Mellow out and stay fit, urge these franchisees
Operating a large pizza franchise can be stressful. So it isn’t surprising that Eric Danver liked to drop by a local Hand & Stone Massage Spa occasionally for a hot-stone treatment. The 173-unit chain offers a range of personal services, including hair removal, scalp massage and hand therapy.
Danver, who operates 22 Papa John’s in Delaware and New Jersey, couldn’t help but notice the spa he visited in Marlton, New Jersey, was doing well in a rough economy. So well, in fact, that after researching the Hamilton, New Jersey-based brand he agreed earlier this year to open six Hand & Stones in affluent Fairfax County, Virginia. His first spa opened this fall, in Chantilly.
“The more we looked (at the area) the more we said, ‘Oh my gosh.’ You know how well restaurants do there,” Danver enthusiastically recalls, referring to his Baltimore-based partners, who are financing the deal. The area’s median household income of $109,383 (vs. $63,636 for Virginia itself) indicates there is plenty of disposable income in the Washington, D.C., suburb.
According to the Franchise Disclosure Document, 2013 average gross sales for 59 units open 24 months or more was $958,375. Danver believes he can open a 2,400-square-unit for about $350,000.
The spa industry largely depends on disposable income for its revenue, which has been growing. Sales at the 20,189 spa locations in the United States climbed about 5 percent, to $14.7 billion, in 2013, reports the International Spa Association. Visits rose 2.5 percent, to 184 million, in the same period.
As of 2012, spas, private offices and other locations employed about 330,000 trained therapists, notes the Associated Bodywork & Massage Professionals, an organization representing licensed massage therapists. States, which license workers and regulate their employers, have approved some 1,300 massage training programs.
Though massage therapists make about twice as much as pizza shop workers, Danver believes licensure and formal training create a more stable workforce. “True,” he concedes, “you don’t have the same size pool (of employees) that you do in fast-casual. But what you do have is commitment to the industry.”
When I spoke with Erik Skaalerud in late September, he was preparing to begin construction on the third of four gyms he agreed to open as a multi-unit franchisee of Orangetheory Fitness. The Denver-based operator, meanwhile, is also an area representative for the franchisor. In that role, he and a staff of four people oversee an additional 15 Orangetheory Fitness centers, from which he derives a percentage of sales. “We evaluate the studios from the standpoint of sales and training,” he explains.
When it comes to site demographics, Skaalerud likes to see 100,000-plus people within a three-square-mile area and median household incomes of $70,000 and up. The 3,000-square-foot gyms typically open in well-anchored shopping centers.
Not long ago, however, a sub-franchisee in his territory went against trend and opened a gym in Denver’s Highland neighborhood. Skaalerud had his doubts because the population was more scattered than he liked.
Yet, he adds, Highlands’ demographics made sense and the site was, after all, on a busy street leading to and from downtown. What’s more, the area is an “up-and-coming, cutting-edge and fun neighborhood.” The sub-franchisee’s unit, which has nearly earned a five-star rating on Yelp, is doing very well, Skaalerud says.
Orangetheory’s franchise disclosure document reports annual gross revenue in 2013 for a single unit was an unaudited $759,017.
The latest data on fitness clubs like Orangetheory show that 62.1 million Americans visited a health club in 2013 and that 52.9 million own a membership. They visited their clubs on average 103 times in 2013, “a record high,” according to the International Health, Racquet & Sportsclub Association, an industry group.
The total investment to launch an Orangetheory ranges from $327,600 to $634,100. The sum includes a $39,500 initial franchise fee; the fee for additional units is $32,500 each. Royalty fee is 6 percent; the monthly marketing contribution is 1 percent.
Skaalerud isn’t your garden-variety franchisee, by the way. He and his wife, Wendy, founded a boutique consultancy in 2004 called Capital Lending Solutions. The business finds and facilitates Small Business Administration loans. According to Skaalerud, the couple has since helped hundreds of franchises across industries get loans, including, as one might expect, Orangetheory sub-franchisees.
Prospecting for candidates is apparently easy. Once the gym doors swing open, a number of people inquire about owning one. “We don’t have a shortage of prospective franchisees,” he claims.
Because gyms count on annual memberships for the bulk of their revenue, Orangetheory expects franchisees to sell at least 50 in the weeks before their unit opens. The franchisor recommends buying its “Presales Coordinator Program” to help sell them.
“Atlantic City Casinos Closing!” screamed the headlines in New Jersey over Labor Day. Some 8,000 casino workers lost jobs as three gaming spots were shuttered. A union boss dubbed the closings a “criminal act.” Atlantic City’s mayor described the situation as “a difficult but necessary makeover from being a gambling resort to a multi-faceted destination.” And, as you’d expect, small businesses fretted that sales would be hurt in an already difficult state economy.
Yet veteran Valpak franchisee Bill Reichert wasn’t among them, even though he had recently expanded his direct-mail business by acquiring 40,000 more household addresses, a significant portion of them in Atlantic County.
“Any time people are displaced, it will have some impact on selling advertising to local businesses,” he said in late September before adding he isn’t mailing coupons directly into Atlantic City. “We’re mailing to middle-income to upper-middle-income households in communities around Atlantic City.”
The four household territories Reichert acquired had been dormant for years, allowing him to carve out four new ones in increments of 10,000 each. They include tourist-laden Cape May in southern New Jersey. Part of his reason to acquire now, he said, is because existing advertisers have opened locations in the Cape May market. “There was also good sales talent for me to hire,” he adds.
Reichert, who has been a Valpak franchisee since 1986, doesn’t expect to see a return immediately on his self-financed acquisition. “But a couple of mailings have gone out so far and we have seen a break-even on them, and we are very happy with that.”
David Farkas has covered the restaurant industry for 25 years as a reporter and food writer. Submit your company’s development agreements to him at firstname.lastname@example.org.