Click to Print

Survival Of The Biggest

In the war against category killers, franchises provide entrepreneurs with secret weapons: a big company brand and the specialized service of an independent.
August 1, 1999
URL: http://www.entrepreneur.com/article/18128

There's something to be said for not starting a business, but rather jump-starting one by buying a well-known franchise--especially if you're surrounded by massive retail chains. For entrepreneurs in certain industries, it's become the only realistic way to not get killed by category killers and to even gain a competitive advantage over retailers 100 times bigger than you are.

On their own, Stephen Adams, 44, who runs a pet-supply store, and Jeff McCoy, 36, a consumer electronics entrepreneur, might not have had a chance against the category killers in their respective industries. Fortunately, they didn't even try. Last year, Adams bought a Pet Valu franchise from Valu International, based in Wayne, Pennsylvania; in 1996, McCoy purchased a Radio Shack franchise from Tandy Corp.

Prior to buying his Pet Valu franchise with a $10,000 down payment and a bank loan, Adams was the night shift manager in a steel-fabrication factory. "After 22 years in the same job, I was tired of making money for other people," Adams recalls.

But Adams wasn't about to make any snap decisions. He and his wife, Taisa, 40, a co-owner, went to franchise shows and investigated local franchises. Pet lovers and part-time Rottweiler breeders, the Adamses easily discovered their ideal business: selling pet supplies through a Pet Valu franchise in Levittown, Pennsylvania.

Although they investigated other companies to get a feeling for the franchise business, says Adams, "It was really an easy decision because the business was so compatible [with our personalities]. We love pets and enjoy talking to pet owners."

The price you pay for owning your own franchise--hard work and long hours--didn't faze Stephen in the least. "In the beginning, I was putting in 80 hours a week," he says. "Now I'm down to 60 hours and have five part-timers, mostly teenagers, helping me out. But the hard work doesn't bother me because I love the business, and pet owners are easy and fun to deal with. We relate to them because we're pet owners, too. Our customers like dealing with people who share the same passion."

All the Adamses' hard work--and their decision to buy a franchise rather than start a business on their own--paid off. They were profitable a few months after they opened for business and were able to comfortably make their monthly loan payments with plenty of money left over to meet their expenses.

You'd think a 3,000-square foot pet store would be outgunned by the giant category killers like Petco and PetSmart. Not so, according to Pet Valu International Inc.'s vice president of franchise development David Wheat. "We have 82 stores in the United States and 400 worldwide and nearly all of them are successful."

Apparently, category killers or not, there's still room for more entrepreneurs in the growing pet industry. "Fifty-nine percent of Americans have pets, and the demand for pet supplies is constant," says Wheat. "Pet owners are always buying food, toys and other accessories for their pets."

It's not like every Pet Valu store doesn't face competition, however. "But when you consider what each of our stores offers, there isn't as much competition as you'd think," says Wheat. "We see ourselves as category killers in the pet supply business. But not in the conventional definition of the term. We describe our stores as neighborhood stores with superstore prices."

Actually, Pet Valu prices are competitive with those of the category killers. But the real draw, according to Wheat, "is that Pet Valu offers customized services, which you don't get in the large stores. The large stores can't offer personalized service," he says. "Every time you visit one of them, you have a different salesperson taking care of you."

That will never happen at the Adamses' store. "We know our regular customers on a first-name basis, and they enjoy coming in and chatting about their pets," he says. "You can't do that in a big store." And that personal attention seems to be working--the Adamses' sales are up 46 percent since they bought the franchise last July.


Bob Weinstein is the author of 10 books and is a frequent contributor to national magazines.

PartyLand Of Opportunity

Most franchisees agree that in a fiercely competitive industry, it's almost impossible to put a value on personal service. "This is where our franchisees have [an advantage] over large [discount] store chains, which also sell party supplies," says John L. Barry, vice president of franchise development at PartyLand Inc. in Plymouth Meeting, Pennsylvania. "Nobody else is really pushing the service button. That's why 97 percent of our franchisees succeed."

Started in 1988, the PartyLand franchise currently has 103 stores throughout the United States. Likewise, the party-supply industry has grown aggressively over the past decade, according to Barry. Ten years ago, it was a $5 billion industry; today that total is $20 billion, according to trade magazine Party & Paper Retailer. "According to our research, the average American has a party eight times per year," says Barry. "Because the economy is good and unemployment is low, people are spending more on leisure than they [used to]."

But despite increased spending on parties, Barry says the industry has felt the effects of category killers and consequently, has consolidated over the past five years. "Larger chains are pushing small [independent] stores out of business. This is why we go out of our way to give customers extraordinary service and why we're so careful about picking people who'll be successful."

King of the Mountain

For some entrepreneurs, franchising offers an opportunity not just to compete with category killers, but to actually become one. In Fredericksberg, Texas, population 9,500, InTouchElectronics Inc./RadioShack hasn't faced much competition yet. And if competitors did come to town, Jeff McCoy says he wouldn't lose any sleep. After all, McCoy benefits from the power of Radio Shack's strong national brand name--stores are strategically positioned across the United States so 94 percent of Americans live or work within minutes of a RadioShack.

Unlike Adams, McCoy didn't investigate other franchises. He'd already spent 10 years working in a RadioShack owned by his in-laws in Van Horn, Texas. He liked the business and, in 1996, figured he was ready to branch out on his own. When he found out about the availability of the Fredericksberg location, he jumped on the opportunity and purchased the franchise for $60,000, which included a franchise fee, merchandise and fixtures.

McCoy says he was up and running pretty quickly. "Name recognition means a lot because it brings in customers who know what they're going to get as soon as they walk through the door," he says.

In a fiercely competitive business environment, franchising offers start-up entrepreneurs quick entry into an already established industry. It also offers the best of both worlds. You capture immediate acceptance by having the brand recognition of a well-known chain while still offering the personal service of an individually owned store. You also stand to recoup your original investment a lot faster than if you started a business from scratch. All told, that adds up to a compelling combination greatly enhancing your chances of success.

Contact Sources

PartyLand Inc., (800) 778-9563, jbarry@partyland.com

Pet Valu, (888) 564-6784, http://www.petvalu.com

RadioShack, (800) 844-3870, http://www.radioshack.com