Nonprofits sing praises of franchising
WineStyles’ partnership with Share Our Strength, a nonprofit that fights childhood hunger, fits the social franchising moniker for two good reasons. First, the WineStyles franchise is being run as a profit center for the charity to create a new revenue stream to supplement income from donations and fund raisers. And, second, together the two entities can host social events—such as wine dinners where chefs pair great wine and food for formal fund raisers and educational get-togethers in the stores. Share Our Strength pioneered the concept of the multi-chef dinners, the much copied Taste of the Nation fund raiser.
“If you’re serious about solving problems, you can’t do it with charitable giving, there’s not enough out there,” says Bill Shore, founder and executive director of the Washington, D.C. area-based nonprofit.
Ten years ago Shore set up a consulting arm of Share Our Strength, Community Wealth Ventures, which helps nonprofits create “new wealth.” Creating, he stresses, not redistributing the finite pot of donations that already exists. When he stumbled across the idea of using franchising as a means to new money, “I wanted to be the first to take advantage of it,” he says. He helped create Social Franchise Ventures, which is headed by Ben Litalien, formerly with Exxon Mobile. And, then looked for a nonprofit with synergy.
WineStyles, a retail wine store with the goal of demystifying the wine shopping experience, was a natural, Shore says, since his fund raising is chef driven. In addition, WineStyles’ customers share the same demographics with Share Our Strength donors, says Robert Spuck, president and CEO of WineStyles.
Share Our Strength’s first franchise unit opened in the D.C. area, and Shore has plans to open 19 additional stores over the next five years.
“Having a nonprofit as a franchisee still makes me nervous,” Spuck admits.
His advice to other franchisors looking to get into social franchising is to ensure your partner is committed to running the franchise as a business. The same rules apply to them as to other franchisees.
“They’ve done everything we’ve asked them to,” Spuck says about Share Our Strength. “They’ve attended training, allocated money for advertising, paid the fees...”
WineStyles is benefitting from more than the royalties: The two are designing a national “cause-marketing” partnership establishing Share Our Strength as the official charity of WineStyles. They sell a white and a red wine with a Share Our Strength label and the in-store events with Taste of the Nation chefs educating customers on food and wine pairings sell out early. This enables WineStyles to push their wine club membership, which places members on a priority list for future events.
“The only significant downside (to a nonprofit running a franchise) is if it becomes a distraction for the charity,” Shore says.
The ol’ win-win in the works
The idea for social franchising has been around for awhile. Ben & Jerry’s Homemade Ice Cream were among the first to let nonprofits run “scoop shops” and use the proceeds for their operating costs.
Nonprofits have a need for working capital as much as businesses, says Litalien of Social Franchise Ventures, but most people who donate to charities are excited about funding programs, not about “keeping the lights on.”
WineStyles is benefitting from the 'halo effect' of being associated with a charity as a business partner.
Operating a franchise to create a revenue stream for nonrestrictive funds is one way the nonprofit can have its funds and spend them, too.
There’s value for both the nonprofit and the franchisor, but finding the right manager is key, because the skill set needed to run a nonprofit is not necessarily the same one needed to run a retail business.
Robert Smith of Platte River Industries in Denver, a non-profit that finds work for people with disabilities, found the opposite to be true.
Platte River started with a popcorn store, but it wasn’t generating enough revenue, nor did it provide enough employment opportunities. When the Auntie Anne’s location became available they snapped it up.
They tried hiring a manager with franchise food experience only to find the first manager couldn’t work with the disabled and the second couldn’t take the stress of an airport location. “We took the program manager, kicking and screaming,” and made her (store) manager, “Smith says. “And she’s doing an excellent job.”
The popcorn store sold $150,000 a year, and was a one-person operation. The pretzel store that replaced it at Denver International Airport is generating $400,000 a year from 239 square feet and the second location on a busy concourse has sales of $1.2 million in 1,100 square feet, Smith says. And, even better their stores employ 20 to 30 people. Platte River has two additional Auntie Anne’s stores in the Denver area.
“This is the best thing we’ve done,” Smith says, adding, “but it’s not for everyone.”
Nor would every executive director sign franchise contracts, taking personal liability, but that’s what Smith did. (By the way, Smith is not a pie-in-the sky do-gooder. He has both a master’s degree in rehab and an MBA.)
The charity had to create a separate limited liability corporation for the profit stores. “That’s a challenge with boards as well,” he says. But, they didn’t feel they had a choice. “Our board in 1992-93 recognized that we weren’t going to make it on our state funding,” Smith says. “We used to leave the meetings saying, ‘Know what we need? We need to own a Wendy’s.’”
They negotiated the price for the first Auntie Anne’s franchise down to $675,000, the maximum the agency’s bank and the Small Business Administration (SBA) would approve based on the value of the business, according to Litalien.
Nonprofits bring another strength to the table, Litalien says. “Most nonprofits are well connected,” he points out, both with local governments and with the well-heeled crowd. “They know how to get things done.”
Social Franchise Ventures works with nonprofits to find a good franchise fit. Litalien has had to educate both groups on the value of teaming up. And while the partners might change, the one thing that doesn’t change is that even though there is a “halo effect” to the partnership, the charities have to be held to the same standards as the other franchisees.
“There are no strings attached,” Shore says. “This is a long-term investment.”
In addition, the crossover sometimes has some unexpected return. “A nonprofit has to recast to embrace business practices, which leads to more discipline and better business practices” for the nonprofit as well as the profit center, he says.