With the credit markets still in a deep freeze, some franchisors are stepping up to help franchisees secure needed growth capital so that brands can continue to grow and franchisor-franchisee relations can remain strong despite the turbulent times. Experts say more flexible arrangements between franchisors and franchisees will be needed in 2009 as banks and other lenders sort out the financial meltdown of 2008. These companies already have outlined their own franchisee bailout plans:
Domino’s Pizza Inc. is offering “short-term financial support and solutions” for strong operators who are looking to purchase additional Domino’s Pizza locations. Financing would include small amounts of bridge financing or deferrals of royalties or other costs, and any lending would include relatively small increments. Papa John’s International Inc. is taking several steps to help franchisees work through the recession. First, it said it would reduce the price it charges franchisees for cheese, which would help reduce food costs by about 1.4 percent. It also said it would provide additional national marketing support as well as targeted royalty relief and local marketing support to struggling franchisees. In addition, the company said it would hold a summit of regional banks and other lenders to expand credit availability and provide corporate loans to help strong franchisees acquire weaker operations. Finally, for the first six months of 2009, Papa John’s said it would suspend collection of the 0.25-percent increase in royalties, which was set to begin in January. Papa John’s also provided late last year 100 percent of the financing to complete the sale of 37 corporate restaurants to a franchisee that was looking to expand but had trouble garnering the needed capital. CiCi’s Pizza ,the parent company to about 650 pizza-buffet restaurants, is waiving the franchise fees on the purchase of any closed unit that is reopened by another CiCi’s franchisee. The company normally charges existing franchisees $25,000 for subsequent units, but said that fee would be waived on deals completed in 2009 so that healthy franchisees aren’t deterred from expansion. Pizza Inn Inc. wants to encourage new franchised openings and acquisitions by waiving the sales royalties for a franchisee’s first year of operation and collecting only a 2-percent royalty in the second year. The chain’s standard royalty rate is 4 percent. The company, which operates or franchises more than 300 locations, said the moves would ease startup costs. Red Robin Gourmet Burgers Inc. wants to help restaurant operators, both of franchised and corporate stores by reducing the contribution rate to the 454-unit casual-dining chain’s national advertising fund. Operators will now contribute 0.25 percent of restaurant sales, rather than 1.5 percent, and the royalties will be directed to national online advertising, direct-mail campaigns and local store marketing. Red Robin said it does not plan to run any national cable advertising this year.
