Franchise Insight

Niche Market Sparks an Unlikely Franchise

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It's a Saturday of blinding rainstorms in Chicago--not the type of afternoon to be out fighting traffic and running errands. It's certainly not the type of day to go shopping for something as arcane as a battery.

But the drenching rainfall isn't keeping folks away from Batteries Plus in Oak Lawn, Ill., a blue-collar suburb about 20 miles south of the city. Throughout the afternoon, customers file into the spick-and-span store for the batteries and accessories that will keep their lives humming.

There's a harried mother with two kids in tow who needs a new battery for her camcorder. There's a middle-aged woman who needs a new battery for her cell phone. And then there's a man toting a marine battery who needs a case to cover its negative terminals. Cases come in four different sizes, so store manager Chuck Hernandez measures the battery and helps the customer find one that fits just right.

"I was going to stop at Kmart and Wal-Mart, but they have higher prices and they don't always have what you want," says Jim Riordan, a landscaping supervisor from Chicago Ridge, as he pays for the $12.99 case.

You Need a Gimmick

Call it the mother of all narrow-retailing concepts: a national chain that, as its slogan promises, sells "1,000's of batteries for 1,000's of items" to consumers and businesses. It's one-stop battery shopping, with batteries for everything from automobiles, RVs and lawnmowers to electric razors, remote controls, camping lanterns, smoke detectors and backup power systems for hospitals and other institutions.

On the surface, niche retailing--or narrowcasting--seems improbable at best. "Narrowcasting has its place in the world, provided that the product is in demand at the consumer level and that it's a specialty-type product so the broader retailers don't carry a wide assortment," says John Rouleau, an equity analyst in the Chicago office of Gruntal & Co., who follows the specialty retail and apparel industries, though not Batteries Plus. "Batteries fall into that niche."

Batteries Plus LLC opened its first store in 1988, in Green Bay, Wis., and four years later began franchising. Since then, the concept has quietly gained momentum. As cellular phones, laptop computers and cordless power tools have gone from luxuries to necessities, batteries have become a new household staple--as important as light bulbs and laundry detergent.

Today, Batteries Plus has 20 corporate-owned stores and 140 franchises nationwide, with about 700 employees in total and an additional 15 outlets are on schedule to open by the end of the year. Chairman Ron Rezetko says the closely held company, based in Hartland, Wis., is on track to reach 400 stores in 2005.

And its sales are outpacing the industry. The battery market, currently a $17 billion-a-year industry, is projected to increase at an annual rate of 6%, climbing to about $23 billion in 2003. Batteries Plus, meanwhile, is predicting sales growth this year of 20% to $92.7 million.

"We're in seven-figure profits," says Mr. Rezetko, declining to be more specific. "We're making good progress every year."

Charged Up

Still, it took Batteries Plus nine years to post a profit, largely because the company was pouring money into developing franchises. And just getting the company off the ground took a lot of convincing.

It was the late 1980s, and Mr. Rezetko, then in his late 40s, decided to honor his inner entrepreneur. After logging 25 years in the corporate world, he walked away from a six-figure salary as head of marketing and sales for an industrial- and automotive-parts distributor in Canada.

"Everybody has to look in the mirror and decide what it's all about," says Mr. Rezetko, who inherited his entrepreneurial spirit and work ethic from his 98-year-old father, a retired grocery-store owner from Rockford, Ill. "I didn't like the politics of working for a big company. It took too long to get anything done."

But skeptics scoffed at his Big Idea: a store devoted to all things alkaline. Why would anyone make a special trip to a free-standing battery store when he could pick up household batteries at the supermarket or automotive batteries at a service station?

Mr. Rezetko believed consumers would shop at Batteries Plus because society was becoming increasingly portable--and battery-dependent, with technically sophisticated gadgets that would require special batteries and battery-related services.

"Everybody thought I was crazy," says Mr. Rezetko, now 60. "I even heard that from a lot of battery manufacturers. But they were thinking only of current technology and products. They weren't thinking of the big picture."

When a friend mentioned an Indiana man who sold alternator starters and low-end batteries out of converted gas stations, Mr. Rezetko became convinced that he was on the right track. "I said, 'This world is going to become battery-dependent. I bet there's a franchise in America--and I'd better get one,'" recalls Mr. Rezetko, who was living outside Toronto at the time.

But there wasn't a franchise. So Mr. Rezetko decided to start from scratch. Working nights and weekends, he spent two years developing a 100-page business plan. His wife, Carole, named it Batteries Plus. He found seed money at Bank One, where loan officers immediately recognized the potential of a concept that many considered bizarre at best.

"They were entering a market that did not have tremendous competition--and they were entering the market early," says Tom Knab, senior vice president and group executive for commercial banking at Bank One in Appleton, Wis. "We agreed that there would be tremendous growth in ancillary battery consumption."

Unusual Power

Batteries Plus started small, selling batteries for cars and standard-issue household items in the early days, and then stocking more items as new electronic gizmos seized the market. Over time, Mr. Rezetko began to carry uncommon products that consumers couldn't buy at big retailers like Wal-Mart or Best Buy. Among them: a $29 larynx battery that powers electronic voice boxes; a $6.99 battery that operates garage doors; and a $3.99 needle-shaped battery for fishing bobbers that light up for night fishing. He also installed a "help line" so that employees can track down other hard-to-find batteries anywhere in the country and stocked batteries for outdated models of cordless phones, camcorders and other portable equipment.

"Typically, people will go back to where they purchased something to get replacement batteries, but places like Best Buy and Circuit City carry batteries for the hottest models and drop the batteries for the older models," says John Alvarez, Battery Plus director of retail operations for corporate stores. "People come here for batteries they can't get anywhere else."

Mr. Rezetko took the concept of customer service one step further, deciding that his sales force wouldn't just sell batteries--they also would solve battery problems. So he created a four-week training program in Pewaukee, Wis., where employees and franchisees become "certified battery professionals."

"Battery school is really intense," Mr. Alvarez says. "It's five days a week, 8 a.m. to 6 p.m. [Trainees] also work in the Milwaukee store on Saturday and Sunday, so we can make sure [they] understand the concepts."

After getting certified, employees work their magic on ailing batteries in an on-site tech center--a battery hospital, of sorts, where they analyze and diagnose battery problems, as well as design and assemble rechargeable battery packs for virtually any specialty item.

Value Pack

In 1992, with seven corporate stores in Wisconsin, Mr. Rezetko set out to expand through franchising. For Susan and Dan Manwaring, signing on as the first Batteries Plus franchisees was a leap of faith. "We'd always wanted to run our own business, and we believed in what Ron was trying to do," says Susan Manwaring, who now owns six franchises in Indiana. "But a lot of the big bankers didn't want to talk to us. They thought Batteries Plus was a fly-by-night venture, so we had to get financing from a small hometown bank that knew us as people."

Residents of Fort Wayne also were wary of Batteries Plus when the Manwarings opened their first store. "People would walk around, and when I asked, 'Can I help you?' they'd say, 'No, I just wanted to see what a battery store looked like. Well, good luck,'" recalls Ms. Manwaring. "The implication was that we couldn't make a living selling batteries."

Today, the Manwarings' Fort Wayne store is one of the top outlets in the chain, with annual sales of $1.3 million. And the growth of their business mirrors the proliferation of battery-operated devices. "In 1992, we had one cellular-phone battery on the shelves, and now we have 50 different types," Ms. Manwaring says.

Despite success, Mr. Rezetko says it's still tough to attract qualified franchisees. Starting a Batteries Plus franchise runs between $185,000 and $225,000--excluding expenditures for property and the building itself. Franchisees pay the company a $25,000 fee for the right to operate a store for 15 years, with a right to renew. Owners also pay royalties of 4% of sales and pay a national marketing and promotional fund fee of 1% of sales.

But Mr. Rezetko says the company's future growth will come from franchise stores, not corporate outlets, which he intends to limit to 50. He'd like to see about 800 stores nationwide by 2005--double the number in the current five-year plan--but to get there fast, Mr. Rezetko says he'll need to raise capital through an initial public offering or by teaming with a corporate partner. "[Money] is the only thing we're missing to grow really quickly," he says. "We've got the horsepower, the plan, the model."

Rapid expansion is how Mr. Rezetko, who views Batteries Plus as the McDonald's of the battery market, plans to fend off any would-be upstarts. "Right now, we're the only [company] like us," he says. "There are some regional battery stores, but nothing major yet. The word is yet. I know it's going to happen. You can only stay under the radar for so long."

Copyright © 2003 Dow Jones & Company, Inc. All Rights Reserved

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