Franchisees aim to strike it rich in latest energy boom
Eye-popping employment growth is among the attractions of energy states.
Texas, Utah and North Dakota are the centers of the latest black-gold rush, as franchise brands look to serve booming populations. Will the good times last?
Growth in the oil and gas industry is putting states such as Texas, Utah and North Dakota on the map for franchisees for good reason. The sector is fueling both employment and population growth—two essential ingredients for businesses mapping out fresh expansion opportunities.
The energy boom is one of the few bright spots in the economy in recent years. The sector has helped generate growth in major energy hubs around the country from Dallas to Denver, as well as putting little known destinations such as Odessa, Texas; Dickinson, North Dakota; and Casper, Wyoming, on the radar for expansion. That growth could be just the first drop in the bucket for a sector that shows no signs of slowing. In fact, the 1.7 million employed in energy jobs is expected to more than double to 3.5 million by 2035, according IHS Global Insight.
“The oil industry has created both residential and commercial growth in markets that would not otherwise have seen this type of growth organically,” says Jennifer Watson, a senior managing director in the Chicago office of Newmark Grubb Knight Frank, a real estate services firm. The spike in both employment and population is in turn sparking demand for hotels and restaurants and a variety of service businesses.
Express Oil Change & Service Center is one franchise expanding in Texas with both corporate and franchised stores. Express Oil has opened or sold agreements for six franchised stores in Austin, Houston and San Antonio. In addition, the company has targeted Houston as a prime market for its own corporate store growth. The company has two stores in that city and plans to build two additional stores each year for at least the next five years.
“One of the things that attracted us to Texas is that the economy there is stronger than many other states,” says Don Larose, senior vice president of franchise development for Birmingham, Alabama-based Express Oil Change & Service Center. It was one of the few states where, even during the height of the recession, one could go to a city like Dallas and still see construction cranes, he adds.
The oil companies are proving to be both a direct and indirect source of customers for SuperGreen Solutions. The company has a franchisee in Minot, North Dakota, who is finding oil companies are interested in sustainable energy solutions, such as solar or battery packs to fuel portable generators and more efficient LED lights. “That was quite surprising to us, because we didn’t think that the oil industry would be so environmentally conscious,” says Sean Cochrane, president of SuperGreen Solutions in West Palm Beach, Florida. The franchisee also sees growth opportunities coming from both commercial and residential customers. As a result, the franchisee is negotiating to acquire a total of five territories for both North and South Dakota.
The Dwyer Group has its eye on a short list of “boom towns” including Casper; Elk City, Oklahoma; Elko, Nevada; Williston; and Andrews, Texas. Population and housing growth are phenomenal there now, but some wonder how long it will last. “Is it going to be a flash in the pan, or is it going to be sustainable,” says Doug Dixon, vice president, marketing and operations, franchise development at the Dwyer Group in Waco, Texas.
The Dwyer Group assesses a variety of criteria when evaluating markets, including what industries existed prior to the boom, and how the area has continued to expand and diversify. If the oil business were to slow down, would the area be able to sustain employment? “Sometimes there are ancillary businesses or industries that grow up alongside of oil to keep the economy going,” says Dixon.
Population also plays a key role in those decisions. About three years ago, the Dwyer Group sold franchises to an individual who bought in Midland and Odessa, Texas. Even though both cities have experienced a population surge in recent years, they are already home to a solid population base of about 150,000 people each, which is the minimum size the company typically considers for start-up franchisees.
Some of the oil boom towns, such as in western North Dakota and eastern Montana, have populations quite a bit smaller. North Dakota towns such as Williston and Dickinson, for example, have garnered national attention for big one-year jumps in population at 9.3 percent and 6.5 percent respectively. But, with total populations both still shy of 27,000, that is a tough sell for some franchisors. “The biggest thing for us is the population, and even though it is growing rapidly, is it large enough to be sustainable for a franchise business in the long run?” asks Dixon.
That being said, the Dwyer Group is working with a potential franchisee in Dickinson for its Rainbow International brand, a concept that provides residential and commercial restoration and cleaning services, and has done so for years and years. If it were a start-up brand, “we probably would not be seriously looking at that,” he adds.
Testing the waters
Franchisors are weighing decisions carefully before committing to locations in new oil boom markets. Sylvan Learning has an existing franchisee in North Dakota with locations in Fargo and Bismarck. That franchisee has taken the opportunity to gobble up all territory in the northwest section of the state, including towns on the edge of the Bakken Shale, the source of the latest spike in production.
“The oil boom and potential growth in the western part of the state was the reason that the franchisee wanted to expand their territory,” says Scott Hurlock, vice president of franchise development for Baltimore-based Sylvan Learning. The fast growth was the compelling reason for the franchisee to move now, adds Hurlock.
The franchisee plans to expand first via satellite locations to test the market before committing to the expense of a physical location. The company has a Sylvan Sync teaching platform that allows franchisees to take iPads and set up shop in a temporary location, such as a library or civic center, without having to lease or purchase real estate.
A key question for franchisors considering oil boom locations is whether or not the growth is sustainable. Oil markets are notorious for their boom and bust cycles. Historically, the oil booms have lasted for five to 10 years, but because of new extraction technologies, it is now more economically feasible to drill even if the price of oil were to drop significantly. The oil now accessible also is substantial. Current estimates on the amount of oil reserves accessible in the Bakken Field, for example, are estimated at 20 to 30 years.
The oil boom has launched a surge in ancillary development related to housing, hotels and a variety of support businesses ranging from new restaurants to retail stores. In addition, it is creating some spin-off development that will have a significant impact on those local economies. In Odessa, for example, Summit Power is building a $2.5-billion clean coal project, and in North Dakota, construction is underway on a $450-million oil refinery on the Fort Berthold Indian Reservation.
Franchisors are analyzing the economic stability and growth potential for these new markets from all angles. “When we sell a franchise, we’re not just interested in it for two years or five years. We look at it as a long-term relationship to help someone develop a successful business. The more successful they are, the more successful we are,” says Dixon.