Brand Recognition Table

FRANCHISING IN GENERAL

Initial costs to open the restaurant

• Initial franchising fee
• A percent of the down payment (building, equipment, etc) needs to be non-borrowed.
• Training period
• Constant support of the brand (advise on details and regular visits).
• monthly fee of sales.
• Basically you pay someone for their business strategy, marketing strategy, operations strategy and the use of their name.

Advantages

• reduction of risk - managerial know-how.
• instant recognition

Fees

• The franchise agreement is for a specific lenght of time.
• Royalty fees or other on-going payments (percentage of sales or fixed amount).
• Franchisors may sell supplies directly to the franchisee.
• Advertising funds are paid periodically. These funds are used for national and regional promotions for the entire chain.

Restrictive Covenants

• in-term and post term non-competition covenants.
• For protection of proprietary information and trade marks, the restrictive covenant govern the things a franchisee can do.

ADVANTAGES OF THE FRANCHISE MODEL

• Franchisees are working for the brand but are not a fixed cost, they are partners, which reduces the company's costs.
• Allows the company to grow faster and expand into other areas that may not have been possible unless franchising.
• The franschises provide capital for expansion (high degree of financial leverage)

DISADVANTAGES OF THE FRANCHISE MODEL

• Less control over maganagers.
• Weaker core community.
• Innovation challenges: if new idea of product comes up you have to negotiate with franchisees to get them to accept it.
• People working for the franchises are not direct employees of the brand: hard to control customer service. The brand reputation is at risk.

JACK IN THE BOX FRANCHISE

• The company has been reducing their company owned restaurants since 2010 by refranchising.
• In 2014 they opened 1 new company owned store, refranchised 37, closed 2 and acquared 4 from franchises. The ended the period with 19% of the total stores (431).
• They opened 11 new franchise restaurants and closed 11, endind the period with 1819 (81%).
• Initial franchise fee of $50,000 per restaurant for a 20-year term and marketing fees at 5% of gross sales. Royalty rates, typically 5% of gross sales, generally range from 2% to as high as 15% of gross sales, and some existing agreements provide for variable rates and royalty holidays.
• Company-operated average unit volume is higher than franchise-operated average unit volume ($1,708,000 vs. 1,337,0000).

[pic 1][pic 2]

QDOBA FRANCHISE

• Qdoba’s company owned restaurants have been increasing since 2010. In 2014 they opened 296 and closed 2, endind the period with 310 stores (49% of total).
• The total number of franchises have not changed a lot since 2010, mainly because the number of restaurants opened and closed are similar each year. In 2014 they opened 22 stores and close 13, remaining with 328 (51% of total).
• Initial franchise fee of $30,000 per restaurant, a 10-year term with a 10-year option to extend at a fee of $5,000, and marketing fees of up to 2% of gross sales. Most franchisees are also required to spend a minimum of 2% of gross sales on local marketing for their restaurants. Royalty rates are typically 5% of gross sales.
• To enhance their multi unit non-traditional growth, they may offer agreements that provide for lower fees. Currently, the non-traditional franchise agreements they enter into provide for a $30,000 initial franchise fee, a 6% royalty rate and no marketing fees.
• Company-operated average unit volume is higher than franchise-operated average unit volume ($1,114,000 vs. 1,028,0000).

[pic 3][pic 4]

RENEVUE FROM FRANCHISES

• In 2014 the revenue from company-operated restaurants was 75.5% of total revenues, and franchises 24.5%. This is for Jack in the box and  Qdoba combined.
• The revenue from franchises is constituted by royalties, rental income, re-image contributions to franchisees (negative) and franchise fees. The biggest contributor is rental income, followed by royalties from sales. The total revenues for 2014 were $363,219,000.
• The costs associated with franchising are rental expense (highest), depreciation and amortization and other franchise support costs. The total costs were 182,886,000.