10 hottest deals in franchising: from food services to hospitality, we identify the best opportunities for African Americans.
In 1988, Hiawatha Williams, owner of Williams Chicken, persuaded Wells Allen to leave her job at Taco Bell to work for him--for minimum wage. "People said I was crazy to leave $34,000 for less than $10,000 a year, hut I knew I could only go so far at Taco Bell," says Wells Allen, who now trains 75% of the current Williams Chicken franchise owners. "I knew I could grow with Williams Chicken. Plus the owner, who watched me work for years and said that I was the type of person that he wanted to work with, promised me that if I came on as an employee, stood by him, and helped him build the business, he would make sure that I would get my own franchise."
Of course, Wells Allen, had no guarantee that the owner, Hiawatha Williams, would make good on his promise, but she had faith that he would. Back then, Williams Chicken was just one small, little-known restaurant in Dallas that straggled to break even and had no consistent customer base. Today it spans 48 locations throughout, Texas and Louisiana. The stores generate an annual $28 million in gross sales.
Wells Allen helped market the restaurant by working 12- to 14-hour days, seven days a week, for a meager $210. She walked door-to-door to spread the word about Williams Chicken and even negotiated deals with area high schools to provide boxes of chicken for the schools' sporting events.
By 1993, Wells Allen was earning $1,600 per week, and the restaurant's sales increased from $5,000 to $20,000 per week. With the restaurant's increasing success, the time had finally come for Wells Allen to collect on the promise that Williams had made. And she did.
Williams not only kept his promise but also loaned Wells Allen the $150,000 she needed to purchase her own Williams Chicken location, which she bought in 1993. Her second franchise opened just four years later. Together, her two franchises have 35 employees and earned nearly $1.5 million in revenues last year. Wells Alien, 39, projects that with the third restaurant she plans to open this year, her franchises will earn $2.5 million in 2005.
According to franchise industry analysts, every eight minutes a new franchise opens for business somewhere in the United States. That crones as little surprise to Don DeBolt, president of the International Franchise Association, a trade organization in Washington, D.C.
"In the last two years the franchising community has seen a larger pool of qualified and financially capable franchisee prospects than they've seen in years," he says. "A lot of it is due to the recession that we've just come out of and job losses, [As a result], people had to create their own jobs and many of them chose a franchise business."
According to The Economic Impact of Franchised Businesses, a 2004 survey conducted by PricewaterhouseCoopers, there are more than 760,000 franchised businesses in the nation, generating more than $1.53 trillion annually. That's almost double the number of franchises recorded just one year earlier by the IFA, to help prospective franchisees identify the right business, each year BLACK ENTERPRISE compiles a list of lop franchises for African Americans. This year's list represents our editors' choice of the cream of the crop--the best prospects across a range of the hottest industries. The results are based on a national survey of more than 450 franchisors that are members of the IFA and included such criteria as the current number of African American franchise units, startup costs, and revenue grouch projections. Our survey was conducted by the BE research division. We have identified companies that completed our survey, responded to our research arm, or actively tracked their black franchisees. These companies also have significant numbers of black franchisees or substantial minority franchise outreach programs.
These days, what makes the hot sectors attractive to would-be entrepreneurs is America's insatiable appetite for looking good and eating right, and this means big bucks for franchises offering health and beauty products and services. "We're seeing a lot of impact in companies that are related to personal care, anti-aging, wellness, and laser technology for permanent hair removal," says DeBolt.
Franchises such as Comfort Keepers, Home Instead, and other units that provide home care for seniors are hotbeds of activity. "The business to business sector is also growing because there are just a lot of new businesses, and these new businesses need various types of services such as Internet Website hosting and Web design, advertising and marketing, payroll, and accounting services," says DeBolt.
Although hard hit by the events of September 11, DeBolt says the hotel industry is making a strong comeback as travel has increased. Restaurants, despite typically hefty franchise fees, are just as promising as other franchise operations. In fact, according to the National Restaurant Association, there are 878,000 individual restaurant locations nationwide, many of them franchised. What makes them so popular is the consumers' increasing demand lot convenience plus a shift in how people spend their food allowance.
"If you look at consumers" allocation of how they spend their food dollar in America today, over 46% of it is allocated to the restaurant community, [but] if you go back to 1955, at that point, it was just 25%," says Hudson Riehle, senior vice president of research for the National Restaurant Association. "So what has happened in less than half of a century is that how consumers spend on food in America has changed dramatically. Consequently, when you have that shift continuing to persist, it means that there are more and more opportunities for restaurant operators and specifically those that run branded restaurant operations."
Before Maurice Slaughter put up $1 million to launch the first of his three Harley-Davidson dealerships, he reviewed the company's Uniform Franchise @ring Circular, a disclosure document that spells out all aspects of the franchisor. He also spoke with existing franchisees.
"You have to do your due diligence, so I went and visited several of the dealers at their shops to see how the operations ran and what was required in order for me to succeed, everything from capital to man power," says Slaughter, who has dealerships in Portsmouth, Virginia, as well as Elizabeth City and Nags Head, North Carolina.
In his investigations, Slaughter, 45, found that although he didn't have to pay a franchise fee (auto and motorcycle dealers don't require one) he would have to purchase all of the equipment and inventory needed to get his first store up and running. That meant not just buying the motorcycles, but also parts, clothing, riding gear, and other items that a typical full-service dealership offers.
For his first store, Slaughter also needed a building since no existing dealership in the area appealed to him. To raise the money for all of the startup costs, Slaughter, a former Burger King franchisee and Toyota dealer, used profits from previous business ventures.
In 1998 he opened his first store. Bayside Harley-Davidson, in Portsmouth, Virginia. He added Elizabeth's Outer Banks Harley Davidson in 2000 and his third store, Nags Head Harley-Davidson, in 2002. Together, the Virginia and North Carolina franchises have 60 employees and generated $26.6 million in annual sales in 2003. Bay side grossed $15 million, ahead of Elizabeth's $10 million and the Nags Head dealership's $1.6 million.
HIGH HOPES ON HILTON
When Kirk Sykes decided to purchase a hotel franchise, he and business partners, Thomas F. Welch, Gene Sisco, and Corcoran Jenison Cos., solicited Hilton Hotels, which provided an optimistic market potential analysis. Excited about the project's promise, the partners shelled out an $80,000 franchise fee to buy into Hilton's Hampton Inn & Suites. But that was just the beginning of the costs. To complete the planned 175-room hotel, 22,000-square-foot retail space, and 650-car garage, the partners needed $65 million more.
"When we set out to develop this site six years ago we always wanted to do a mixed-use development, of which a hotel was going to be the core component. And there was going to be a retail component and a garage component, so there were a lot of approvals and permits [that were needed]," explains Sykes, president of Primary Corp., a Boston-based architecture and urban planning firm. He and Welch control a 55% interest in the hotel project, in addition to majority ownership of the land it sits on. "Ironically getting through the approvals process, which took us about a year, was the easiest part for us. The real challenges were capital, because when we began this project, there were very few economic development-focused funds or capital sources available."
Sykes knew that the six acres of land were seriously undervalued at $100,000. In Boston's black community of Roxbury, it often traded hands between private and public owners, yet never produced many jobs. Sykes' architecture firm spent $800,000 on a hotel and retail development plan for the site in the absence of any other request for proposal. This land use plan and the approvals it yielded spiked the land value up to $4.5 million.
To raise the money for the hotel and retail projects, Sykes, 46, and Welch solicited Bank Boston Development Corp., which later merged with Fleet Bank, to join the project as an early stage equity partner. For a 45% interest in the project, Bank Boston threw in $4.5 million toward the entire development deal. But a year into the project, the Fleet merger shifted its investment goals, which left the developers without an equity partner. To make matters worse, Sykes and Welch still owed Fleet $2 million of the money they had already spent. The two men were able to negotiate a deal in which Fleet allowed the developers to resell their stake to another development group, Corcoran Jennison Co. Still, Sykes says, more money was needed, and the greatest challenge was negotiating a new equity investment deal thai allowed the project to proceed while still under the majority ownership of the African American lead development team.
Since the project fell into the category of economic development, the city granted Sykes and Welch $17 million in grants and loans from its Economic Development Initiative. The Boston Empowerment Zone sold another $43 million in bonds to securities firm RBC Dain Rauscher.
Additionally, Sykes and Welch each sacrificed more than $100,000 of their own money as they'd both been successful real estate developers during their careers. "I describe this as sort of the Spike Lee She's Gotta Have It approach to development," Sykes quips. "Get some credit cards, a good idea, some creativity, and the ability to bring value to a piece of land that was undervalued, That's what we did. Then we were able to trade the value that we created in the site for bringing more capital into the deal." Sykes clearly didn't depend on credit cards. Rather, it was his creativity and resourcefulness that carried him through.
The 60-employee hotel and the 200-employee retail and garage space opened in July during the first phase of Boston's Crosstown Center development project, a city initiative to vitalize the underserved Roxbury community. Sykes and Welch have been approved to build another 280,000 square feet of office space, 30,000 square feet of retail space, and an additional 600-car garage to add value and employment, to the Roxbury community. The total costs amount to $140 million, and the partners project that in 2005 the hotel alone will earn a $7 million return on investment.
"I want to have hotels that make sense, and I'm specifically interested in urban areas," says Sykes, who is also president of New Boston Urban Strategies America Fund, an urban development fund that provides equity for economic development in the Mid-Atlantic states.
"I'm interested in economic development, meaning development that brings value to an area in the form of jobs, transforming communities, and in terms of retaining the black middle class," says Sykes. "To the degree that I can find those opportunities, I can see having more hotel properties."
In 2002, there were 47,040 major brand hotels in the United States. Sykes' new Hampton Inn & Suites in Boston is now the nation's 24th such property with 51% or more of the ownership in the hands of African American investors.
[BE's Top 10 Franchises for 2004] BLACK-OWNED FRANCHISE TYPE UNITS Hilton Hotels Corp. Lodging 13 310-205-4245 www.hitlonfranchise.com Choice Hotels International Lodging 3 800-547-0007 www.choicehotelsfranchise.com Williams Chicken Food 33 214-371-1430, ext. 340 www.williamsfriedchicken.com AFC Enterprises (Cinnabon, Food 283 Popeye's, Church's Chicken) 770-391-9500 www.AFCE.com Geeks on Call Computer 11 888-667-4577 Services www.geeksoncall.com Express Personnel Services Staffing 11 877-652-6400 Services www.expresspersonnel.com Comfort Keepers Home Care 26 937-264-1933 or 800-387-2415 Services www.comfortkeepers.com Liberty Tax Service Tax 57 800-790-3863 Preparation www.libertytax.com Harley-Davidson Recreational 6 414-343-7990 Vehicles www.harley-davidson.com Meineke Car Care Auto Care 18 704-377-8855 Services www.meineke.com DOMESTIC- FRANCHISE STARTUP COSTS FRANCHISE UNITS Hilton Hotels Corp. 1,899 $7 million 310-205-4245 www.hitlonfranchise.com Choice Hotels International 4,060 $2 million-$10 million 800-547-0007 www.choicehotelsfranchise.com Williams Chicken 48 $150,000-500,000 214-371-1430, ext. 340 www.williamsfriedchicken.com AFC Enterprises (Cinnabon, 3,106 $157,300-$343,000 Popeye's, Church's Chicken) 770-391-9500 www.AFCE.com Geeks on Call 174 $50,000 888-667-4577 www.geeksoncall.com Express Personnel Services 407 $130,000-$170,000 877-652-6400 www.expresspersonnel.com Comfort Keepers 419 $41,000-$65,000 937-264-1933 or 800-387-2415 www.comfortkeepers.com Liberty Tax Service 1,409 $38,100-$49,100 800-790-3863 www.libertytax.com Harley-Davidson 651 $600,000 liquid-$1 414-343-7990 million net www.harley-davidson.com worth Meineke Car Care 834 $176,000-$436,000 704-377-8855 www.meineke.com PREPARED BY B.E. RESEARCH
A Franchising Reality Check
Despite the popularity of franchising and the opportunity for success, not everyone is suited to become a franchisee. First take some personal inventory and decide what you enjoy doing. Consider your strengths, weaknesses, and goals, Ask yourself if you can and are willing to work in an environment that sees little change. Because franchises are structured systems with uniform procedures, there's little room for creativity. Once that's done, here are some of the steps you should take:
Investigate opportunities thoroughly. Interview franchisees and visit existing franchises. Also, assess overhead, capital, and man power.
Cater to your strengths. Determine if what you want can translate into a successful business venture.
Expect an unchanging environment. Franchises are structured systems with uniform procedures. There is very little room for creativity and flare.
Franchises can fail if they are not properly run. After you choose which brand to build and operate you must:
Assess how much money you have to spend and how much you can afford to lose. To determine financial commitments you must be realistic about your resources. As with any business venture, expect risk.
Prioritize customer service. Build loyalty by hiring and retaining good employees and provide them with regular training. Slaughter says of Ford Motor Co., "Every associate here has to go to training at least once a year, plus we do a lot of internal training."
Be realistic about return on investment (ROI). Franchising is not a get-rich-quick seam. Wells Allen warns, "You have to give yourself at least three to five years of total commitment before the business 'starts to make money."
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|Title Annotation:||Franchises; Williams Chicken|
|Date:||Sep 1, 2004|
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