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1.21.10
Restaurant Finance Monitor®
First Franchise Capital's Survey Sheds Light on Restaurant Operator Mindset
Volume 21, Number 1, ISSN #1061-382X
Restaurant Finance Monitor, 2808 Anthony Lane South, Minneapolis, MN 55418
FINANCE SOURCES
First Franchise Capital's Survey Sheds Light on Restaurant Operator Mindset
The modus operandi for restaurateurs over the past several
months has been to hunker down, stop developing, avoid capital
expenses and mind the store. But there is growing evidence that
many franchisees may be getting ready to emerge from their
development hibernation.
The latest comes from a survey of restaurant owners by First
Franchise Capital Corporation. The study found that operators,
perhaps anticipating a better environment in the coming year,
are planning to reinvest in their business in the coming year.
Three-quarters of 173 respondents said they plan to invest in
their business in 2010. "Given the time it takes to launch a
new site, many may be beginning the process now," said John
Rinaldi, president of First Franchise. "By the end of 2010,
we'll all be in better shape, and it'll be a better time to open
up a restaurant."
In addition, he said, franchisees are getting "more and more
encouragement and support from franchisors" to develop units.
Some are guaranteeing debt. Others are temporarily deferring
or decreasing royalties and ad funds as a way to encourage
operators to open new units.
First Franchise, formerly Irwin Franchise Capital Corp.,
routinely surveys its clients and potential clients, most of
them restaurant franchises, to learn what they're thinking.
The latest survey, done in November, provides some unique
insight into operators' development plans and some aspects of
their relationship with their franchisor.
The results from the recent survey are largely a mixed bag, as one
might expect in a survey of business owners during the middle
of a sputtering recovery from a brutal recession. A third of the
respondents said they had opened new units in the past month,
and fewer, 12.1 percent, had to close some restaurants.
Franchisors likewise don't appear to be confident of a quick
change in the economic state. Nearly a third, 30.1 percent, said
they don't foresee a recovery for another 18 months or more.
Another 27.7 percent said it would be a year. Interestingly, 12.7
percent of franchisees responded to the question by saying that
it's "great now."
A plurality of franchisees, 44.5 percent, said their franchisor
decreased support and another 27.7 percent said support
remained the same. That suggests that franchisors are suffering
from many of the same afflictions as their local owners. "It may
be that some franchisors are cutting back," Rinaldi said. "They
have financial performance objectives also."
Yet many franchisors are also intent on driving traffic and
on managing operating costs-three quarters of franchisees
said their franchisor was doing one, the other, or both. Many
brands have been trying to drive traffic through targeted
promotions through the recession, especially discounts, and
60.1 percent of franchisees said they were pleased with their
franchisor's efforts.
Still, for many the results have yet to kick in. Only 38.2
percent said their franchisors' efforts ultimately improved their
bottom line, but nearly as many (31.7 percent) said the efforts
decreased their bottom line, and another 24.9 percent said the
results were flat.
Many franchisees are focused on the bottom line. Rinaldi said
that the vast majority is cutting costs, though many are finding
that their costs weren't out of line. He said that franchisees
have been holding back on investment, which makes their
declaration in the study that they plan to invest in the coming
year "interesting."
"We knew this before the survey, that franchisees were sitting
on the sidelines deciding whether to take on the extra expenses,"
Rinaldi. "They've been waiting for sales to turn around."
Rinaldi said there are some other major concerns he's
found among franchisees. One is re-imaging or remodeling
requirements. Those investments may never add to the top
line, but may simply keep customers by keeping the restaurant
fresh. Another, he said, is the health care debate.
Many restaurateurs rely on part-timers, and they don't provide
health benefits. Those franchisees are concerned that they may
have to start providing that coverage under the bill being debated.
"They're not clear what's going to happen in that respect, and
how much it's going to eat into (their) profitability," Rinaldi said.
"It's a significant concern for those paying attention to it."
-Jonathan Maze
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