or from a franchisor commissary - get some bids anyway - the supplier is most likely giving kickbacks to the franchisor; unless it’s spelled out in the franchise agreement that the franchisor is allowed to steal you blind and make you smile while being forced to take it up the rear, this is illegal!

Since another poster in your area alluded to several other busy stores that have either shut down or are experiencing difficulties, the problem is most likely not the operation, but rather, the administration of this franchise.

Even at the currently inflated prices, my guess is that you’re paying about 20% more on your food orders than you ought to. If this is, indeed, going back to the franchisor as a kickback, you’re giving them an extra $900+ per week; add that to the 900+ each week for the royalty, and it’s little wonder why these stores are struggling!

Find out if this is what’s going on ASAFP! If it is, then it’s their turn to bend over! :lol:

Well a little bit on my experience with a franchise.

I have two stores in a chain and I will tell you it has been an experience. I have made my share of mistakes…Like I always tell my employees

" just because I opened a business does not mean I suddenly was annointed with 250 IQ"

The thing I learned is you can make money…but you have to control your costs. As soon as you have been open for a year you should know what you bring in a week ( at least on average)…and then you budget around it. If you consistantly have a $8,000 week and your budget requires you to do $10,000 why beat your head against the wall trying to get to 10? Why not adjust to your sales? Get your costs down. I know it sounds impossible but it can be done.

It was easy for me to blame a lack of support on the franchise at first…but then I realized in the end it was my business and ultimately up to me to make it work. Besides, my royalties go up to them the more my business goes up…as well as their kickbacks on the food I buy…why in the world would they want to see my sales go down much less me close when I am a viable revenue source for them?