Papa John’s Encourages Franchising - Update

Published on December 03, 2009 | Comments: 0
Pizza retailer Papa John’s is offering a development incentive program that will ease the process of opening stores for new and existing U.S. franchisees from January - November 2010. New and existing U.S. franchise owners will have the franchise fee for a new restaurant waived, as well as receive other perks. For qualifying restaurants, the program will waive the normal $25,000 franchise fee, allow franchisees to purchase two Middleby-Marshall ovens that would normally cost $20,000 - $30,000 for $50 after operating for two years, and reduce the normal 5% royalty rate for the first 12 months of operation for stores that open on time. Stores that open by June 2010 will receive a 0% royalty rate. The 2010 development incentive plan follows a 25th anniversary development incentive plan Papa John’s launched in April 2009. Through December 27, 2009, U.S. franchisees who open a new Papa John’s will avoid paying the normal $25,000 franchise fee. In addition, they will pay no monthly royalty fee for one year and receive a $10,000 early opening award. Papa John’s did not specify how many new franchised restaurants it plans to open or if there are specific locations being targeted. As of December 28, 2008, Papa John’s operated 3,380 restaurants worldwide. Of these, 2,765 were franchised. A number of quick service and fast food restaurant chains are turning to franchising as a means of relatively low-risk expansion during a prolonged and severe recession. Under a typical franchising agreement, the franchisee pays a licensing fee and bears most of the expense. Earlier this week, frozen yogurt chain Red Mango Red Mango awarded its first franchise agreement in the Denver, CO market. Rival frozen yogurt chain U-Swirl recently awarded franchise rights for the Phoenix, AZ market to a multi-unit franchise system operator. Ice cream retailer Baskin Robbins recently opened Los Angeles, CA for franchise growth, projecting as many as 35 new stores in the three markets. Since July 2009, Baskin Robbins has opened markets including Tucson, AZ, Raleigh-Durham, NC, and San Antonio and Austin, TX for franchise growth. Coffee retailer Dunkin’ Donuts, which shares a parent company with Baskin Robbins, publicly said it plans to expand via franchising in existing markets and enter new markets this year as part of a “steady and strategic growth strategy.” So far this year, Dunkin Donuts has used franchise development agreements to enter new markets including Louisville, KY, Chattanooga, TN, St. Louis, MO, Savannah, GA, and Owensboro, KY. Coffee retailer Krispy Kreme is also expanding via franchising this year, with an agreement to add stores in the Albuquerque, NM market and a plan with its franchisee Great Circle Family Foods to open new franchise locations in the Southern California market. In addition, quick-service baked goods retailer Corner Bakery Cafe is partnering with a franchise developer to open 11 new stores in the San Diego, CA market by 2016. And quick-service restaurant chain Checkers Drive-In Restaurants opened 22 new franchised stores in eight states during the first half of 2009, including non-traditional locations such as food courts. Meanwhile, Smashburger, a privately-held fast food chain with about 35 current locations, plans to open close to 40 restaurants this year via franchising. Fast food sandwich chain Arby’s Restaurant Group, Inc. has signed agreements to open 47 new franchised locations in the U.S. and Canada, while specialty retailer Edible Arrangements is employing a “core and station” enterprise development strategy to quickly grow via multi-unit franchising. While Edible Arrangements stores sell specialty edible gift items, some will also feature Frutation fast food menu items as part of the expansion plan. Furthermore, fast food chicken retailer Church’s Chicken recently unveiled a modular restaurant prototype designed to allow franchisees to open new restaurants with greater speed at less cost. Quick service restaurant chain IHOP is using franchise development to enter Vermont, which until recently was the only U.S. state without an IHOP location. During 2009, quick service restaurant chain Denny’s plans to add 30 new franchise units. It is also worth noting that quick service bakery chain Einstein Bros. is turning to licensing, rather than franchising, to facilitate growth in non-traditional locations through 2010. Einstein Bros. has already opened 12 new licensed stores in 2009 and plans to open at least 20 more in the coming months. Licensing involves a third party paying a licensing fee to operate a branded retail store, but without the direct control the parent retailer retains over a franchised store. Using licensing, Einstein can quickly open stores in non-traditional locations such as colleges, military installations, medical facilities and transportation hubs. Dining groups including Aramark, Sodexho, Chartwells and AAFES operate licensed Einstein Bros. stores.

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