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The Pipeline

Buying a second business, and then starting to clean up


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David Farkas

There’s ample evidence that the sweet, shaved-ice treat called a snow cone first appeared in Baltimore late in the 19th century. By the 1920s, shaved ice had traveled to the Deep South, where it remains a popular—and inexpensive—indulgence.

“There are snow shacks on every corner,” offers Linnea Black, a Kona Ice franchisee in Jackson, Mississippi. “They love their sugar around here.” Mississippi, by the way, has the highest rate of obesity in the country, according to the Centers for Disease Control.

That love is helping fuel Black’s franchise. Since launching her mobile shaved-ice business in the fall of 2012, the transplanted Yankee has added a second full-sized truck and two mini-trucks. The tropical-themed trucks, which can cost upwards of $100,000, feature a self-serve system that allows customers to add flavors to the ice.

To make money, franchisees typically roll their trucks up to schools and other fund-raising events that have contracted for their services. Some franchisees randomly seek business driving around neighborhoods.

“In my first year, I wanted to be everywhere,” recalls Black, who moved to the Magnolia State from Chicago eight years ago.

Today, with several contracts in hand, Black estimates she spends $800 a month on gasoline, pumping most of it into the Toyota Tundra that pulls her two mini-trucks to events. Her ice bill (she buys from self-service stations) runs $600 every 30 days. She also rents warehouse space for her growing fleet. (Many franchisees park their vehicles at home. Black’s condo association nixed that idea.)

Black, a savvy woman who has kept an event-marketing company afloat through the recession, believes “you have to put yourself out at first. Like Anthony Robbins says, ‘Picture yourself losing money for the first year because you’ll be learning the business.’ You can’t be afraid of that,” she adds, referring to the life coach.

Black is not. Early this year, for example, she wrote a big check to land a concession deal at a minor-league ballpark in Jackson, the state capital. She also paid $5,000 to be the preferred fund-raiser at athletic events throughout Jackson Public Schools, the state’s second largest school system.

A partnership with a Backyard Burgers franchisee at a softball-field concession costs her 25 percent of sales. “My food cost is so low I still make a profit,” maintains Black, adding the burger franchisee has since partnered with her at other events.

Although her franchise grossed just $270,000 in its first year, she believes she’s built a foundation within a state whose culture rewards loyalty while relying on relationships.

Business by necessity

Felix Lopez and Christina Sahib are also in building mode, literally. In mid-November, they were days away from opening the first of five FroZenYo units, this one in Old San Juan, Puerto Rico. The small island, roughly 35 miles from the east end of Puerto Rico, is the spot where cruise ships dock, spilling passengers eager to see the historic colonial section.

Like Linnea Black, the husband-and-wife team also operates another business, a local civil engineering and architecture firm. As a master franchisee of the Washington, D.C.-based self-serve yogurt concept, the couple intends to offer construction services to sub-franchisees. They inked their first sub-franchise deal last fall.

“That was one of the reasons to be master franchisees,” says Lopez, “to help others build their stores. It’s optional for franchisees, but most will like to do it this way because it will speed things up.”

The couple also hired the real-estate firm Trading Places. “Real estate is key, and our broker has lots of experience with Starbucks, Marshalls and T.J. Maxx,” Lopez says.
The couple decided to buy a yogurt franchise when Puerto Rico’s economy, as Sahib says, “was going down, in case we needed a new business.” Neither of them has experience operating a foodservice enterprise; nor did they consider another type of franchise. In fact, they believe the country’s market for yogurt has yet to hit its stride because only a few competitors have opened stores.

Puerto Rico’s insolvency could nonetheless keep it that way for years to come. Its $70 billion debt (thanks to a government borrowing binge) has led to high unemployment (14 percent) and food stamps dependency (25 percent of the country’s 3.6 million people use them). Four percent of the population has fled the island in the last 10 years, according to BloombergBusinessweek.

Oddly, that’s not necessarily bad news for Lopez and Sahib. “Many business people are trying to make a new business,” Lopez says, presumably for the same reason the couple is.

The duo self-financed their first location, which should benefit from scads of cruise ships. With “high season” getting underway last November, Lopez estimated his FroZenYo would ring up some 500-plus transactions daily.

Cleaning up

Renue Systems franchisee Bobby Lopez (no relation) is also in the process of expanding his 3-year-old hotel-cleaning operation. “My business depends on hotels being able to make enough money to use an outside company for cleaning,” he says.

Apparently, that hasn’t proven to be a big issue in San Antonio, Texas, which hosted 22.3 million leisure visitors in 2011, more than half staying overnight, according to a 2012 regional study of the lodging industry (the most recent available). Business meetings added another 5.6 million people the same year, the study said.

Lopez, who earned a degree in hotel and restaurant management, began his career in restaurants before switching to hotels. While he was working in Baton Rouge, a carpet-cleaning vendor convinced him to open the same type of business in Texas, where Lopez grew up.

“For the first six months it was a little scary, with business up and down,” says Lopez, who started from scratch. “Then we got our biggest customer, a Marriott property.”

Lopez, who qualifies as a minority-business owner, has since purchased new territories from the Lombard, Illinois-based franchisor. Minority status improves his chances of getting business from large hotel chains that prefer to work with small outfits.

Today, his crews clean hotels in Houston and south Texas. Lopez also employs a local salesperson to call hotels in far-flung areas. Last year, Lopez adds, he billed clients a million dollars and hopes to add another million in sales in 2014.

David Farkas has covered the restaurant industry for 25 years as a reporter and food writer. Submit you company’s development agreements to him at dfarkas99@gmail.com.

 

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