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The Week in Franchising, April 24

Recent developments of interest to restaurant franchisees and franchisors.

Financing eases, but zees still face big shortfall
Franchisees will be denied nearly 19 percent of the funding they pursue this year to add or update operations, but that’s less rejection than they experienced in 2011, according to research released by the International Franchise Association.

The data indicate that lenders will provide $9.5 billion to all franchise businesses in 2012, or enough for about 36,000 loans  (the IFA did not break out figures for restaurants).  That’s 18.6 percent short of the $11.72 billion that franchises will need to fulfill their business plans.

Still, the organization noted that the gap is narrowing. Franchisees’ lending demand outstripped the capital they were provided in 2011 by 19.6%, and the shortfall was 22.8 percent in 2010.

IFA hints at a standardized ‘lending template’ for all banks
Although banks will stamp “Denied” on nearly one of five loan applications submitted by franchisees, at least applicants won’t be spending as much time on the paperwork. At the IFA’s Small Business Lending Summit last week, Consumer Bankers Association president Richard Hunt revealed the association has been working on a universal application that virtually all lenders would accept from franchisees.

“This gives you the ability to walk into any bank in the country with a template for lending,” he said in opening the conference. “This is the one document that everyone can use.”

The process will also be facilitated by an IFA-backed initiative on the lender’s side.  Darrell Johnson of FranData, the IFA’s research provider, revealed that most lenders would soon be provided with brand performance data they could use to evaluate a lending request from a current or prospective franchisee.

“There are a set of tools that are being developed that are coming out in the next 45 days that will change franchise funding,” Johnson explained last Tuesday.  He did not divulge full details, but indicated that banks will have the performance data for all major franchise brands on their desktops, enabling them to make a speedier yet more informed assessment.

“History is the predictor of the future. That is the unfair advantage that franchising has,” Johnson commented.

Still, speakers during the one-day event cried out repeatedly for more simplification and common sense in the application process. Several mentioned that franchisees are currently being hampered by a standard requirement that makes no sense: Lenders as a matter of course ask for an applicants’ tax returns for the prior three years.

As one attendee lamented, he’s run successful franchises for 26 years. The last three were “the three worst years in my lifetime,” and hence he couldn’t get financing.

Papa John's stores fetch $102,000 per unit
Papa John's has acquired 50 restaurants from franchisees in a two-phase deal for about $102,000 per store.

Twenty one of the pizzerias are located in Denver, and the remaining 29 are in Minneapolis, the company said. 

As part of the deal, John's bout 56 restaurants in total, but immediately flipped six units in Denver to another franchisee there. The franchisor said it paid a net of $5.1 million for the 50 outlets it retained.

BK sells 96 stores to Orlando franchisee
Burger King Corp. has sold 96 company-run stores in the greater Orlando area to multi-concept franchisee Guillermo Perales for an undisclosed amount.

The deal makes Perales the fourth largest restaurant franchisee in the nation, with about 167 restaurants flying the flags of Popeyes, Golden Corral, Cici’s, Del Taco and Denny’s, according to BK.

Perales is also the president of the International Hispanic Franchisee Association and a member of BK’s Advisory Council.

Huddle House teams up with Denny’s operator Pilot
Huddle House has franchised five restaurants to the Pilot chain of travel centers, elbowing into a sector of the market dominated by Denny’s. At least two franchisees of Huddle House already operate restaurants on Pilot plots.

As an adjustment to operating in travel plazas, Huddle House said it has added a new Big Rig menu, skewed toward truck drivers.

In 2010, Pilot agreed to convert 140 of its Flying J family restaurants into units of the Denny’s chain.

Panera franchisee uncorks an Italian concept
A New York-area franchisee of Panera Bread, Applebee’s and El Pollo Loco is launching its own Italian concept, a wine bar featuring foods in small-plate portions.

Called Sputino, the restaurant is the latest self-developed venture of Doherty Enterprises, which was just named Panera’s franchisee of the year, according to CEO Ron Shaich. The $340-million-a-year company also developed an Irish pub concept called Shannon Rose.

It does not appear that Doherty will franchise Sputino.

McAlister hires new franchisee chief
McAlister’s Deli has hired franchising vet Peter Wright as vice president of franchise development.

Wright formerly was formerly involved in the expansion of such concepts as Panera Bread, The Counter, and Starbucks.

Sonic zees join forces to bail out a third
A pair of Sonic franchisees has decided to operate two new units in Michigan as joint ventures.

Shuttered drive-ins in Flint Township and Birch Run will be re-opened and managed collaboratively by St. Joseph-based Trigo Drive-In LLC, based and Fresh Creations LLC, which operates Sonics in Ohio. The stores are apparently being acquired from a third licensee, Miller Apple LLC, by the partnership.

Cheeseburger Charley’s opens a corporate ‘lab’
Cheeseburger Charley’s, an upstart burger chain in the Nashville area, has opened its first company-run store.

The other four units in operation are franchised. Management says the new outlet will serve as a lab of sorts where innovations for the concept can be brainstormed and tested. As the proving ground for new features, the restaurant will become the flagship, they explained.

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