New column, Analyze This, delves into Comfort Keepers
Comfort Keepers began franchising in Dayton in 1999, but since 2012 the company has been owned by Sodexo S.A., just outside Paris, France. Sodexo’s U.S. holdings are operated from Gaithersburg, MD. In later portions of the FDD, we see that Comfort Keepers manages 31 franchises for Sodexo Holdings (SDX). When asked if prospective franchisees expressed concern about Comfort Keepers’ international ownership, director of strategy and network development Natalie Black said, “No. In fact, they feel it validates us, because we are backed by a large parent company.”
• Home healthcare provider
• No. 152 on FT’s Top 200+ list
• Based in Dayton, Ohio
• 683 franchised units
Items 5, 6 and 10
Comfort Keepers may have the most U.S. locations of all healthcare franchises because it makes acquiring a franchise so financially easy. As stated in Item 5, their franchise fee is $45,000, but Item 10 outlines an installment plan that allows franchisees to pay three-fourths of that amount (about $33,000) during their first 30 months in business, at 6 percent annual interest. The royalty is 5 percent of gross revenue, but new franchisees pay no royalties until they have been operating for five months. Then royalties are calculated on whichever is higher, $300 a month or 5 percent of gross revenue. Contributions to the national brand fund are also deferred, but start-up franchisees must begin contributing to local advertising as soon as they launch.
Item 6 also sets a performance standard of $20,000 a month in gross revenue, for all franchisees open 24 months or longer. This will be important when we reach Item 20.
This item is notable for Comfort Keepers’ three-step training program. Franchisees often complain about corporate training programs that present far more information than they could possibly retain. Comfort Keepers avoids that situation by requiring new franchisees to complete 56 hours of online training first. Then, weeklong corporate training in Dayton offers a practical application of that information, including practice in recruiting caregivers, marketing to referral sources, and visiting potential clients in their homes. The final training segment involves hands-on practice in a Comfort Keepers training facility.
Item 11 also includes an overview of advertising programs and in most FDDs the section is fairly brief. Comfort Keepers devotes seven pages just to its national brand fund, explaining that franchisees voted to start the fund in 2013 and that a National Advisory Council of 15 franchisees and three staff members provide advice on how its monies are spent. The section states clearly that corporate “will not use the NBF to market franchises,” a controversial practice that many other FDDs gloss over.
The earnings claim in Comfort Keepers’ FDD is not very helpful because it shows only gross annual revenue and not expenses. A chart showing average ($721,291), highest ($6.4 million) and lowest ($52,000) franchisee revenue means little without knowing costs.
This item provides the greatest surprise. After a dozen years of steady growth, Comfort Keepers ended 2015 with 638 units, 16 fewer than at the end of 2014. Eighteen new franchises opened, but one franchise contract was not renewed, 12 units were reacquired by the franchisor, 21 ceased operations and 31 units transferred owners, for a turnover rate of 9.7 percent. Black said the number of closures “was not accidental...A number of multi-unit franchisees had territories they had not paid attention to. We asked them to re-engage with those territories or close them down and some opted for closure.”
Veteran franchise reporter Julie Bennett examines a franchisor’s financial disclosure documents, and writes about strengths and potential red flags. Reach Julie at email@example.com.
Comfort Keepers paid $8.05 million to reacquire the rights to businesses in Wisconsin and Florida. The costs of hiring and certifying staff to operate the new corporate outlets increased operating expenses by about $16 million in 2015 over 2014. The corporate units seem to be worth the expense, because personal care revenue increased by $15 million during the same time period. Parsing through the rest of the financials is difficult, because Comfort Keepers Franchising statements are combined with SDX Home Care Operations, the 31 franchises owned by the parent company, and many sums are recorded as “due from” or “due to” Sodexo Holdings. Item 21 does pass two basic tests: the majority of Comfort Keepers revenue is derived from royalties and the company ended 2015 with a profit.