By Mark Glover
Published: Sunday, Jun. 22, 2014 – 12:00 am
Proponents of franchising insist that it’s an ideal business model for our jittery, post-Great Recession times, and the Sacramento area has been a magnet for prospective franchise operations amid an improving economy.
Over the past two years alone, more than 20 franchise businesses have either set up shop or announced their intention to enter the area market. The businesses run the gamut, from music schools to barbecue restaurants to drive-thru coffee stands. Still other franchisers say they can’t wait to recruit franchisees in the Sacramento region.
Industry experts say franchising is gaining popularity nationwide for multiple reasons, including the allure of a franchiser’s established business model, the availability of business expertise in hundreds of franchised business sectors and an improving economy that has prompted entrepreneurs to make the leap, knowing that they’re not making it alone.
As for the Sacramento area in particular, experts point to the area’s relatively large, widespread population base; its proximity to the Bay Area; and its relative affordability compared with other large metro markets in California.
Keith Gerson, president of Reston, Va.-based FranConnect, a provider of franchise management/technology solutions, notes that “looking at the expensive brick-and-mortar stores in big cities, Sacramento is more affordable. If your franchise involves real estate, that’s a major factor.”
In wide-ranging interviews with experts, another factor emerged: Sacramento apparently has a strong family image in the franchising sector.
“Why Sacramento? We are a family sports restaurant … and we like the prospects for Sacramento wanting a really fun place with a sport dimension and sit-down (restaurant),” said Philip Schram, executive vice president of franchise development for Buffalo Wings & Rings, a Cincinnati-based chain that recently announced its intention to have four or five locations in the Sacramento area by the end of 2015.
Ed Samane, a martial arts grandmaster and president/CEO of Pennsylvania-based PRO Martial Arts, said, “To us, Sacramento is a prime market for development because we help families and children. We felt as though Sacramento is a perfect target because it’s family friendly.”
PRO Martial Arts training features multiple disciplines and instruction to counteract bullying. It has opened franchised centers in Folsom and Roseville and hopes to have a half-dozen in the area in the near future.
Sacramento is part of a considerable California presence in the nation’s franchise business industry, according to the Washington, D.C.-based International Franchise Association.
Of some 770,000 franchised establishments nationwide, IFA said 10 percent of them are in California. More than 1 million of the current estimate of 8.5 million jobs at franchised businesses in the United States are in the Golden State. IFA said $117 billion of the estimated $839 billion in sales volume generated by U.S.-based franchise operations this year will be in California.
John Reynolds, president of IFA’s Educational Foundation, concedes that California’s large population plays a role in the proliferation of franchised businesses, but he added that growth nationwide has been fostered by an improving economy.
“I would say that what you’re seeing in California is definitely a reflection of what you’re seeing nationwide,” Reynolds said. “There are sectors of the economy that are coming back. For example, a lot of people use their overall home equity when they buy a franchise, especially first-time investors. So, as people have brought down their debt in their overall assets and seen equity rise, that has helped. There is improving consumer confidence.”
FranConnect’s Gerson agrees: “I believe, post-recession, as people have seen more stability in their 401(k)s and their investments, individuals are seeing a rebound.” And, Gerson contends, investing in a franchise business is an alluring proposition and “a better investment than going out there and trying to do it on their own.”
That’s especially true in the food and hospitality segment, which makes up 65 percent of national franchising industry, according to the IFA. The sector includes such instantly recognizable chains as Subway, McDonald’s and Pizza Hut. Gerson claimed, with the memories of the Great Recession so fresh, an entrepreneur looking to go into the restaurant business is more likely to opt for a franchised operation, with its established resources, tested business model and expert assistance available, as opposed to starting a restaurant from scratch.
“The statistics show that most restaurants fail, but that’s not true with a (franchised) restaurant,” Gerson said.
Jared Katzenbarger, a local real estate investor, said he was no restaurant expert when he opened his first Dickey’s Barbecue Pit in Elk Grove in 2012. Now, the local franchisee has four Dickey’s restaurants.
“I just thought franchising was the way to go in that I didn’t have a lot of experience. And I liked the (barbecue) restaurant because it was different. It’s not pizza. It’s not sandwiches,” Katzenbarger said.
Tapping into a franchise business and its support systems does come with a cost, which even franchising advocates say must be carefully considered by any prospective franchisee.
The upfront franchise fee – essentially a payment securing the right to use a franchiser’s business model – for a major fast-food chain can run from $35,000 to $50,000. The fee for smaller, lesser-known businesses can be as low as $15,000. A hotel franchise could run you six figures.
But that’s just the beginning.
Startup costs can run well above the franchise fee. That includes real estate, equipment and other supplies, plus employee costs. If your brick-and-mortar business requires acreage, that’s a major investment in California. Depending on the franchise business, you might be paying a fixed percentage of sales, or royalty fees, to the franchiser, which also might require an advertising/marketing fee.
Signage, training costs and travel expenses also should be considered. Bottom line: You might pay a franchise fee of $40,000, but the actual startup cost of the business might be $250,000 or more. Gerson suggests that prospective franchisees do extensive homework, which he said is easier now with so much franchising information available online.
There are deals out there. For example, Buffalo Wings & Rings is touting $30,000 off its franchise fee as part of its 30th anniversary celebration.
Another plus for prospective franchisees: There are plenty of franchise businesses to choose from. Hundreds of them. A short list of top franchisers listed by Entrepreneur magazine includes Anytime Fitness, Hampton Hotels, Supercuts, Dunkin’ Donuts, H&R Block, The UPS Store, Matco Tools, Ace Hardware Corp., Edible Arrangements International and Miracle-Ear Inc.
The IFA’s Reynolds said one of the fastest-growing franchising segments is health care/service businesses, a reflection of a large, aging population of baby boomers. That includes senior care and in-home care. Child care and fitness club franchisers are likewise growing. Other new segments have evolved in the past decade, such as food truck franchises.
The Sacramento area’s recent franchise rush runs the gamut. One recent arrival is Bach to Rock, a Bethesda, Md.-based chain of music schools for students of all ages. It just opened its first West Coast site in Folsom. Dutch Bros. Coffee, based in Grants Pass, Ore., started making its push into the Sacramento area as the Great Recession started to fade. Today, it has nearly a dozen drive-thru coffee kiosks in the region.
Food businesses have expressed particular interest in the Sacramento area of late. One of them is Westlake Village-based Sweet Arleen’s, maker of boutique-style cupcakes and savory bread puddings. The chain is the creation of Arleen Scavone, a former banker turned business baker and a three-time winner on the Food Network’s “Cupcake Wars” show.
“Sacramento is one of our target markets,” Scavone said. “Our goal is to get a footprint established by this time next year … We’re looking in North Highlands, Carmichael, Roseville and Citrus Heights.”
Connie Alires, director of franchise development for Dallas-based Which Wich? Superior Sandwiches, also is looking to land franchisees in the area. The chain features more than 50 varieties of customizable sandwiches and is known for its ordering system – customers grab a red marker and mark up a pre-printed menu on a sandwich bag. The customer’s sandwich is delivered in the personalized sandwich bag.
“Sacramento is absolutely one of our targets,” Alires said. “We’re always looking for talented (franchisees) … We do run into individuals who want to get out of the corporate grind, but they do not have to come in and reinvent the wheel. We want people who understand guest relations and customer service.”