More than just window dressing: programs to increase black participation in the franchise industry are nothing new; time will tell if the newest initiatives are just for show.

IT SEEMS LIKE JUST YESTERDAY that Donald J. Bohana began dishing up sould food and enticing customers to his Denny's 'n the 'hood. It was the first family-style restaurant to open in Watts since the 1965 riots.

Bohana's eclectic menu--featuring soul food delights such as collard greens and chitlins as well as pancakes and burgers--was unlike that of any other Denny's outlet. But the nation's first African-American-owned Denny's did more than serve food. It provided jobs and hope to an urban community still smoldering from the civil unrest ignited by the not-guilty verdict returned in the trial of the Los Angeles police officers who beat Rodney King.

Two years since its opening, Denny's of Watts-Willowbrook is still in business at the Kenneth Hahn Shopping Plaza. Some 45 employees continue to serve the restaurant's regular neighborhood patrons. What's missing is Bohana.

The parent company of Denny's Restaurants, Flagstar Companies Inc. in Spartanburg, S.C., took over its only black-owned franchise because Bohana couldn't meet his financial obligations, namely payments on a $735,000 county government loan. It could take another year before Denny's gets a new owner for the Watts restaurant.

Flagstar says it is committed to putting a minority back in charge of the Watts area outlet, says Gaylon Smith, Denny's vice president of franchise development. Smith says Denny's is considering 28 African-American candidates for its roster of franchisees, which totals 1,500.

This newfound commitment to black business opportunity is not a response to some benevolent urge. It comes off the heels of a $46 million settlement of two class-action discrimination suits against Denny's. Both claims were filed in 1993; the first, from 18 young people in San Jose, Calif., who alleged that Denny's made them pay for their meal before eating because they were black. The second involved the Martin Luther King Jr. All Children's Choir of Raleigh, N.C. They accused Denny's restaurants in Woodbridge, N.J., and Dale City, Va., of refusing them service because of their race and not the size of the group as Denny's representatives claimed.

As part of the settlement last May, the $1.5 billion family-restaurant chain signed a Fair Share Agreement with the NAACP. The pact calls for greater minority participation in franchising, management, marketing, purchasing and professional services.

Denny's is one of several franchise companies to launch new initiatives to recruit minority franchisees during the past year. Why has minority business opportunity suddenly become a priority again in the franchising industry? It depends on who you ask.

Franchise companies--whether they're launching first-time initiatives like Denny's, or revamping programs, such as Burger King--insist that their commitment to effective minority business development is simply smart business, given that minorities are often their No. 1 consumers. That is the view held by Terrian Barnes-Bryant, vice president of research/minority and women's affairs with the International Franchise Association (IFA) in Washington, D.C., which represents some 800 franchisors and 2,400 franchisees. She says franchise companies are making their outlets more attractive to African-Americans, "through formal minority recruitment programs and by showing a sensitivity to the particular problems and needs of minority franchisees."

But industry insiders representing the interests of franchisees have their doubts. "Some of these in-house initiatives are nothing but smoke and mirrors," says Susan P. Kezios, president of the Chicagobased Women in Franchising, a group that provides services for women and minorities interested in becoming franchisees. Other programs, she adds, "are tackling the last markets on franchisors' list of priorities--women and minorities."

TINY STEPS AND GIANT LEAPS

Whether franchisors are taking giant leaps of faith or tiny incremental steps to effect change, the numbers paint the picture. Only 4.23% of the more than 75,000 franchise units represented by the 1994 BLACK ENTERPRISE FRANCHISE 50 are black owned. (The BE FRANCHISE 50 is the eighth annual listing of franchise companies with the most black-owned franchised outlets. See sidebar, "Compiling the BE FRANCHISE 50.") Meanwhile, the total number of minority-owned franchises industry-wide has edged up only slightly to 5% from 2.5% in 1990--and that figure includes black franchisees.

There is, however, a brighter story to tell. A number of African-Americans have made inroads in franchising as multiple operators. The biggest revenue generators, say industry experts, are those franchisees who own and operate more than one unit.

Three BE 100s companies are among the most visible black multiple-franchise operators. Thompson Hospitality L.P. became one of the nation's largest black-owned companies in 1992, when Warren M. Thompson acquired 31 Bob's Big Boy restaurants for $13.1 million from Marriott Corp. (11 of the units were converted to Shoney's restaurants). No. 44 on the BE INDUSTRIAL/SERVICE 100, THLP in Reston, Va., had revenues of $34.3 million in 1993. Another entrepreneur who cooked up a huge deal in 1992 was Larry Lundy. He purchased 31 Pizza Hut restaurants for $15.5 million. New Orleans-based Lundy Enterprises, No. 69 on the BE INDUSTRIAL/SERVICE 100, generated $23.3 million in revenues last year. By far the largest black-owned Burger King franchise is V&J Foods Inc., No. 70 on the BE INDUSTRIAL/SERVICE 100. The 10-year-old Milwaukee-based business grossed $23 million in 1993. Last May, CEO and founder Valerie Daniels-Carter snared a 17-store deal, bringing the company's royal total to 32 Burger King outlets in Wisconsin and Michigan.

These megafranchises reflect the significant gains of African-Americans in the industry. But the hard truth is that most franchise companies don't have African-American owners and aren't looking for any. In fact, most don't track how many black-owned units they have.

The resurgence of programs to help minorities gain entrance into franchising could change all that. But it's going to take more than spoken or written promises to ensure that black potential franchise owners aren't pushed through a revolving door of opportunity.

FRANCHISING IS BIG BUSINESS

Franchising continues to be an attractive industry, not just for African-Americans, but anyone seeking business opportunities. It's one of the fastest growing sectors of American business, with sales increasing by 460% in the last 20 years. In 1992, sales reached more than $800 billion, up 8.31% from 1991, according to the IFA's survey, Franchising in the Economy, 1991-1993. The IFA projects that sales could rise 12.87% this year.

Much of the industry's growth has been driven by business format franchises, such as employment services, real estate, fast-food, quick printing shops and janitorial services, which comprise 74% of the industry. Product and trade name franchises, including gas stations, auto dealers and soft-drink bottlers, represent a quarter of U.S. franchises.

African-Americans have a strong pipeline into one of these areas--cleaning services. Coverall North America and O.P.E.N. Cleaning Systems are in the top 10 of the BE FRANCHISE 50. While African-American franchise owners are still highly visible in the fast-food sector, there is solid representation in several other industry segments.

Business and professional service franchises are gaining popularity because they are not as capital and real estate intensive as, say, fast-food or construction outlets. The average start-up cost, for example, for a Micky D's is a half million dollars. But the average start-up cost for a Coverall is $2,500.

Overall, employment is on the rise. In 1993, franchises employed more than 8 million people in 65 industries. Another 2.4 million are employed by suppliers. Many franchisors are replenishing their pool of potential owners by tapping into the wave of skilled professionals who have either lost their jobs in big business or elected to leave voluntarily.

The actual number of franchise outlets increased by 6.9% last year to well over 550,000 units. More than a dozen new franchises open every day, according to the IFA. And why not? Franchises appeal to a lot of would-be entrepreneurs, because they tend to be well-defined and operator-ready.

THE KEY: IMPLEMENTATION

Verbal and written commitments to increase minority participation in franchising are not new. According to a 1992 survey by IFA's Alliance for Minority Opportunities in Franchising, 35% of franchisors answering the survey had minority development programs, 41% targeted minority franchise prospects, 49% targeted employee recruitment efforts to minorities and 54% utilized minority vendors, suppliers and media.

Over the last 10 years, civil rights and business organizations have helped blacks gain entree into franchising through a number of agreements. The NAACP initiated "Operation Fair Share" in 1981, which addresses five areas: employment, upward mobility, minority purchasing, inclusion of blacks on organizational boards and philanthropic contributions to black organizations. However, hammering out these agreements with franchise companies is the easy part. Effective implementation has proven to be much more difficult.

To date, the NAACP has negotiated 60 fair share agreements with such companies as Wendy's, McDonald's, United Airlines, Pathmark, K-Mart and Chrysler.

But "we are faced with a big problem," says Fred Rasheed, the NAACP's director of economic development. "We're undermanned. I have eight people on staff, which isn't enough to monitor and implement all the agreements we have."

The NAACP, however, does plan to devote special attention to the Denny's deal. "It has a larger dollar impact and more specific goals than other agreements," adds Rasheed. Among Denny's seven-year goals: 53 new minority-owned restaurants.

Flagstar reports that, in the first nine months into the program, 28 African-American franchise applicants are under review, 103 minority managers were hired, over $1.5 million went to minority ad agencies and 3.3% ($20 million) of purchasing contracts went to minority suppliers. Flagstar also appointed an African-American, Vera King Farris, to its 11-member board.

By way of a 12-month Fast Track training program, "We are looking to move up current Denny's employees into the system and to recruit African-Americans who are already in business," says Norman Hill, vice president of field human resources. Plans are in the works to refranchise 135 units by 1995. Prospective black franchisees will be drawn from that employee pool, notes Hill.

While not as detailed as the NAACP's fair share agreements, Operation PUSH's "moral covenants" have done much to open opportunities to African-Americans. Over the last decade, PUSH has negotiated pacts with such companies as Southland Corp. (7-Eleven), Kentucky Fried Chicken, Miller Brewing, Coca-Cola and Coors.

Perhaps the most notable covenants, in 1983 and 1986, have been with Burger King Corp. Burger King's ethnic sector has grown steadily since 1987, when the company instituted a minority franchise tracking system. Ethnic-owned restaurants now account for 14% of Burger King's 6,200 domestic outlets (3.5% is black-owned). Burger King is very close to honoring its 15% pledge made 10 years ago.

Burger King's latest commitment, referred to as the Eight-point Plan, sets aside $100 million to develop minority franchises and suppliers over the next five years. Another half million will help underwrite and sponsor minority community events.

Half of the $100 million is earmarked as start-up capital in the procurement area. "We will help minority suppliers in two ways," says Rachelle Hood-Phillips, vice president of diversity affairs. One is through loan guarantees: "Burger King will go to a third-party lender and agree to back the loan if there's a default." A second approach is direct investing: "We will lend companies the money directly," she explains, "but in return, we want a share of their profits."

The other $50 million is targeted to the development funds for new and existing minority franchise owners. "The program is set up so we can do loan guarantees, leasing and capital restructuring," says Hood-Phillips, "whatever it takes to help that individual buy or develop a site."

Burger King has received over 1,200 inquiries. Of that group, 550 are under serious consideration as potential franchisees, another 200 as suppliers.

The program will be driven by Burger King's Diversity Action Council (DAC). The group of four Burger King executives and 10 minority community leaders and business owners, formed in 1991, will meet quarterly.

"We will closely monitor the company's processes and progress in franchising, procurement, banking, marketing, advertising, employment and nonprofit giving," says the Rev. Willie T. Barrow, PUSH's chairperson and a DAC member. "We want to make sure that Burger King's customer base--40% minority--is reflected in terms of franchises and suppliers."

Burger King's minority recruitment efforts differ slightly from past approaches. The company is now looking for candidates who can own and manage multiple units. "We are growing the field with seed money," says Burger King Chief Financial Officer and DAC Chairperson Scott Colabuono, "but our goal is to get African-American franchise owners to expand in terms of multiple units and locations."

Perhaps the biggest success story on Burger King's books is Valerie Daniels-Carter, a former financial analyst, and John Daniels, a corporate and real estate lawyer. The brother-sister team started in 1984 with one Burger King unit that was built from the ground up, taking $40,000 in personal savings to pay the franchise fee (the total investment for a site is around $300,000 to $1.2 million). That first year, V&J Foods earned $900,000 in revenues.

Three years later, the duo added two more outlets. Then came a slew of acquisitions between 1990 and 1992--15 in all. But the granddaddy of them all was the acquisition of 17 Burger Kings in Detroit last year.

"When we started out, we wanted to get into a business we could expand," says Daniels-Carter, explaining why they chose a Burger King franchise. "We looked at each site as a situational opportunity." V&J has its eyes fixed on nontraditional settings for future Burger King outlets.

In fact, a part of Burger King's overall objective is to build restaurants in these kinds of "nontraditional" settings anchored by other businesses and institutions, such as gas stations, convenience stores and college campuses. The company is specifically targeting historically black colleges. For example, a Burger King franchise will open this month at Xavier University in New Orleans and will be run by Cedric Smith, a black franchisee who owns four other Burger Kings in Indianapolis.

But African-American franchise owners have not always had happy trails when it came to getting the best locations. In 1989, a group of black Burger King franchisees accused the Miami-based franchisor of deliberately steering them into crime-ridden urban areas with higher overhead costs, taxes, insurance, and many more competing outlets than their non-black counterparts. In Atlanta, another group of black franchisees accused Burger King of putting them in depressed areas, then replacing new equipment with faulty machinery before the new owners moved in.