All talk, no action.
Bridgforth believed he had found an ideal location: East Jefferson Avenue, one of two main thoroughfares running along the Detroit River just shy of Canada. The highly foot-trafficked street is also home to a diverse group of residents, from senior citizens and lower-income families to upscale professionals. And it's just two miles from the business district, where the headquarters of General Motors and Little Caesar's Pizza are located.
Still, convincing a full-service chain to consider the area was an uphill battle for Bridgforth. Out of 30 inquiries, only four companies sent reps to look at the site: Bob Evans, Ram's Horn, Denny's and International House of Pancakes. IHOP was the only one to actually bite.
Because of Detroit's tarnished image and high unemployment rate, IHOP was leery about opening a restaurant there. But according to Richard K. Herzer, the firm's chairman and CEO, "Walter showed us that basically the area is moving in the right direction." In an astute move, Bridgforth also secured the support of Detroit Chief of Police Ike McKinnon, Mayor Dennis Archer and the local NAACP to ensure a safe and clean environment.
After two years of negotiations, the restaurant opened its doors last November. The franchise is owned by IHOP, which signed a 25-year lease with Bridgforth, who owns the building and the land.
Bridgforth, a former IBM sales rep, then sold IHOP on another idea: giving the restaurant a Motown theme. Out of the chain's 620 outlers worldwide, Detroit has the only IHOP with piped-in Motown sounds. Its walls are lined with album jackets and vintage photographs of Motown artists, as well as platinum records by Grammy Award-winning singer Anita Baker, Bridgforth's wife.
The Motown IHOP, which cost $1.5 million to build, is now singing to the tune of about $30,000 to $36,000 a week in sales, double the expectations of the franchise company. (The average IHOP grosses $800,000 to $1 million annually.) "This is going to be a $2 million restaurant its first year" says Bridgforth. By December, he hopes to own the Detroit IHOP, which seats 168 and employs about 85 people. The average IHOP costs $150,000 to $400,000; presently there are only two black-owned IHOP franchises.
Bridgforth is one of a growing number of franchising foot soldiers who are fighting for greater minority inclusion. His long battle is just one of many in the ongoing war between would-be minority franchisees and franchise companies. While these franchisors are forever publicizing their desire to increase the number of franchises owned by minorities, as well as those developed in minority communities, very little is being done to make this happen. When their representation should equal a brigade, minorities in franchising barely make up a small infantry. The vast majority of franchises don't have any African American owners.
After more than a decade of rhetoric about diversity initiatives, franchisors are still "not making any great effort to recruit or retain minority entrepreneurs," says Susan P. Kezios, president of the Chicago-based American Franchisee Association and Women In Franchising, a franchisee advocacy group. "There is a perception out there on the part of franchisors that minorities don't have any money, so why should they waste their time recruiting them."
More disturbing, a number of franchisors are willing to rectify the situation only when faced with discrimination suits. A prime example is the parent company of Denny's Restaurants, Flagstar Companies Inc. in Spartanburg, S.C. As part of a $46 million settlement in two class-action discrimination suits last year, the $1.5 billion chain signed a fair share agreement with the NAACP promising to boost minority participation in ownership, management, marketing and purchasing (see "More Than Just Window Dressing?" September 1994).
Within the franchisee ranks, minorities and women have come further along than most people think, counters Jeanne D. Hitchcock. She is manager of urban affairs at Dallas-based Southland Corp. (owner of 7-Eleven convenience stores) and chairperson of the Women in Franchising Committee at the International Franchise Association (IFA) in Washington. "We have made significant, but incremental gains," adds Hitchcock. "To think that we are going to move forward explosively isn't realistic."
As minorities continue to fight for a bigger share of the $970 billion franchise industry, a new battle plan calls for greater community involvement. Some financial institutions, such as Bankers Trust in New York, are already teaming up with community development corporations to bring more franchise outlets to urban areas and recruit minorities to run them.
"There are a lot of new types of arrangements and venues," says Terrian Barnes, vice president of public relations at the IFA, "which are part of the movement to expand the franchising marketplace. Inner cities are included in this." The IFA represents some 800 franchisors and 25,000 franchisees. The whole trend in franchising," says Barnes, "is nontraditional markets."
BREAKING WITH TRADITION
Franchises are no longer restricted to traditional routes--highways and main streets. Today, franchises are popping up on military bases, college campuses, supermarkets, hospitals, airports, zoos, sports/concert arenas, theme parks and malls, including kiosks.
What makes these smaller, nontraditional outlets appealing is their lower start-up costs, says Hannibal Myers, director of national special unit development for Wendy's International. For instance, he says, a nontraditional fast-food restaurant can cost around $250,000, compared with $1 million to build a unit on a "main" street.
Myers is responsible for selecting franchisees over the next two years to operate some 200 new, nontraditional Wendy's restaurants. Such outlets could open a few doors for some highly qualified minority franchisees, but they are not a panacea for all that ails African Americans in the industry, cautions Myers, who is black.
America's Favorite Chicken Co. (the parent company of Popeye's Famous Fried Chicken and Biscuits and Church's) is among the handful of franchisors looking at nontraditional units as a way to bring more minorities into the fold.
Over the next two years, the $590 million Atlanta-based chain plans to open 15 to 20 Church's in Kroger supermarkets throughout the central Ohio area. That's according to George Shanklin, a former Arby's franchisee. Shanklin was approached by America's Favorite Chicken earlier this year to spearhead the project. Once the new outlets are built, Shanklin will own them (52 of Churchs' 941 outlets are black-owned).
Shanklin, who doesn't see his new position as tokenism, says he is personally committed to getting more black people into franchising. "But in order for things to change, the CEOs of franchise companies have to formally commit to a program designed to increase the number of women and minorities if it's to trickle down to other employees."
Shanklin adds that many diversity initiatives are nothing more than smoke and mirrors, since franchisors have yet to realize that it simply makes good business sense to tap into the people who are expanding their consumer base. However, he believes America's Favorite Chicken is demonstrating a commitment to greater minority inclusion.
Black-owned megafranchises have exploded on the scene in the last three years. Three BE 100s companies are making inroads in this area. The largest black-owned Burger King franchise by far is V&J Foods Inc., No. 57 on the BE INDUSTRIAL/SERVICE 100. Last year, CEO Valerie Daniels-Carter negotiated a 17-store deal that raised the company's royal total to 32 Burger King outlets. The 10-year-old Milwaukee-based concern grossed $30 million in 1994.
Thompson Hospitality L.P. in Reston, Va., No. 59 on the BE INDUSTRIAL/SERVICE 100, became one of the nation's largest black-owned franchises in 1992, when Warren M. Thompson acquired 31 Bob's Big Boy restaurants. Thompson Hospitality had revenues of $29 million in 1994.
Last May, Larry Lundy purchased seven new Pizza Huts, bringing his grand total to 41. New Orleans-based Lundy Enterprises, No. 76 on the BE INDUSTRIAL/SERVICE 100, posted $23.4 million in revenues last year.
While megafranchises are the biggest revenue generators and employers in franchising, they are far more the exception than the rule--particularly among African Americans. Most black wannabe franchisees have to overcome several hurdles to acquire just one outlet. And once they buy, they'll face numerous obstacles to keeping and growing the franchise.
THE NUMBERS GAME
More than a dozen franchises open every day. Because these outlets tend to be well defined and operator-ready, they draw people from all walks of life--from recent college grads to downsized professionals. The franchising industry consists of more than 3,500 franchise companies operating more than 550,000 outlets in 65 different industries nationwide. Franchises employ more than 8 million people; their suppliers employ another 2.4 million.
What's even more appealing, franchising is a lucrative market. Sales have skyrocketed in the last two decades, increasing by over 460%. In 1994, estimated industry sales reached $970 billion, up 12.9% from 1993, according to the IFA. Sales are expected to increase again this year, by 15%.
But not all franchising niches are so profitable. Much of the industry's doubledigit growth has been in specific areas, such as children's services; recreation, entertainment and travel; maintenance and cleaning services; retail food (not convenience stores) and construction/home improvement.
On the surface, African American franchisees are most visible in the fast-food sector. But dig deeper and you'll find black representation in several arenas, including business services.
LEVELING THE PLAYING FIELD
Several African American entrepreneurs are calling for a black franchisee trade association. The group would serve as an industry watchdog, and hold franchisors accountable to diversity initiatives and minority recruitment programs. The IFA is often criticized as being the voice for franchisors, and Women in Franchising speaks for itself. A handful of franchisors, such as McDonald's, Burger King and KFC, already have independent, formal black franchisee associations. But there isn't an umbrella advocacy group for black franchisees.
Granted, civil rights and business organizations such as the NAACP and Operation PUSH have helped blacks gain entree into franchising through certain pacts or agreements. However, effective implementation has proven difficult for both groups. Their greatest barrier: lack of manpower to oversee and carry out these "good will" agreements.
But even if such pacts were to gain more teeth, the lack of capital continues to derail minorities on the fast track to franchise ownership. It's not a surprise then that franchisees and wannabes are increasingly looking to franchisors for creative sources of financing, such as helping the franchise owner secure credit with vendors or forego upfront fees.
Some African American entrepreneurs are reaping the benefits of the Small Business Administration's highly touted LowDoc loan program. Created a year ago, LowDoc reduces the red tape for funds under $100,000 to two pages and the approval time to less than a week.
It was an $82,000 LowDoc loan that helped Chuck Sawyer buy a Mail Boxes Etc. franchise in Erie, Pa., last year. Downsized out of corporate America, the former General Electric subsection manager planned to use $20,000 of his severance package to start a business. Sawyer decided to buy a franchise after taking a class on franchising and reading in Entrepreneur magazine that Mail Boxes Etc. ranked No. 1 in nonfood franchises.
But the franchise fee alone was $24,900. Training and related expenses required another $2,000. Construction tacked on $74,000. Much to his dismay, Sawyer says, Mail Boxes Etc. was unable to help him secure any funds. So, he did the next best thing: He went to the small business economic development center affiliated with Gannon University, a local college. "They helped me write my business plan and prepare other documents I needed to get the SBA loan," he says.
This isn't to say that Mail Boxes Etc. didn't support Sawyer in his pursuit of franchising. In fact, the company was instrumental in helping him negotiate a better deal on his lease, and its technical support also proved valuable, says Sawyer. But even with the company's backing, Sawyer's store averages a lackluster $4,000 a month in sales. He blames limited advertising. "Mail Boxes Etc. is better known on the West Coast. Even though 2.5% of my royalties goes toward an advertising fee, there still needs to be more publicity on the local level."
There are several independent programs specifically designed to develop and finance franchise start-ups. One is the Banker's Trust Co.'s Neighborhood Franchise Project. The pilot program officially kicked off in New York last summer and is spearheaded by Banker's Trust along with Local Initiatives Support Corp. LISC is a nonprofit organization that provides financial and technical support to 1,300 community development corporations (CDCs) in 35 cities throughout the country.
CDCs are nonprofit organizations controlled by local residents and businesspeople. Traditionally, they've played an active role in low- and moderate-income housing development, says Angela Brown, program director for jobs and income initiatives at LISC. But now they're switching to economic development. Why the interest in franchises? Says Brown: "We feel that franchise businesses will fit the needs of inner-city communities and will have a greater chance of succeeding than stand-alone startups."
Banker's Trust and LISC are funding the $3.5 million project. Five CDCs throughout the New York area will be responsible for locating low-cost real estate, minimizing crime, hiring employees and implementing marketing efforts. The franchise owner will handle the day-to-day operations. Should the New York Neighborhood Franchise Project prove successful, LISC will extend the program to other major cities nationwide.
But the best means of boosting the number of African American franchisees still lies within the franchise companies themselves. Since 1993, the IFA has received from franchisors more than 130 pledges to boost the number of minority franchisees and vendors. To meet the challenge of diversity, franchisors' commitment and real-world efforts must be inextricably linked. While the tangible results of those pledges are not yet evident, the sincerity quotient among franchisors--and hope among black would-be franchisees--remain high.
"We aren't going to just let these pledges lay on the table," says the IFA's Jeanne Hitchcock. "We plan to help our members meet their verbal commitments so that minority participation is a living, breathing notion." Only time--and hard-core numbers--will tell.
RELATED ARTICLE: B.E.'s 20 BEST FRANCHISE OPPORTUNITIES
Since 1987, BLACK ENTERPRISE has published the FRANCHISE 50, a comprehensive listing of franchise companies with the largest number of black-owned units in the United States. This list has been widely regarded as the most accurate barometer of the franchise industry's commitment to fostering equitable franchise opportunities for African Americans.
Seven years of producing the FRANCHISE 50 and reporting on the industry have shown that the franchisors with the most black-owned units do not necessarily offer the best opportunities for African Americans.
For this reason, and as a service to our readers, we have developed a new franchise list: BE's 20 BEST FRANCHISE OPPORTUNITIES.
BE's 20 BEST list is based on the results of a national survey of franchise companies conducted by BE Research. Unlike the FRANCHISE 50, the criteria for making this alphabetical listing includes whether or not the franchisor advertised in the black press; types of programs and policies aimed at minority recruitment; the availability of financial assistance programs; provision of ongoing marketing and advertising support and the existence of an independent association of franchisees.
Though not every company listed may have had minority recruitment programs, these 20 franchises best satisfied our measurement of the quality of business opportunity for black would-be franchisees. Thus, other factors that were considered included start-up costs, franchise fees, royalties, average sales per unit and support services.
All numbers are current through December 31, 1994. Start-up costs may vary from the figures provided by the companies listed. This depends on real estate or lease arrangements, the number of units purchased, worth requirements, sources of financing and other variables.
There is very little overlap between the FRANCHISE 50 and BE's 20 BEST FRANCHISES. Most of the big fast-food chains have the greatest number of black franchisees. However, many of these franchises are beyond the financial reach of the typical franchisee hopeful, and several of their current black franchisees are not so happy, if you take into account the ongoing number of lawsuits.
Some companies do not appear on the list simply because they failed to meet the survey deadline. Other franchisors didn't keep records of black franchises, which, in and of itself, is a significant indication of the importance they place on gauging and expanding access to franchise ownership opportunities for African Americans and other ethnic minorities.
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|Title Annotation:||B.E.'s 20 Best Franchises; includes related article on franchise opportunities; recruitment of African Americans by franchisors|
|Author:||Brown, Carolyn M.|
|Article Type:||Cover Story|
|Date:||Sep 1, 1995|
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