Krispy Kreme, franchisees struggle
What costs more, a box of Krispy Kreme glazed donuts or a share of the company's stock? The answer, at least as of this writing, is the doughnuts. Just when you think the North Carolina-based chain couldn't fall any further, along comes a string of bad news: Its one-time largest franchisee declared bankruptcy, then another franchisee declared bankruptcy, then the company announced that its quarterly financials didn't meet expectations and, by the way, franchisees are closing stores.
“Several franchisees have been experiencing financial pressures which, in certain instances, appear to have become more exacerbated during the second quarter,” the company said in its quarterly earnings release early last month. Franchisees closed 13 stores in the first six months of the company's fiscal year, “and the company believes that the closure of a significant number of additional franchise stores is likely during the balance of the fiscal year.”
That news sent the company's stock plunging toward the $3 mark, its all-time low—lower than when the donut maker was struggling amid an accounting scandal in 2005. Word of struggling franchisees can't be good news to the company's efforts to boost its nationwide presence through franchising, as well as a plan to refranchise company units outside its home base in the Southeast.
Average weekly sales per store, systemwide, fell 2.8 percent in the quarter to $37,500. Weekly sales at company stores, however, increased 1.6 percent to $51,800. The company said systemwide store sales are lower on average because smaller satellite stores that have lower sales are more common among franchises than they are in company-owned locations.
Great Circle Family Foods, the California franchise that was once the largest Krispy Kreme franchisee, declared bankruptcy in August and according to reports blamed a wide range of problems, including rising costs, a lack of marketing from the corporation and overexpansion. The St. Louis-based franchisee Sweet Traditions, whose territory includes Chicago, filed bankruptcy in September and blamed lease problems and few new products from the company.
Snelling joins AAFD
Seeking to boost its accreditation program among franchisors, the American Association of Franchisees and Dealers has brought franchising veteran Bob Snelling Jr. aboard to be its director of Franchisor Accreditation programs.
Snelling sold the staffing company his grandparents started, Snelling Staffing, two years ago. Since then he has focused on his franchise finance company, Honor Capital Group.
AAFD is counting on Snelling's experience as a franchisor to give the organization credibility among franchise systems and not just franchisees. “We want to dispel the myth that we are not franchisor friendly,” said Robert Purvin, chair of the Board of Trustees at AAFD. “Our whole concern is Total Quality Franchising.”
AAFD has had its accreditation program, which focuses exclusively on franchise agreements, since 1996. It awards franchisors that meet its contractual standards a “fair franchising seal.” It is also increasing its focus on accrediting contracts of startup or troubled franchisors in need of a boost, Purvin said.
Taft leaves as Pizza Inn CEO
Pizza Inn has lost its third CEO in five years. Tim Taft, who joined the company in 2005 after serving 10 years as the president and chief operating officer for Whataburger, is leaving to “pursue other interests,” according to the company. Chief Financial Officer Charlie Morrison will serve as interim CEO.
Taft joined the struggling pizza chain after repeated boardroom trouble. In August 2002 the board forced the resignation of then-chief executive Jeff Rogers because they believed he'd be unable to repay a $1.9 million company loan used to purchase Pizza Inn stock. Rogers later sold his shares to Newcastle Partners making the company the majority stockholder.
New CEO Ronald Parker and other executives rewrote their contacts to protect their positions from a change in board control by Newcastle, which they attempted to invoke after Newcastle seated two appointees on the board. Parker was fired in December of 2002.
Interim CEO Morrison joined Pizza Inn as chief financial officer in February. He previously served as president for Steak and Ale and The Tavern Restaurants, as well as CFO for Steak and Ale and Ponderosa Restaurants in 2004.
Postal Annex buys Packaging Store
San Diego-based Postal Annex+ has acquired the 68-unit franchise system Handle With Care Packaging Store.
Postal Annex has more than 300 retail and commercial “pack and ship” centers in 24 states. The Denver-based Packaging Store, meanwhile, operates a mix of retail shops and packaging and crating facilities found in commercial centers like industrial parks, and adds 11 states to Postal Annex's territory.
The deal gives Postal Annex more than 400 franchises. The company plans to have 500 outlets by the end of next year.
Navis, The Packaging Store's parent company, sold off the brand to concentrate on its warehouse-based franchise, Navis Pack & Ship, which is growing rapidly to meet strong demand for commercial shipping.
Franchising Concepts buys Rising Brands
Executives at Franchising Concepts in August said that it purchased the remaining ownership of Atlanta-based regional sandwich chain Rising Roll Gourmet. The franchising company promptly announced plans to grow the 11-year-old brand quickly.
Rising Roll specializes in gourmet sandwiches, salads and soups that are targeted at the lunch-hour crowd. As part of the purchase, Franchising Concepts retained the chain's founders, Jeff and Bob Weiss, as storeowners and concept developers. Franchising Concepts also contracted The Findley Group and charged it with boosting the brand's exposure and strengthening its relationship with franchisees.
Franchise Concepts said it plans to have as many as 100 Rising Roll locations operating around the country within five years.
Accor Sells off Red Roof
French-based Accor said last month that it has completed the sale of Red Roof Inn for $1.3 billion to a consortium that includes Citigroup's Global Special Situations Group and Westbridge Hospitality Fund.
By divesting itself of the budget chain Red Roof, Accor is focusing on a single brand, Motel 6, which operates 928 low-cost hotels across North America.
“Accor plans to step up development of Motel 6 by opening more than 200 units in the United States and Canada by 2010,” said Gilles Pelisson, Accor's CEO.
Founded in 1972, Red Roof has 325 locations around the country. Citigroup's Global Special Situations Group is Citi's investment arm that focuses on event-driven and special situations around the world. Westbridge, meanwhile, is a partnership between Westmont Hospitality Group, a large private operator of hotels, and various Canadian pension fund managers.
Moran Industries merges with Alta Mere
Moran Industries, franchisor of multiple automotive brands, including Mr. Transmission and Milex Complete Auto Care, merged with Alta Mere Toys for Your Car. Alta Mere had outsourced its operations management to Moran Industries for the past 11 years, says Barbara Moran, president and CEO of the company. “The transition was seamless,” she says. She adds the merger will save the company time and money because it will no longer have to maintain two separate accounting and administration systems. Terms of the deal were not disclosed.
