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Another open challenge to franchises!

9/16/2013

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So far, not a single franchise has stepped up to take our challenge on the value of ongoing royalty payments. <sound of crickets chirping>  So here's another, hopefully easier one:

What does the franchisor provide for the $45,000 franchise fee besides the right to put his name on your building, a pat on the back and a "Go get 'em, Tiger"?   Let's list the potentials (results are typical across franchisors):
  • Architectural drawings?  (Nope, those are done by an architect which the operator pays, and is a $15-$20k line item all by itself)
  • Engineering drawings?  (Nope, those are done by an engineer which the operator pays, and is a $4-7k line item all by itself)
  • GIS studies and market analysis? (Nope, that gets farmed out to a third party and the OPERATOR pays for it)
  • Site search and identification (Nope, that is diverted to a commercial real estate broker that is earning a huge commission that you will eventually pay through higher rent.  See our post below ("A Recent Conversation with a Franchisee") regarding the complete lack of insight and analysis from a franchisor in choosing a site.)
  • Lease negotiation? (Nope, that is diverted to an attorney) 
  • Construction management? (Nope, that farmed out to a 3rd party as well, at about 5% of the total construction cost)
  • Marketing (Well...it generally buys you some post card templates and a couple of suggestions, but the cost of marketing is on you, the operator, and is not included in the franchise fee.) Update: Maybe not even that!  See below:
  • Marketing (reality) - We were recently contacted by a franchise owner begging us for marketing help.  His facility was nearly empty, and he needed some help marketing it to potential tenants. We asked him why he came to us and why his franchisor was not providing this kind of support, and he told us that it was not included in the franchise fee(!), and would therefore be an extra charge. However, his major frustration was that even IF he wanted to pay the franchisor for marketing help, he couldn't get them to return his phone calls or emails, so it was a moot point. (Somebody please tell us again what these franchise fees get you?)
The best feature that we have heard is that the franchisor has these incredible discounts on equipment and furniture that will be passed along to the operator.  But wait...how about if we do some simple math?  (Math is the enemy of the franchisor.)  Let's imagine that the franchisor is going to get the operator a 10% discount on furniture (Ok, ok, we know: that's generous).  In order to justify a $45,000 franchise fee for a 10% discount on furniture, that means that you would have to have a $450,000 furniture budget!  Hmm, that means in a facility with maybe 30 suites, you were planning on spending about $15,000 per suite on furniture alone!  If you have bought into that argument, we have a very nice bridge for sale that you might be interested in, too.
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If you have your heart set on buying a franchise and taking on the huge additional costs they incur, there are at least 23(!) by our count operating today:  Sola, Phenix, Salons by JC, Salon Lofts, A Suite Salon, My Salon Suite, Studio Salons, Salon Spa Suites, Salon Plaza, Cirque Salon Studios, Image Studios 360, Salon Boutique, Universal Salons, Blue Lion Salon Studios, Mimosa Salon Suites, Encore Salon Suites, Cosmopolitan Suites, Salon Concepts, Beauty Bungalows, Salon Studios, Spectra Salon Suites, and Optima Salon Suites.  Shop around, but why bother? You can accomplish the exact same objective at a fraction of the price. See how by clicking here. ​

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