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20 to Watch


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When we came up with the idea for our 20 to Watch list in 2000, our goal was to add one additional profile for each year, so technically this should be 29 to Watch in 2009. But we quickly learned over the years that while 20-plus people, places or things were easy to spot, more than 20 were hard to research and write.

If you do the math, you'll discover that we have selected 180 noteworthy people or events over the past decade. Some people or things have made the list multiple times. The all-time winner, however, is the Federal Trade Commission's Franchise Rule. Every year we waited with bated breath for the changes in the Rule to be released. We started to think the FTC was deliberately holding back, just to get another year on our list. But, alas, the FTC Rule is common knowledge now and we've moved on.

The list is in no particular order. We only number the profiles so that we end up with the promised 20.

That said, if you don't find your name or your company on the list, that doesn't mean you're unwatchable. There are nine other issues yet to come.

The candidates on this year's list are some of the trends and the movers and shakers we think will have an impact on franchising this year. We've also included a look back on the 2008 list and highlighted some of the gains made by those luminaries.

We just hope our 2009 candidates don't get fried by having our magnifying glass on them for the next 11 months.

20 to Watch

01 GE Capital Solutions, Franchise Finance

Here they are, again.

Last year's 20 to Watch featured Darren Kowalske, president of GE's franchise finance division. And we stand by that choice, one year later. At the time, we said Kowalske had to integrate Trustreet into the GE fold. His predecessor had completed the deal of purchasing the longtime restaurant REIT, and the integration was not complete when Kowalske arrived at franchise finance headquarters in Scottsdale.

This is just a guess, but perhaps Kowalske feels finalizing the integration of Trustreet was child's play compared to what has come down the pike since then.

Before the ink was dry on our last 20 to Watch (really, we had just sent the issue to the printer), GE Capital Solutions, the umbrella finance company for all of GE's finance divisions, including franchise finance, announced it would purchase most of the assets of Merrill Lynch. For the franchise community, this meant losing a large lender to the industry.

Later in the year, GE Capital announced it would buy CitiCapital: Another franchise lender exits the franchise sector. Now Kowalske had to integrate employees from two companies into the franchise finance division.

See? We told you his year was eventful. Wait, there's more.

When the capital markets began to change dramatically this summer, GE's franchise finance division made headlines beyond the industry trades when it said it would, albeit temporarily, cease lending to the franchise sector. Knowing the big guy on the block was slowing its originations of new loans threw the franchise community into a tizzy.

Whew. That's a lot to throw at one guy. OK, Kowalske's got a team of people behind him, but this past year has been anything but business as usual for this lending company. Or any lenders.

At November's Restaurant Finance & Development Conference, another GE senior exec, Trey Brown, assured attendees during a panel discussion that GE was committed to the franchise sector. While the company won't do the volume it did in 2008, it will be there for the community, he said.

When capital starts to loosen up later this year, GE might be the bellwether for the rest of the group. So, watching GE, and the finance community in general, will be one of the most important activities of the year.

02  IFA seats second female chair

Dina Dwyer Owens - the Mrs. behind the home doctoring business

When Dina Dwyer Owens shatters the glass ceiling to become the second woman to lead the International Franchise Association this year, she has the perfect franchise to sweep up behind her - Glass Doctor.

She also has had one of the longest apprenticeships in the association's history. She started attending IFA meetings right out of high school, and she wasn't there just to pick up bobbles at the vendor booths. Her father, Don Dwyer, insisted she participate in the roundtables. And while it was out of her comfort zone at the time, she learned from some of the legendary people in franchising.

Dwyer Owens exceeding her father's expectations for a daughter. She now runs the company he founded, The Dwyer Group, a holding company of six companies in the home repair and restoration businesses. The Waco, Texas, campus, is located on wooded acreage with a church in the middle - the church's leadership refused to relocate, so The Dwyer Group built its new building on the other side of it.

While IFA has long-range plans to ensure continuity when a new chairperson comes in each year, the role of the chair is still influential. Not only is the chair the spokesperson, she becomes the face of the association for that year.

 

Dwyer Owens brings not only her skill at running a successful company - The Dwyer Group was named by Texas Monthly magazine as one of the Best Companies to Work for in Texas for the second year in a row - but also an upbeat, can-do attitude and the institutional knowledge of where the association has been.

After 9/11, she made a presentation to the board to bring back a program her father started - VetFran. Her father funded the first version of the program, and IFA members now foot the administrative costs.

We asked Dwyer Owens what she hoped to gain from the position: "I want to be remembered as someone who made a difference in the lives of the membership," she says about her tenure.

She's cleared the decks back at The Dwyer Group so that she'll be able to devote the time to IFA, which is almost a full-time job. These are challenging times in franchising. Everyone wants value for their dollar. And IFA members will be no exception.

03  Roland Smith

Merging two QSRs

Wendy's has spent the past couple of years attempting to revitalize its brand - from menu changes to selling off units to finally putting itself up for sale. Now, the job of boosting the chain falls to a competitor's leader, Roland Smith, who heads the new Wendy's/Arby's Group.

Smith was the CEO of Arby's owner Triarc Cos., which completed its purchase of Wendy's in September. Investors at the time viewed the deal positively, because it could pay short-term dividends in the form of cost reductions.

 

But the long-term impact is more of a question, and it will be up to Smith to provide an answer. Wendy's has struggled for years to meet its previous expectations, and a merger with Arby's has its pitfalls. Both chains appear more like competitors than complementary brands - they both target higher-end, fast-food consumers. That possible competition was highlighted shortly after the deal was announced, when Arby's announced a new ad campaign featuring a "Rescue Brigade" that sought to save consumers from "ordinary fast food."

Now the question is: Can they both be rescued?

04  Julia Stewart

Be careful what you wish for

This is the second year in a row Julia Stewart is on the 20 to Watch list, and it's for the same reason: IHOP's purchase of the giant casual-dining chain Applebee's.

 

In this case, doubt continues to surround that merger, which created the company DineEquity. IHOP bought the much-larger Applebee's and predicated the deal on the company's ability to sell off company-owned Applebee's locations to pay off the debt needed to make the purchase.

The slumping credit markets have made that task more difficult, and many investors doubt the company will be able to pull it off - at least according to the franchisor's stock price, which fell from around $60 at the time of the deal to less than $7 at its low point. More recently, it has traded at around $11 a share.

Stewart, a former Applebee's executive who helped invigorate IHOP, has her supporters. Indeed, in October the company surprised observers by announcing the sale of 66 units and that it was ahead of schedule on unit sales.

05  WomenVenture's Franchise Curriculum

The not-for-profit plans to educate women to be smart franchisees

Since 1989 Minneapolis-based WomenVenture has educated and counseled over 90,000 women to help them find work that is economically and personally fulfilling. Last year the organization turned its attention to franchising. Led by its president Tene Wells, the nonprofit is designing a franchise curriculum that will introduce both the risks and rewards of owning a franchise.

 

Tene Wells

The textbook for the course is "Franchise Times Guide to Selecting, Buying & Owning a Franchise," written by Julie Bennett. Bennett and Carol Henderson are writing the curriculum based on the book and with input from an advisory committee made up of experienced franchisors, franchisees, lenders, consultants and the obligatory lawyer(s) - five in this case. Franchise Times' publisher, Mary Jo Larson serves on the core team for the project. All the franchise executives are donating their time to ensure the course offers content that will benefit women who want to investigate owning their own business through franchising.

The program is slated to be piloted sometime this spring. WomenVenture staff will select the test class, prescreen applicants and then monitor their progress.

Attendees will take the Berni Assessment and have a variety of resources, such as a MoneyFit Matrix and financial worksheets.

In an effort to get the franchise community on board with the program, Wells joined the International Franchise Association and its minority committee last year. The intent is to roll out the program nationally once it has been tested and revised to eliminate any problems.

Of course, we have an interest in seeing this succeed, but, then, so does the franchising community. Nothing ensures success more in franchising than educated, informed franchisees. You go, girl...umm, we mean woman.

06  Dawn Sweeney

NRA looks for silver bullet

While restaurants aren't the only businesses affected by the economic downturn - or should we say downhill luge ride? - that particular segment seems to attract a smorgasbord of press.

 

We're concerned about the restaurant industry because it represents a significant portion of franchising, plus we like to go out to eat.

In our November/December issue we profiled Dawn Sweeney, who had just completed her first year as president of the National Restaurant Association.

Sweeney joined NRA with no restaurant experience, but with a solid track record of growing associations. There was no lack of praise from her board chair, and Sweeney proved she was innovative by immediately scheduling time to work in a number of different jobs in the industry - from server to manager. Turnover has always been the bane of restaurants, and NRA wants to stem the tide of turnover in the establishments themselves. Foodservice businesses employ a significant number of people, and because of that, Sweeney's leadership skills and creativity are even more vital now.

We think she's up to the task, but what's it going to take for the NRA to get the industry firing on all cylinders?

07  Mike Archer

He's on the hook, too

Like Julia Stewart, Mike Archer arrived at his current job on the wave of success at a previous career. In this case, Archer was the president of T.G.I. Friday's, which had avoided many of the serious problems afflicting the casual-dining industry.

 

Now Archer is responsible for Applebee's, the nation's largest casual-dining chain. He will have a difficult job.

The environment is tough on restaurants in general but on casual-dining establishments in particular. As a segment, casual-dining chains have seen substantial same-store sales declines as consumers opt for less expensive, and quicker, dining options. And consumers had slowed their dining at casual chains before the economy went south.

Archer has a new senior vice president of marketing, Rebeca Johnson. In addition, the company has also made moves to lure value customers, including a "2 for $20" promotion - two diners can share an appetizer and two entree items for $20. Will it be enough?

08  Who needs financing?

Franchising, the house that capital built

To say that capital is scarce is an understatement. At press time, major players in SBA lending have exited the sector altogether, leaving some of their customers in a lurch - pulling the funding rug out from underneath them, to be exact. The exit of these funders has left legacy banks such as Wells Fargo SBA and US Bank, still active SBA lenders, to take calls from frantic franchisees who hope these banks can pick up the pieces of their fractured financing. Some of these individuals were close to closing on their SBA loans when their lender called and said they were no longer able to fund. Imagine having signed on the dotted line for a lease and being in the process of building out that space when your financing falls through.

 

And of course conventional financing has become harder to come by, too. Some lenders have pulled back because the franchisees they would put in the credit-worthy camp have become scarce. We hear lenders say there is always capital for those who have stayed the course, didn't overleverage their companies and have a decent deal they can bring to the table. Just how many of those that are out there right now is under debate.

And although the lending community in general may be wary of the performance of the franchise sector due to the economy, there are still players who've made a commitment to be here - names like Wells Fargo, Irwin and GE come to mind, for example.

As with any downturn, when companies exit, others come in and find opportunity. We're seeing more active sale/leaseback lenders, for example, and other types of financing may enter the fray as the turbulence begins to cool down, and operators focus on operations and shore up their businesses.

Perhaps financing won't be what it once was, but what things in life never change, we ask? Change can be painful, but sometimes it is for the better.

09  Michael Seid

Goldman's golden boy

Conventional wisdom in finance is: "Follow the money" - or is that murder investigations? Either way it's good advice. And if you're looking to follow the money in 2009, you may want to hang with Michael Seid, managing director of Michael H. Seid & Associates (MSA).

 

Seid has been appointed to Goldman Sachs' Chambers Street Executive Network, and in that position will be advising Goldman's Global Special Situation Group and its portfolio companies on the franchise sector. The Group is a global investing platform that "invests across the corporate capital structure," according to Seid.

The Connecticut-based consultant joined a prestigious group of top business leaders - whose names he can't tell us on the record. You'll just have to trust us when we say they're an impressive lot.

This is good timing for Seid. He's officially off the IFA board after more years than anyone can count. However, he's still there in spirit since his equally competent - but less flamboyant - partner Kay Ainsley currently represents the firm as the head of the suppliers forum.

And while Seid works for himself, no one can say he's not a passionate advocate of franchising. Let's hope everything he recommends turns to gold.

10  Hubert Joly

No family ties that bind

Depending on your perspective, Hubert Joly's timing is either good or bad. Regardless, he's in the midst of one heck of a test.

 

Joly is the first non-Carlson to take over as CEO of the private, family-owned Carlson Companies, the Minneapolis-based franchisor of Radisson and T.G.I. Friday's. But he also takes over for two, highly-regarded Carlsons - Curt, the company's legendary founder, and Curt's daughter Marilyn Carlson Nelson, who stepped out of her father's shadow to become one of the most respected CEOs in the country. Following such acts isn't easy. And yet Joly took the helm at a time when the economy is making life difficult for many of the industries in which Carlson operates - including travel, lodging and casual dining. The challenge was highlighted shortly after Joly took over, when Carlson spun off the Carlson Wagonlit travel agent franchise.

It is an immensely difficult task, but an opportunity for Joly to show his CEO stuff. We'll be watching to see how he does.

11  Are boutique law firms the newest legalese?

Plave Koch, others, no longer bill themselves as 'big firms'

Boutique law firms were once the domain of franchisee attorneys - you know, that group that chooses to represent franchisees rather than fat-cat franchisors.

 

Lee Plave

David Koch

But things are changing. The lines between franchisor attorneys and franchisee attorneys are starting to blur. It's no longer a them-against-us mentality. And with that shift in collegiality comes some noteworthy changes in the legal landscape.

For the first time the American Bar Association Forum on Franchising elected a franchisee attorney, Ron Gardner of Dady and Garner, as its chairman.

And on the other side, first-class attorneys like Lee Plave and David Koch have left large law firms to form their own smaller, "boutique" firms. Amy Cheng and Fredric Cohen made a similar move in the Chicago market.

"Dave and I started the firm because we wanted independence so that we could practice as we saw fit, getting closer to our clients, without the constraints of a large firm's bureaucracy, rates and overhead," Plave said. When the two were discussing leaving the safety net of their big firms, Plave said a friend asked if they had considered that they might be jeopardizing their client relationships by starting their own firm. To which Koch replied: "I think we're jeopardizing our client relationships by staying in a big firm."

Sometimes it's not all about the money.

But now that all we can think about is the money, will smaller firms' nimbleness allow them to outrun the competition? Or is this the time when a large firm's resources will look pretty darn attractive to both attorneys and their clients?

12  Going overseas?

Get out the map

The Columbus syndrome is alive and well in U.S. franchising. It appears chains that haven't already boarded ships to far-away lands in search of new territories are being lured overseas in an attempt to escape the problems on the mainland.

But franchise experts caution that just because you have a passport doesn't mean you should use it. There are reasons to go international, but shoring up your domestic programs isn't one of them. And just because your Internet site is attracting interest from international sources doesn't mean you have to take them up on it.

When times get tough - and yes, even we're getting sick of hearing about the economy - the natural inclination is to look outside for answers to our internal problems.

Is this the year franchisors in record numbers set sail for exotic ports - or will they baton down the hatches and weather the storm at home?

Either way, it will be interesting to see if the international bug continues to bite franchising.

13  Bankruptcy

Courting disaster

Who'll be the next in line?

A number of franchisors found themselves in bankruptcy court last year, from small startups like Florida's Cork & Bottle to big ones like Mrs. Fields, owner of Mrs. Fields cookies and TCBY. Bennigan's even shut down its corporate operations.

 

Perhaps the frightening part of the string of bankruptcies, which also hit franchises like the Village Inn, Bally's Total Fitness and Buffets, is that many came before the economy's downward momentum went into overdrive.

The economy is currently in its recessionary spiral - weak consumer confidence will mean lower retail sales, which will result in employment cuts, which will further hurt retail spending.

The possible result? More bankruptcies. While many companies, like the family chain Perkins, were able to avoid that fate by refinancing, a recessionary economy is almost certain to cause more casualties. While no one want to watch bankruptcies or train wrecks, it's something we all have to watch out for.

14  Social Networking

As the World Wide Web spins, will it leave marketers dizzy?

Ten years ago Franchise Times had just started to cover such newfangled doohickeys as intranets and delivering disclosure documents online. Blogs? Never heard of 'em. Viral marketing? Don't sneeze in our direction; we don't want to catch that virus you're carrying around. Social networking? We'd love another drink, thank you.

Now "social networking" isn't an hors d'oeuvre, it's the main course. It's no longer enough to have a Web presence, you've got to text, Twitter and get in everyone's Facebook.

Somebody, quick, stop the World Wide Web. We want to get off. Or at least catch our breath.

Blogs are already old school. Blogging was cool when no one else was doing it. Now that it's mainstream, the innovators are moving on to other universes. And the rest of us are chasing them.

Companies used to rely on word-of-mouth to drive sales in business, but if you're trying to attract young people, they don't talk to each other, they text. They don't read their e-mails on a regular basis as the Blackberry crowd does. They play out their lives and do their research on Facebook, Twitter or MySpace, just to name a few. And so do their parents, and in some cases, their parents' parents. After all, Bill Marriott has a blog, and he's no spring chicken.

All this is to say that if you want to stay relevant in 2009, you better learn how your franchise can take advantage of social networking. Early adopters already have spent $90 million on social networking sites, three-quarters of which was spent on ads at MySpace and Facebook, according to eMarketer, an online newsletter. There are a number of innovative ways to insert your message into online conversations. The best ways, however, are the least intrusive - the least scripted.

We'll cover this subject in depth over the next year, but we wanted to give you a heads up that "home-made" video contests posted on MySpace, texting offers to heavy-users' cell phones, even building an imaginary store on Second Life, will become the norm. If you don't want to be left holding your buggy whip, watch out!

15  QSR industry

Beneficiary of flat wallets

Quick-service restaurants stands to gain in the current economic environment. Consumers are, apparently, buying cheaper items from lower-priced restaurants, and QSRs have the lowest prices in the business.

 

And indeed, many fast-feeders have seen sales surge. McDonald's is riding a long, hot streak of fast-rising sales. So are Burger King and Yum! Brands-owned Taco Bell. The sandwich chain Subway made other sandwich chains cry last year with its $5 foot-long sub promotion.

Not all have seen strong sales growth, however. Same-store sales have been slow or flat at companies like CKE Restaurants, the Wendy's/Arby's Group and Jack in the Box. And there remains considerable concern about rising commodity costs.

While value-priced menu items can lure diners, they make it much tougher for a franchisee to make a profit.

And if the franchisees' profits are down, then so is the amount they're penning on their royalty checks.

McDonald's hot streak came about because the giant went back to the basics and then got innovative.

Let's just hope we won't be witnessing another burger war.

16  Brand recycling

Second-hand roses

If you try hard enough, you can always find a rose between the thorns. And in this economy, the rose is blooming for retail outlets that deal in second-hand merchandise. Winmark Corp., franchisor of Play it Again Sports, Plato's Closet and Music Go Round, is experiencing an uptick in its customer counts as traditional retailers struggled to make it through last year's holiday season.

 

Buying someone else's "gently used" hand-me-downs once was viewed as something "poor" people did. However, thanks to the Green movement, recycling everything from shoes and purses to rowing machines and hand weights is suddenly chic. Maybe that global warming crap wasn't so far fetched, after all. Perhaps we should try to preserve some of the earth's resources.

Whether this trend continues once the economy improves is anyone's guess. But franchisees from companies like Winmark have a window of opportunity to retrain and retain this new group of customers.

17  NASAA's Dale Cantone

There's no bending, breaking or fudging The Rule on his watch

If there's anyone in franchising who deserves to have the white horse he rode in on bronzed, it's Dale Cantone. As the chair of the North American Securities Administrators Association Franchise Project Group, Cantone has worked tirelessly to ensure franchisees' rights are protected through the UFOC, now FDD, and to draft the registration states' policies in light of the changes to the FTC's Franchise Rule.

 

"Remember, Dale has a full-time job as deputy securities commissioner of Maryland," said David Kaufmann, who has served as an advisor to the NASAA group for the past decade. "He doesn't get paid an extra cent for the countless days and weekends he devotes to NASAA and the regulatory committee, or the incredible work he has performed for the benefit of the franchise community."

You could say he's a volunteer's volunteer.

Cantone started his career in private practice, but said he found he sometimes had to represent people whose opinions he opposed - "sometimes vehemently." Pay at the attorney general's office may not be as good as private practice, but "here I feel like I'm doing some good at the end of the day." (We should insert here that this is Dale's opinion, not that of the state of Maryland, NASAA or his mother. And, no, he was not being derogatory toward lawyers in private practice. Some of his best friends are in private practice.)

Cantone has spent the last 11 years as chair of NASAA - "because no else wants it," he said, modestly. He is a regular on the rubber-chicken circuit, where he attends legal symposiums and other events where two or more franchise executives are gathered together, year in and year out.

His mission is to educate lawyers and franchisors on disclosure laws. He also set up training sessions for state examiners on the new disclosure requirements, including painstakingly drafted checklists, sample documents and other training aids, Kaufmann said.

All that work is an effort to make sure the transition from the old format to the new was seamless. But the real reason Catone does it is so that franchisees are protected. Remember, his day job is to hear the gut-wrenching stories of franchisees who lost their homes and savings.

Cantone is not one to ask for kudos or applause. Someday we'll write a longer story about Cantone, but for now, we think you should shake his hand.

18  Daddy Warbucks, where are you?

Franchisees, this isn't your father's recession

If Time magazine can feature "You" on its cover as the person of the year in 2006, we can certainly declare that "Franchisees," as a collective group, are worth watching in 2009.

This year will provide challenges for both existing franchisees looking to make good on their ambitious development schedules and to corporate refugees who may be separating from their companies without the lucrative severance packages of past executives.

Franchising has always benefitted from a down economy, because it brings in a new crop of prospects disillusioned by corporate America. The one difference between then and now, however, is the money they'll be leaving with.

 

Same song, different verse: No home equity; vanishing 401(k); two-weeks severance pay - not six months.

In addition, some franchisees will have to deal with their franchisor going bankrupt, or having to lock their own doors and walk away from their dream. Sobering thoughts, indeed.

It's ironic, to say the least. Now that those coveted "A" locations are coming back on the market, franchisees' real estate budgets are being diverted to ensure the bills are paid and the lights are on. But keep an eye out - those end-cap units will still be around when the sun comes out tomorrow.

There may be one ray of sunshine in all this doom and gloom: Since franchisors can't expand, either, they are being advised to continue to work on their operations and branding to strengthen the units they do have. And that's probably not a bad idea.

This is the time for upgraded training programs, new product development, ensuring the bathrooms are clean and the customer service is better than stellar.

Maybe hard-charging franchise sales will become a secondary focus.

Just don't bet your bottom dollar on it.

19  Development

Growth is sloooowing down

We all agree: Development is slowing down. We know that because our previously overflowing pages of development agreements are rapidly shrinking.

 

By nearly all accounts, franchise sales are hard to come by. Declining prices for both stocks and homes have sapped much of the value from funds potential franchisees could have used to buy units. And an uncertain economy has caused many developers to have second thoughts about opening up more units.

What will happen to franchisees who can't meet their development schedules? In the past some franchisors have refused to refund fees when the franchisee failed to open the second or 30th unit. Can franchisors afford to be benevolent now? Can they afford not to be?

The big question entering 2009 is: How much space should we reserve in Franchise Times for development agreements? We're willing to give it as much as it needs, but we want to see those units open - and be successful.

20  Menu labeling

Healthy info or overkill?

Lawmakers in a growing number of states and cities want to make life easier for calorie-counting diners. It's an issue that bears watching because their solution - menu-labeling laws - could make life more difficult for restaurant chains and their franchisees.

 

More than 20 cities and states are considering menu-labeling laws. They would follow the example of New York City's law, which requires chain restaurants to post calorie counts on menus and menu boards. Consumers, at least those who pay attention to calories, find such laws easier when they dine out.

But the growing number of such laws, and their various differences, could make it difficult for larger chains to comply, because they'll have to consider numerous requirements when printing out those menus. The National Restaurant Association is thus exploring nationwide menu-labeling standards to make compliance easier. So expect these laws to be a major point of contention in 2009, especially as the impact of New York's law becomes clear.

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