Package Deal

10 min read

This story appears in the August 1997 issue of Entrepreneur. Subscribe »

John Kennedy Jr. and Carolyn Bessette? Yesterday's news. The latest power couple emerges from the franchising community: U.S. Office Products Co., a $3.5 billion supplier of office materials and services, has plunked down $267 million to purchase Mail Boxes Etc. (MBE) Inc., the world's largest franchisor of business communication and postal service centers. Industry insiders are optimistic about the partnership's prospects, as MBE's 3,300 worldwide retail locations join forces with U.S. Office's massive purchasing power.

With MBE catering to the Small Office/Home Office market (businesses with up to 25 employees) and U.S. Office traditionally serving 25- to 500-employee companies, "what we're doing is putting our marketing strengths together to move toward capturing the small-business market," says Tony DeSio, founder and CEO of San Diego-based MBE. "With new business formations and small businesses proliferating across the country, this gives us an opportunity to access each other's customer bases."

"This is a home-run deal for MBE, its stockholders, its franchisees and its employees," says Jon Ledecky, chairman and CEO of Washington, DC-based U.S. Office. "Our company benefits because it leverages our distribution capability into a different channel. And because we can purchase products at much cheaper prices than MBE ever could, we can bring to the stores, and the franchisees, a greater selection of business products and services at lower prices, which will attract more customers, increase profits to the franchisees and, in turn, increase the royalties to the [franchisor]."

DeSio expects full cooperation from franchisees. "No change will be apparent to the franchisees except that they will be getting more competitive pricing on products," he says. "We've communicated with our networks since the announcement, and everybody seems to be elated about the merger."

Though Ledecky points out it won't be mandatory for MBE franchisees to partake of U.S. Office Products' goods and services, he subscribes to the "if you build it, they will come" theory. "If you build a better situation and opportunity," he reasons, "then people [will] take advantage of it."-Janean Chun

Not Just A Bill

A Michigan bill, though considered run-of-the-mill by casual onlookers, has stirred an undercurrent of hearsay. Addressing a choice-of-law provision, the Michigan House Bill 4235 in itself is not very controversial, contends Rochelle Spandorf, an attorney with law firm Shapiro Rosenfeld & Close in Los Angeles. In fact, the bill simply restates a provision of an existing Michigan franchise statute.

And yet it is the Michigan bill's very meekness that has made it a symbol of significance. While the International Franchise Association (IFA) has taken a firm stand on other, more pressing franchise issues, it remains silent on this one. At press time, an IFA spokesperson said the association had no official comment, as it was still reviewing the bill.

Some industry insiders speculate as to whether the IFA's lack of reaction indicates a conflict between the association's allegiance to its franchisor and franchisee members. One franchise attorney wonders if, when dealing with innocuous legislative issues such as this, the IFA will opt to remain neutral rather than alienate part of its constituency. Another attorney, Carl Zwisler, with the Washington, DC, office of Keck Mahin & Cate, says, "This is just one of many issues that have arisen and will arise that affects franchisors and franchisees. It will be the challenge of the organization to rectify the apparently conflicting interests of both sides."

One thing that's clear is that the Michigan bill definitely has two sides. "I think it's fair to say that most franchisees would like to have the right to defend or bring any claims in their home state," says Zwisler. "And most franchisors would like [the same option] so they can get a consistent result and not have to travel around the country every time there's a claim."

The lines are not so easily drawn in the IFA. As the former IFA general counsel, Zwisler recalls, "it was easy to see where you ought to come out on issues [when the association was only franchisors]. Now, no matter what the IFA does, it has to be sensitive to both groups."-J.C.

Breakfast Rollout

There's no shortage of quick-serve breakfast joints in America-but Wendy's International Inc. isn't worried.

The Dublin, Ohio-based franchisor, which bought the coffee and baked goods chain Tim Hortons in 1995, plans to open nearly 70 new Tim Hortons locations in the United States by year-end. Six of those are slated to be paired with Wendy's restaurants, which usually don't open until after breakfast and offer little in the way of dessert.

So how will Tim Hortons compete with all the other American restaurants serving coffee and baked goods? The chain, which grossed $646 million last year, is well-liked in Canada, where the nearly 1,460 Tim Hortons are second only to McDonald's in sales. But take a look at the U.S. locations, too, urges Patti Jameson of Oakville, Ontario-based Tim Hortons.

"They've been exceeding our expectations," Jameson says. "We're delighted with how well they're being received in the U.S. market. We believe the quality of the items we sell sets us apart from the competition."

The new restaurants will be located primarily in Michigan, New York, Ohio and West Virginia, where there are already about 40 Tim Hortons in operation, says Jameson. Plans are to eventually expand nationwide after gaining a foothold in these central and eastern markets.

-Karen E. Spaeder

Cleaning Up

Now's a good time to break out the dust mop and laundry detergent-especially if you're a professional cleaner.

According to American Demographics magazine, an estimated 9.4 million households employed a housekeeper or professional cleaning service last year. The magazine, which culled the figures from Census Bureau projections and household survey data from Mediamark Research Inc. in New York City, reports nearly 10 million households are expected to pass the bucket to cleaning services by the year 2000.

While most people tend to hire individuals rather than professional cleaning services, the Bureau of Labor Statistics projects a trend shift. "Due to the well-publicized troubles of people who've hired domestics and didn't withhold taxes from their pay, [people] know they'd better play by the rules," explains American Demographics senior editor Shannon Dortch. "However, withholding and filing taxes for a household employee is a pain, so they hire a professional service [instead], even if it costs more."

Molly Maid Inc. is one cleaning franchise noticing a growing demand for its services. "[People are] finding that a cleaning [service], where it used to be considered a luxury, is really now a necessity," says Linda L. Burzynski, COO and president of the $40 million Ann Arbor, Michigan, franchise. "We give people their lives back-cleaning takes time away from the things you really love to do." -K.E.S.

Keeping Track

The challenges of providing home care for Alzheimer's patients are many, and now help for families has come from an unlikely source: Wildlife Materials Inc., an animal monitoring device company. Founded in 1970 by biologist Robert E. Hawkins, Wildlife Materials has adapted its monitoring and locating equipment to accommodate the needs of humans.

Hawkins stumbled on the idea in 1985. He had a friend whose wife, an Alzheimer's patient, had begun wandering away from home. Hawkins fitted the woman with one of his transmitters, and she was able to continue living at home.

The company started selling the Care Trak system in 1986 and began franchising last year. The system also includes a door alarm, perimeter system, and mobile locator.

Patients with a tendency to wander, including Alzheimer's patients and children with Down's Syndrome, can be tracked up to a mile away, day or night, when they wear a Care Trak wrist transmitter.

With no end in sight to the potential of the senior-care industry, the time could be right for this idea to take off. -Holly Celeste Fisk

Royal Treatment

Thanks to good planning, the future is a bit more financially secure for some Dr. Vinyl & Associates Ltd. franchisees. Since 1993, the Raytown, Missouri, vinyl repair company has offered an Individual Retirement Account (IRA) plan and contributes a portion of royalty fees into franchisees' accounts.

Under the program, 10 percent of royalties collected from franchisees is placed in IRAs each month for franchisees who have been in the system for three years; after five years with Dr. Vinyl, that figure rises to 20 percent. The only requirement is that franchisees submit their royalty fees and paperwork on time.

"It's a gift from the franchisor for doing what you should be doing anyway-franchisees don't have to jump through any other hoops to get the [contributions]," says president Tom Buckley Jr., who saw that many franchisees had no retirement plan in place other than the value of their businesses. "We addressed a vulnerable area, and that is, How do I set money aside?"

Last year, nearly half the 115 Dr. Vinyl franchisees participated in the program, with more than $48,000 going into the IRAs.

The program is also a plus for the franchisor, says Buckley, because the paperwork gets in on time.


Eminent Domain

In what is considered the first test-in the franchise context-of legal principles involving the World Wide Web, California Closet Co. Inc. obtained a temporary restraining order in March prohibiting a franchisee's use of the franchisor's trademarks in his Internet domain name and Web site.

Milwaukee California Closet franchisee Robert McCann registered as a domain name and listed a toll-free number different from the company-approved number, according to Barry Heller, an attorney with the Washington,DC, office of Rudnick, Wolfe, Epstein & Zeidman, who is representing the 115-unit organization and design franchise.

Web surfers may have inferred that the San Francisco-based franchisor published the site, says Heller. In addition, McCann sent letters to fellow franchisees soliciting purchases of site-generated leads. "He [told them] that if he received a call from a potential customer in their area, he'd be willing to sell that lead to them for $50," Heller says. In addition, according to Heller, McCann also told them if they decided not to buy the lead, he would either sell the lead to a competitor or would try to service the customer long distance.

McCann, who declined to comment, refused to comply with the franchisor's cease-and-desist letter, leading the company to file suit in U.S. District Court. The suit alleges breach of the franchise agreement, trademark infringement, trademark dilution (using a trademark in a way that diminshes its value), and unfair competition.

At press time, the restraining order was still in effect, and a preliminary injunction hearing had not yet been set, as the parties are trying to resolve the issue. California Closet CEO Anthony Vidergauz also declined to comment. -K.E.S.

Easy Touch

If you're tired of cashiers asking "Would you like fries with that?" you should visit Alex Marion's McDonald's franchise in Regina, Saskatchewan. Last year, Marion installed a customer-activated terminal called McTouch in one of his restaurants, so customers can now peruse the menu, place an order and pay for a meal without ever facing a cashier.

McTouch is the brainchild of Paul Drouin, 34, and George Nemeth, 39, founders of Global Kiosk Systems Ltd., an interactive kiosk company in Regina. The kiosks allow customers to place menu orders by touching a screen and then pay for their food with ATM cards.

While the McTouch system handles Marion's McDonald's customer orders, the system can be adapted for any company. "You can use the system to sell anything from burgers to bolts," boasts Drouin. The cost is about $20,000 for two kiosks and supporting hardware.

The McTouch system is operating at just one of Marion's locations so far, but he hopes to have seven kiosks up and running by September 1. -H.C.F.


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