It’s true that some franchises fail, but there are many that grow and just keep growing. These successful franchise owners often invest in multiple franchise outlets of the same type, or branch out and buy into other brands. The International Franchise Association reports that one-third of retail sold in the U.S. is provided through franchises, and that franchises employ some 7 million people. Five franchisors who have a record for rapid and varied growth include Tony Lufti (MarLu Investment Group: Arby’s, Sizzler, Jack in the Box, et al.), Dina Dwyer (Dwyer Group: Mr. Rooter, Mr. Electric, et al.), Greg Carafello (Liberty Tax Service) and Cathy Amato (prolific Subway franchisee). For more on this continue reading the following article from TheStreet.
There are some people who just can’t get enough of franchising, so much so that not only do they own multiple franchises of the same brand, but they have created or invested in more than one name.
Franchises are attractive businesses to operate if you want to own your own business but don’t want the hassle of starting something from scratch. From a franchisor’s standpoint, it can be very profitable if the product or service answers a need in the marketplace and there is an operations model behind the product or service that is efficient and easily replicable.
Sales by franchises total more than one-third of the U.S. retail market, and more than 7 million people are employed by a franchise, according to the International Franchise Association.
"One of the reasons that many franchises have been so successful is that, in franchising, a business synergy is created. Franchisees brought together under one trademark can achieve things that as individual business people they could not do. Group advertising, buying power and the sharing of ideas are some examples of what can happen," the IFA says on its Web site.
We found five franchisors or franchisees who made a career out of either creating successful concepts or investing in multiple proven brand-name companies. Here’s what they had to say about serial franchising.
1. Tony Lutfi, CEO of MarLu Investment Group
Tony Lutfi’s experience centers in the restaurant industry, where he spent more than three decades in various positions in restaurants at the line and executive levels. Now as CEO of MarLu Investment Group, a multiconcept franchise ownership and management company, Lutfi gets to use that experience to invest in restaurant concepts with proven records of success.
MarLu owns roughly 90 franchises in California, Nevada, Texas and Arizona, including names such as Arby’s, Little Caesars Pizza, Church’s Chicken, Sizzler, Jack In The Box(JACK) and one non-restaurant concept — Sears(SHLD).
"I think most people are curious about how you manage several brands that often go in several directions," Lutfi says. "Certain brands do well for short periods of time and are very cyclical. So while some brands are doing well, other brands are not doing well. The strategy of diversity within [restaurant] branding made a lot of sense" — especially when it comes to owning several franchises in the same general area.
"You couldn’t have 15 restaurants of the same brand in the same geographical area, it just doesn’t make a lot of sense," Lutfi says. "With multibranding, there are opportunities to have brands in the same area without necessarily having to compete with one another. You can have pizza and chicken on the same block and not necessarily compete, but in a lot of ways help the businesses. In the food industry in particular you want to be where everybody else is … you want to be on the high-traffic street rather than a secluded area."
Lutfi says he prefers to invest in the restaurant industry because "people are always going to want to eat." He stuck with quick-service restaurants specifically because he thought that stood for the working-class America.
Still, MarLu puts a little more thought behind its choices of franchised operations. "We like brands that have around for a minimum of 25 years, because we don’t want to just jump on the bandwagon of brands that get hot and fizzle out quickly. And there’s been many of those."
Lutfi wants to see that the companies he invests in have been through economic downtowns and the brand has survived.
"All the brands we’re involved with have been challenged one or two times … even with management mistakes, the brand itself survives because of the quality and the relationship it has with the consumer," he says.
MarLu’s most recent 2011 acquisition of five Sizzlers in Northern California shows how the company chooses. "We surveyed several [Sizzler] customers and found that the brand had one of the highest loyal followings, with its customers discovering that many of them frequent their favorite locations more than five times per month," Lutfi wrote in a follow-up email. "Additionally, we were extremely impressed with the new management and the direction that is planned for the future, with a strong focus on restaurant operations, facility upgrades, product innovation and with a laser focus on quality. "
The acquisition of 14 Sears franchises (a combination of Sears Appliance and Hardware and Sears Home Appliance stores), also last year, was a rare opportunity in the retail sector, he says. It is likely the only nonrestaurant concept MarLu will invest in.
"The biggest lesson that I have learned: You’ve got to understand each business that you’re involved in from the inside out," he says.
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He also says culture is particularly important. For MarLu, suggestions and concerns from franchise managers as well as executives are included in key decision-making.
2. Dina Dwyer, chairwoman and CEO of The Dwyer Group
Dina Dwyer’s father started The Dwyer Group in 1981 with just one brand: Rainbow International, originally a carpet dying and cleaning company.
Between 1989 and 1996, The Dwyer Group expanded by creating or acquiring other service-related brands — Aire Serv, Glass Doctor, Mr. Appliance, Mr. Electric and Mr. Rooter — and has expanded to become a fire and flood restoration company for residential and commercial properties. In 2010, The Dwyer Group partnered with Canadian landscaping company The Grounds Guys to build out its U.S. operations. The group has more than 1,300 franchises in the United States and Canada and runs several hundred more through master licensees internationally.
The secret to The Dwyer Group’s success, Dina Dwyer says, is in its ability to centralize each company’s support infrastructure, such as accounting, IT, marketing and legal. Her father "had a vision for having a collection of franchised companies serving the same customer base," she says. That supports multiple brands without adding a lot of overhead or personnel.
The reality is, it took many years to gain the economies of scale and perfect those support divisions her father had envisioned, she says. There were some failures, although looking back it’s not hard to see why the brands ultimately got kicked to the side: They didn’t fit within the company’s core service-related businesses for the high-end residential customer.
"For us lesson one [was] stick to your knitting," she says. "As we ventured out into things that were not who we are, we’ve not done well with them. We tried to convince ourselves we could, [but] that’s not our niche."
"We’re very clear today" on our acquisition strategy, she continues. "We want businesses that are franchised and that have strong unit economics and are already succeeding."
At the same time, the company wants to be able to add value to the brand by "Dwyer-izing" the company, which means implementing Dwyer’s support system and being able to share the customer base. The Dwyer Group is looking at franchised concepts between $1 million and $2 million in earnings before interest, taxes, depreciation and amortization, but there aren’t many of those for sale, she says.
"We want businesses where there is a weak link somewhere in the organization. The weak link could be that the founder is retiring or can’t seem to get it to the next level. That’s what we’re good at — franchise development," she says.
3. Greg Carafello, master franchisee of Cartridge World and area developer for Liberty Tax Service
Greg Carafello is the Cartridge World master franchisee to 46 locations in New York City and New Jersey and recently bought the rights to another 11 in Maryland, Virginia and Washington, D.C., with room to open as many as 60 locations there.
Carafello had owned a printing business, which was based in the World Trade Centers. While his business survived the 9/11 attacks, it did not survive the recession that ensued. He ended up selling the business in 2004. Cartridge World, which is a specialty retailer of printer and toner cartridges, was a natural extension to the business he already knew.
It was also while owning the printing business that Carafello took note of a tax service provider for which he once made signs — Jackson Hewitt(JTX).
Liberty Tax Service was started in the late 1990s by John Hewitt, the former founder of Jackson Hewitt, after he acquired a small Canadian tax services provider. According to Carafello, the company is growing fast from a base of just over 4,000 U.S. stores. In 2010, he became an area developer for the company for its New York-New Jersey franchises. He has already acquired 21 franchises and says the area has room for up to dozens more.
Carafello says the common theme in his franchise companies is that they are selling products or services everyone needs, but may not be very sexy.
"Cartridge World is a 12-month business. Everybody uses printer cartridges. That’s an everyday need," he says. "Liberty is the same thing. It’s another boring business, but Liberty is a four-to-five month business."
Hewitt is "a proven resource. There’s just some things you got to bet on, and I am betting on him. Taxes aren’t going anywhere fast," he continues.
He ensures franchisees are successful by "leveraging my knowledge in finding the right candidates and supporting the candidates," he says.
4. Cathy Amato, Subway franchisee, Ruby Tuesday franchisee and development agent for Mooyah
Cathy Amato knows a thing or two about franchising.
She has been working as part of Subway’s franchise development team since 1992. She and two partners also own 55 Subway franchises in the San Antonio and Austin markets and three Ruby Tuesday’s(RT) and is adding better-burger franchise Mooyah to the roster. Last year she signed an agreement with one of her two partners to become development agents for Mooyah for South Central Texas. With their first Mooyah to open in March, they hope to be able to expand the brand to 50 restaurants in the area by 2020.
Even though she is an employee and franchisee of Subway, she is not restricted from owning other franchises so long as they are not direct competitors to the sandwich shop’s locations. "Every one of my concepts, they’re all in different categories," Amato says. "Fast-casual burgers does not compete with Subway’s fast food."
Multibrand franchising appealed to Amato.
"I’m very aware that most people that start their own restaurants fail. I really wanted to go with a proven brand that I thought would give me a higher chance of success," she says of Ruby Tuesday’s. "The brand was looking to develop west of the Mississippi. My husband had eaten at one and enjoyed their food."
The road has been hard because Texas is considered an "emerging market" for Ruby Tuesday’s and there is little brand recognition there among consumers. But Amato is confident her Ruby Tuesday’s and Mooyah sites will be successful.
"You have to feel that the brand has the ability to go any place and stand on its own two feet," Amato says. "I’ve seen a lot of regional chains [that don’t ] have the staying power in other regions."
When you get with a brand as large as Subway you’re ability to buy at volume discounts, whether it’s Coca-Cola(KO), cheese or meat, she says. In the case of her new franchises, she cites Ruby Tuesday as the largest buyer of crab in the U.S. because of their crab cakes. "With Mooyah, already the leadership and strategy planning is constantly negotiating contracts. As the brand gets more leverage and strength, it’s going to lower the prices for everybody," she says.
But before investing in her two new concepts, Amato says she was sure to talk with other franchisees and research technology systems to make sure companies are optimizing costs, since "if you’re not profitable, you’re not going to expand the brand." She likes Mooyah’s embracing of social media and its decision to install kiosks in their restaurants so customers can order for themselves. "It’s fun, cool, hip — really the experience is part of the DNA. That will make them stand a head above a lot of their competitors out there, and that’s why I jumped on the bandwagon," she says.
"You’re dealing with something like hamburgers and French fries that has total brand appeal across the U.S. Everybody likes hamburgers and French fries," she says. "Their product, it’s better than anybody else out there. I don’t think any of the other chains bake their own breads, and there are some good players out there."
5. Gary Green, founder of Strategic Franchising Systems
Gary Green founded Strategic Franchising Systems in 1994 as the home base for his entrepreneurial ideas.
Green has founded six franchise concepts — Home Helpers, Direct Link, The Growth Coach, Fresh Coat, Caring Transitions and True Blue House Care. The more than 3,000 franchises are in a variety of service-related industries, including senior services, business coaching, painting and online auctions, but all are home-based systems that are low-initial-cost investments.
"I look for business that are already accepted. There is a tremendous need for it. People want your services. And we’re just really good at creating a brand and marketing to differentiate our franchises from the competition," he says.
"Each company operates independent of one another. Each company has a president responsible to the brand," Green says.
But like The Dwyer Group, the brands share administrative, back-of-the-house functions. Green says one of the advantages of having several brands under the same parent company is the ability to share best practices and expertise.
Green’s background before franchising was as entrepreneurial as it gets. "I’ve owned many different businesses — airports, dude ranches, I developed a yogurt franchise … but it turned out to be a fad," he says.
He admits he is better as an idea generator than as a manager. "What stimulates me is to come up with different ideas and watch them grow into an organization. There’s people better at operating them than me," he says.
What Green learned from all those experiences is to never go into business on a fad and to keep costs as low as possible. "Bricks-and-mortar, for lack of better words, you’re really betting the farm. If it doesn’t work, you still have to pay the landlord the money, get a loan, hire employees," he says. "I really realized that when you got into a business that has a lot of overhead you have to do a tremendous amount of volume just to pay your bills. It seems like there is not much left over for the individual."
His service-related franchises require "very little overhead, operates out of your house with a separate telephone line. And the majority stays in your pocket," he says.
This article was republished with permission from TheStreet.
