Know Your Limits
In a decision that could affect the worldwide franchising community, the U.S. Supreme Court ruled in November to allow manufacturers and franchisors to establish price ceilings for their products or services. The ruling overturned a 1968 doctrine that gave retailers and franchisees the freedom to set their own prices.
"This is the most significant antitrust decision in franchising in the past 20 years," says David J. Kaufmann, senior partner at Kaufmann, Feiner, Yamin, Gildin & Robbins LLP, a New York City law firm that counsels franchisors. "It will enable franchise chains to compete effectively with nonfranchised stores and with chains that [utilize] price-point advertising."
Claiming that varying pricing structures compromises brand uniformity and customer satisfaction, franchisors are now able to ensure consistent price ceilings in all franchised units. But franchisees are concerned that if price ceilings are set too low, they could get priced out of the market.
"Franchisees are worried that this gives franchisors the ability to control prices and thereby the profit margins franchisees can achieve," says Bob Purvin of the American Association of Franchisees & Dealers in San Diego. But the decision presents what Purvin believes could be "a big rain cloud with a very silver lining," possibly encouraging franchisees to band together to gain greater collective negotiating leverage with their franchisors. "The future of franchisees' success is in the area of collective negotiation of franchise agreements and relationships," says Purvin. "And if this case opens a crack in the door to further allow franchisees to engage in collective bargaining, it will ultimately be good for franchisee constituents."
By Natasha Emmons
Few things entail more risk than opening your own business, but Lake Forest, California-based Amailcenter Franchise Corp. has come up with a plan to soothe its would-be franchisees' jitters.
If AIM Mail Center franchisees don't ship, fax and notarize their way to the American dream within two years of buying a franchise, Amailcenter will hand them back their $21,500 franchise fee in cash. "We want to make sure people can get their money out," says company president and CEO Michael Sawitz.
There are 40 AIM Mail Centers operating in California, two of which were purchased since the offer was made, says Sawitz. "After 13 years, we know that everyone who has followed our program to the letter has been successful," Sawitz says. Stiff competition from more than a dozen national mail-service chains prompted Sawitz to put his money where his mouth is.
"It gives [franchisees] a comfort level," says Sawitz. "No one else is willing to say `Hey, I'm in it with you.' "
By G. David Doran
After more than 50 years in the ice cream business, Baskin-Robbins USA Co. is changing its image. Now that the traditional 31 flavors have been complemented by smoothies, cakes and frozen yogurt, Baskin-Robbins wants customers to stay a little longer and enjoy their treats. So, out with the old white fluorescent lights and hard plastic chairs, and in with new ambient lighting and comfortable, padded booths.
The décor is getting a makeover as well. Gone are the pale pink, blue and white dots, to be replaced by subtle ice cream colors like chocolate, vanilla and caramel offset by large graphics of happy children. Preparation areas have been separated into distinct departments: beverages, ice cream and a party center featuring ice cream cakes.
The first "Store of the Future" was unveiled last August in Monterey Park, California, and plans are in the works for systemwide changes to begin by the time you read this.
By Natasha Emmons
Ron and Karen Ray built their Anacortes, Washington-based Pizza Factory franchise into a much-admired institution with a simple recipe: one part pizza, one part charity and a big dash of enthusiasm. Since the couple opened shop in 1989, they've won the hearts of customers by tossing dough at the community's youth. "There are just so many ways to help," says Ron Ray. "It's neat to own your own business and utilize it."
Ron, 41, and Karen, 35, were nominated for a Seattle television station's Pacific Northwest Good Works Award in 1996 for their work with the community Teen Center, which they co-sponsor with the local police department. The couple also sponsor several children's sports teams and have raised funds for elementary schools and the local Head Start program. On the wall of their restaurant hangs a letter of commendation from U.S. Sen. Patty Murray (D-WA) alongside numerous articles that have been published in newspapers and magazines about their work.
Back at franchise headquarters, Pizza Factory Inc. proudly trumpets the Rays' success and helps out with advertising and printing of fliers. "We don't ask for help," says Ray, "but they are very supportive."
By Elaine W. Teague
Last October, Warren Buffett, the investor extraordinaire singled out by Forbes magazine as the nation's second richest man, put frozen-dessert franchisor International Dairy Queen Inc. on his Christmas list--and Santa came through.
With major holdings in a smorgasbord of high-profile companies, including Coca Cola Co. and American Express, Buffett's Berkshire Hathaway Inc., based in Omaha, Nebraska, has acquired Minneapolis-based Dairy Queen, including its Orange Julius and Karmelkorn units. In the deal classified as a merger, Berkshire plunked down more than $585 million in stocks and cash; Dairy Queen will become a wholly owned subsidiary of Berkshire.
"The Berkshire group brings [to the deal] a tremendous amount of credibility," says Charles Mooty, CFO of Dairy Queen. This latest acquisition reaffirms Buffett's reputation for careful, hands-on research prior to making a move: It seems that Buffett made regular stops at a certain local Dairy Queen in his hometown of Omaha throughout the past year.
As Buffett goes from taste-testing to getting a taste of the profits, "I think it'll be a real win for everyone involved," says Mooty. Dairy Queen has nearly 5,800 Dairy stores in the United States, Canada, and other foreign countries, as well as 410 Orange Julius and 45 Karmelkorn locations.
By G. David Doran
For years, beer-loving Omaha, Nebraska, restaurateur Brian Magee had wanted to turn the vintage 1903 fire station in the downtown Old Market Historic District into a brewpub, but a lack of investment capital and practical knowledge kept his dream on ice.
Enter John Hickenlooper, inner-city developer and founding partner of Denver's Wynkoop Brewing Co. Hickenlooper had helped open six other brewpubs around the country, capitalizing on his successful reputation at Wynkoop for getting local investors to put up capital, bringing in expert brewmasters and chefs to train the staffs, and giving joint operators like Magee the opportunity to earn equity interest in the business as an incentive.
With Hickenlooper's help, the historic building was eventually transformed into the Upstream Brewing Co., which helped spur an economic rejuvenation in downtown Omaha. "Being associated with Hickenlooper and Wynkoop made it much easier to find local investors," says Magee. "They were also instrumental in helping us get the brewery up and running smoothly."
Hickenlooper's formula seems to be working. Sales at Wynkoop and its partner brewpubs this year will exceed $1 million, and plans are in the works for a total of 20 brewpubs to be built before 2000.
AIM MailCenter, (714) 837-4151, email@example.com
Bob Purvin, (800) 733-9858, http://www.aafd.org
Dairy Queen, (612) 830-0364, fax: (612) 830-0301
Kaufmann, Feiner, Yamin, Gildin & Robbins LLP, 777 Third Ave., New York, NY 10017, (212) 755-3100
Pizza Factory, 3219 Commercial Ave., Anacortes, WA 98221, (360) 293-1000, (360) 293-9030
Upstream Brewing Co., 514 S. 11th St., Omaha, NE 68102, fax: (402) 344-0451