Maaco program reduces risks for newbies
Philadelphia-based auto-body franchise Maaco believes in its system, and is now putting its money where its mouth is by offering to buy back unsuccessful units.
Like most franchisors, or at least the good ones, Maaco is confident in its franchise system. Yet unlike most franchisors, Maaco is willing to guarantee it.
The Philadelphia-based auto body company is testing a program designed to take a big chunk of the risk out of buying one of its units. In what is believed to be a one-of-a-kind program, Maaco will buy a store back that doesn't reach a certain level of revenue in its first year.
Maaco President David Lapps says it’s not a full guarantee, because franchisees need risk.
"If it's not working but the location is right, we figure it's got to be the person, because the system is proven," said Patrick Donohue, vice president of franchising for the 500-unit company, one of the few national auto-body chains. "Why not defend our system? Our system works."
Here's how the program works: If the Maaco location has not earned $750,000 after its first 15 months, the company will buy back the location, releasing the owner from his or her long-term commitment.
It's not a full guarantee, to be sure: Maaco will buy the location at a third of its gross revenue. It will also buy the equipment and assume the lease. The owner will have lost a small percentage of the capital he or she put into the business. David Lapps, the company's president, said the lost capital ensures there is still a level of risk for the franchisee, because that risk is central to franchising. "Franchising doesn't work without it," he said. "That's what drives franchisees to get up in the morning."
Anthony Martino started Maaco in 1972, five years after selling controlling interest in his transmission repair company. Maaco positioned itself as a mid-range auto painting business and has grown into one of the few national auto body chains.
The addition of small collision repair services has helped business grow over the last five years, and now average sales at a Maaco unit are around $940,000 – a figure that likely boosts company officials' confidence in their repurchase program.
Patrick Donohue, VP of franchising, says the company can resell units it buys back.
That program is designed to increase franchise sales. Maaco, which is adding 35 stores this year and another 40 next year, wants to more aggressively expand its brand across the country. Yet economic concerns may keep some people from taking the leap into the franchise business.
"We are trying to aggressively expand," Lapps said. "This gives us the opportunity to be aggressive, and to deal with people who have some concerns about buying into a franchise."
By agreeing to repurchase underperforming stores at the outset, the company hopes to assuage those fears, luring more people into the business and, possibly, getting a higher-quality franchisee. The recession has led to "a great amount of fear and trepidation," Donohue said. "Our anticipation is that we will not buy many franchises, but that this will soothe the fears they have." He added that this won't be the company's last innovative program designed to boost growth.
The program is open only to new franchisees, and since it began in May the company has received a few candidates. It's a pilot project, and executives will evaluate it after a year to determine if it's accomplishing the company's goals.
Franchisees who don't reach that $750,000 mark will decide themselves whether to sell their stores back to the company, and they'll be given a period of time to make that decision.
Maaco will offer the stores they buy back to other potential franchisees. The prospect of a nearly new store, already completed and in a good location should trump any concerns of slow sales by the previous owner, Donohue said.
The program is designed to help people who quickly discover they're not cut out for franchising. "For a variety of reasons, they decide that it's not right for them," Lapps said. "Or they don't have the drive or skills necessary to make it work. (Now), the proof is in the pudding."