KUMON: NJ Franchise Owner Shares Concerns

November 27, 2009

Kumon educational franchise owner David Joseph originally posted the following as a comment on the post KUMON Franchise Owner Complains of Overexpansion. We’ve moved it here because of length, the quality of the content and the importance of the franchise issues Mr. Joseph raises. Please feel free to share your opinions below.

Comments from David Joseph, NJ Kumon Franchise Owner

Hello, My name is David Joseph and I own a minority share in a center located in NJ. I’m putting up this post to make my views plain and clear to everyone. My statements here are mine and mine alone. I’m concerned about Kumon’s strategy. I’m not concerned about issues involving associations, products, services, or contracts. I also don’t care about rants and insults that are now popping up on this page.

I’m concerned about Kumon’s strategy because I’m seeing encroachment and cannibalization. Although I’m not affected by encroachment, I directly and indirectly know people that are, as I believe we all do. For owners that are not directly affected now, you may be affected in a few months or a few years because of Kumon’s strategy and implementation plan.

For those who don’t own a center, think of encroachment and cannibalization as a pay cut or a layoff. I use this analogy because you lose money and, in the worst case, you can lose your job.

Kumon’s strategy is to build brand awareness through expansion. In essence make Kumon a household name because there will, so to speak, be a Kumon on every corner.

When I think of educational companies with great brand awareness, I think of Sylvan. However, I don’t see a Sylvan on every corner. In North America, there are approximately 1100 Sylvan centers. Kumon has approximately 1500 centers in North America. Yet the average person is more familiar with Sylvan than they are with Kumon.

Sylvan’s brand awareness was developed through heavy TV advertisement. TV ads and spots can cost a lot of money. The money used for advertisement directly affects Sylvan’s bottom line because that money comes directly out of the corporate budget. Sylvan corporate took a financial risk because they invested corporate money into advertising. I’m not sure what Sylvan’s return on investment was but I feel safe to say they achieved their brand awareness goal.

Kumon’s brand awareness strategy is based on increasing the number of centers. Speaking strictly from a corporate viewpoint, it is a brilliant strategy in terms of capital and return on investment. The majority of the money needed to expand comes from owners buying new center locations. New centers may end up encroaching on existing centers but from the corporate viewpoint that is OK. Corporate believes that there will be an overall increase in enrollment. Again, strictly from a corporate viewpoint, there is a lot of upside with minimal financial risk. The risk, from a corporate view, is generating vocal owners. These vocal owners will limit Kumon’s ability to attract new franchisees.
In order for Kumon to justify expansion, they must justify that the market can handle more centers. That is why I questioned and will continue to question the assumptions used to justify expansion. For current owners, take the time to understand your local market in terms of the number of potential students, family income of the students attending your center(s), where they live, etc and estimate what your market penetration rate is. Your concerns and challenges will be dismissed by corporate if you do not come with hard facts. You will also be more confident when you raise issues.

From the franchisee view, expansion can be positive or negative. It is positive if you are operating in an unsaturated market. However, it is especially dangerous if you have large center(s) or if your center(s) are in a saturated market(s). There are centers in NJ that have lost 100+ subjects because a new center opened up in close proximity. Although those centers are very large, loosing 100+ subjects is a huge hit on the profitability of those centers. This is why some owners, especially in NJ, are very concerned about Kumon’s expansion strategy. For owners that operate in less saturated markets, please understand that if left unchecked, expansion will turn from a positive to a negative very quickly.

I put posts on twitter that eventually resulted in postings on unhappyfranchisee.com. I did not hide my name so that Kumon corporate can find me. Eventually corporate contacted me and we had a heated discussion. To be honest, I was too heated to articulate the reasons I chose to post on twitter so here goes:

1) I wanted to demonstrate how much attention only 1 owner can generate and therefore the true risk of Kumon’s strategy.
2) I wanted to be a voice for those who are concerned about expansion and could not get their voice heard.
3) I wanted to give potential franchisees information on some unstated/understated risks of owning a Kumon center.
4) I wanted to demonstrate the effectiveness of utilizing a low cost alternative media channels.

On point 4, let me be more specific. I don’t have a lot of followers on twitter, yet I managed to reach a very broad audience. How did I do it? I spent a few hours finding my target audience. In this case it was Kumon franchising personal, certain franchising experts, and a few owners that actually used twitter. I crafted messages that spoke to different segments and the rest is history. My point here is that my upfront time was figuring out my goals, figuring out who I should target, and crafting messages to get the results I wanted. It only took a few hours over a weekend to generate the buzz.

Now think about Kumon’s customers. Imagine if Kumon corporate invested the resources into understanding customers segments and helping franchisees reach those segments. That is why I challenged Kumon to gain a better understanding of their customers and develop customer segments. I sincerely believe it is a better investment to gain an in-depth understanding of customers and reach people that will truly value Kumon’s offer rather than simply saturating a market.

In addition, the cost to build brand awareness has dropped dramatically. It is not necessary to spend a lot of money on traditional media to reach a targeted audience. Kumon is a word of mouth business and right now word of mouth can be multiplied 1000 fold by utilizing social media. I’m not saying that every Kumon owner needs to get on twitter. I believe it is actually more effective for Kumon corporate to invest their resources into developing a social media plan. Kumon corporate already knows there is something to it because a lot of Kumon’s franchising team already utilizes twitter to attract potential franchisees.

Take aways:

Kumon owners – Don’t just talk about how you lost business to a new center because corporate does not see that as big picture issue. Think in terms of corporate goals, strategies and assumptions used to justify corporate goals and strategies. There are a lot of assumptions that can be challenged. Do your homework and your challenges will carry more weight. If you decide to use public online outlets, do not get yourself dragged into taunts and fights. It’s a waste of your time. Utilize public forums to draw attention to your concerns about Kumon’s expansion strategy. Its not just about you, it’s about everyone that owns a Kumon center.

Kumon Corporate – The expansion strategy has a lot of financial upside but it is very risky if continue to alienate owners. More and more owners will utilize public forums to express their opinions about expansion. NJ is only one market. Imagine if owners in other markets start doing the same thing. Imagine the affect on franchisee recruitment.

The cost of building brand awareness is a lot lower now than just a few years ago due to alternative media channels. If the goal is to build brand awareness, social medial is an effective low cost tool to reach target customers and build brand awareness.

Potential franchisees – If you found this post, you have received insight that most of the current owners did not have at the time they purchased a franchise. It is an interesting time at Kumon. There is a lot of potential but there is also a lot of risk depending on how Kumon moves forward with their strategy. There are some good posts that can help you make a more informed decision. Work with your franchising people but also seek out information from current owners. Ask current owners the benefits and downsides of owning a franchise. Ask their opinion about Kumon’s strategy. I’m sure there are enough owners out there that will give you their honest opinion. Also, if expansion is limited, you can feel safer about your investment.

Final Thoughts: I’m very passionate about business and Kumon. I believe Kumon offers a good service but my opinion is that Kumon’s expansion strategy will escalate franchise franchisee conflict. Escalated conflict will limit both franchisor and franchisee in reaching their goals.

If you’d like to talk to me directly, please find me on twitter. I’m happy to address any questions or concerns.

Sincerely,
David Joseph

WHAT DO YOU THINK? SHARE A COMMENT BELOW. LOGO: Kumon

Written by ADMIN · Filed Under ALL POSTS, Kids Franchises, KUMON

KUMON: Franchisee Association Pushes for Change

November 25, 2009

Burger King owners aren’t the only franchisees pushing for change.

Kumon franchise owners have voiced concerns here (as well as on Facebook and Twitter) that the international education franchisor is prioritizing systemwide expansion over the success of its franchise owners. While the group was not responsible for the initial comments, the President of the International Association of Kumon Franchisees has acknowledged that these comments have resulted from “very challenging and high-stress” internal tensions within the Kumon franchise community.

In an earlier post about the Kumon franchise complaints, Concerned Owner complained that Kumon’s reliance on incomplete demographic data has led the corporation to “overestimate their market potential” and to create an “unjustified expansion plan.” Concerned Owner contends that franchise owners, especially in saturated markets such as New York, New Jersey & Connecticut, are being packed in to the point of competing with one another and cannibalizing sales.

Commenter Joe Cack added that while the franchise owners are being forced into discounting to remain competitive, the franchisor is reaping a whopping 30% royalty off top line sales, regardless of franchisee profitability.

Nicole, the president of the International Association of Kumon Franchisees, added this statement to the post:

The concerns expressed here come out of a very challenging and high-stress situation which we as the International Association of Kumon Franchisees are doing our utmost to address.

We are in constant negotiations with the high-level employees of Kumon North America on many topics to do with our franchise, and, while we know it will be a long process to address all the issues, we are encouraged that considerable progress is being made in real consultation on many fronts.

The great strength of franchisees in New Jersey is that they are working together in very constructive ways on things like profitability studies to analyse how to improve their businesses, marketing studies to grow their centres better and other initiatives to address their situation.

They have the highest representation of association membership (over 80%) and have demonstrated in a recent meeting with the CEO of Kumon North America a very admirable professionalism and creativity in moving the Kumon Vision forward.

I am proud to support these franchisees and others throughout North America in their efforts to use their considerable skills and areas of expertise to develop and maintain their Kumon franchises and to have a positive impact on the Kumon North American system as a whole.

Best wishes,

Nicole,
President, International Association of Kumon Franchisees.

Franchise owners organize into independent franchisee associations in order to present their opinions, requests and sometimes demands to their franchisor. If franchisees don’t feel their concerns are being taken seriously or adequately addressed, they will often take to voicing them on the Internet. If franchisee concerns are further ignored, the dispute can even result in litigation and a public relations debacle, as seen by the recent Burger King dispute.

It will be interesting to see whether international franchisor Kumon and its U.S. franchisees can work out their differences amicably.

ARE YOU FAMILIAR WITH KUMON? WHAT DO YOU THINK? SHARE A COMMENT BELOW.

logo: Kumon

Written by ADMIN · Filed Under ALL POSTS, Kids Franchises, KUMON

Unhappy Franchisee: “I have signed a deal with the devil”

November 25, 2009

FranBest.com has an interesting post you should check out:

Why Franchises Fail & What to Do About It Part 1

It raises an interesting question that is often debated here: who’s to blame for franchise failures?

Franchisees?

Franchisors?

Sometimes both?

Always both?

The FranBest post gives the example of an actual printing franchise owner named Jenny.
Jenny’s Twitter page entries indicate that her approach to building her printing business involves following celebrities online, gazing out the window and “watching the world go by.”
Here are her actual Twitter page entries:

12:59 PM Mar 10th Sitting in my print shop waiting for a sudden onslaught of customers

12:13 PM Mar 18th looking out of the window watching the world go by

7:29 AM Mar 20th Wondering if there is likely to be any work t do today. Might actually have to attempt some marketing

1:09 PM Mar 23rd I have just spent ages picking my favourite top 5 albums on facebook. Now I have finished and everyone can see, I feel a bit pretentious

7:58 AM Nov 24th Never ever get involved in a franchise I have signed a deal with the devil

As the FranBest article points out, this franchisee’s survival in the fiercely competitive printing industry is, at best, a longshot. Who could survive with such a lackadaisical and passive attitude toward building their business? And it’s almost a sure thing that this franchise owner will blame her franchisor (aka “the devil”) for her lack of success.

But who really is to blame here?
Is the franchisor or the franchisee the victim?

On the one hand the franchisee has taken up a franchise territory, is almost certainly not following the system, will likely default on her franchise agreement and will give the brand a black eye in that market.

On the other hand, isn’t the franchisor’s job to qualify franchisees, to weed out those who will not follow the system, to set realistic expectations and mandate the necessary level of promotion?
Isn’t it a franchisor’s obligation to, in essence, save some franchisees from themselves and replace their natural inclinations with a structured, mandatory business system that’s been proven to succeed?

WHAT DO YOU THINK? SHARE A COMMENT BELOW.

Written by ADMIN · Filed Under ALL POSTS

EFUSJON: Is Efusjon Energy Club a Pyramid Scam?

November 23, 2009

According to the efusjon website: “efusjon energy club products offer remarkable taste, pack tremendous energy and deliver health and vitality! …Made from 100% all-natural ingredients and with no preservatives or additives, efusjon’s energy drinks give you a rich, smooth flavor you can enjoy anytime – completely guilt-free.”

efusjon is more than a drink… it’s a business opportunity. Says the efusjon website: “Not only does efusjon energy club offer the healthiest energy drinks available anywhere, but we also provide you with a unique opportunity to make a serious income! When you become an efusjon energy club Associate, you become part of the most unique compensation structure in the network marketing industry. Our revolutionary new system rewards you not only for the efforts of you and your organization, but even for sales in other people’s organizations! It’s part of the efusjon energy club’s ‘share the wealth’ philosophy that’s a win-win for everyone!”

However, a class action lawsuit has another term for the efusjon energy club’s ‘share the wealth’ philosophy: An illegal pyramid scheme. According to the COMPLAINT AND DEMAND FOR JURY TRIAL of LAUREL COOK, on behalf of herself, those similarly situated, and the general public, Plaintiffs, v. EFUSJON, INC., a Nevada corporation; ROBERT TOWLES; R. S. EDWARDS; KEITH DILLON; AARON CALLAHAN; KATHY HUMPHREYS; KENNY GILMORE; MARC SHARPE; KEN VANDER KAMP; and DOES 1-300, inclusive, Defendants filed in the SUPERIOR COURT OF THE STATE OF CALIFORNIA COUNTY OF SAN DIEGO, NORTH COUNTY DIVISION dated November 20, 2009:

Efusjon, Inc. (“efusjon”), a Nevada corporation, sells efusjon’s energy drinks to distributors through a pyramid scheme disguised as a multi-level marketing program. The efusjon pyramid scheme is fraudulent because it induces individuals to invest in products and to recruit new victims into the scheme with the false promise of enormous profits. Completely contrary to the law, efusjon forces its distributors to make purchases and then conveniently considers those purchases as “sales” to meet its legal obligations of accruing retail sales.

New entrants into the pyramid scheme are effectively required to invest approximately $170 per month to buy products from efusjon in order to stay qualified and be compensated under the scheme. Because efusjon distributors essentially do not sell products to consumers who are not also distributors, they obtain returns on their investment in the efusjon program only by recruiting new distributors who will then buy products (and recruit more distributors who will buy products), which purchases result in “bonuses” to the recruiting distributor. The efusjon pyramid scheme is a prototypical one, purportedly formed as a multilevel marketing (MLM) system, with rules and regulations which are drafted solely as a pretense, which are not enforced, and which have no substance in the operation of the business.

In the section of the complaint titled “Nature of Classic, Illegal Pyramid Schemes,” the Plaintiffs allege:

“An illegal pyramid scheme is characterized by the payment of money to a company in exchange for: a) the right to sell a product, and b) the right to receive rewards for recruiting others to join the scheme, independent from the sale of products to the ultimate users… Essentially, participants are duped into believing they are buying into a legitimate business opportunity to sell a product but, in reality, the profits are derived almost solely from money advanced by new recruits inducted into the scheme. In efusjon’s case, the new recruits are under exorbitant pressure to “get their three” and purchase the requisite amount of product for personal use, not for resale… Since the financial incentives require distributors to focus on enrolling new participants in the matrix, the sole way to make money is for the Executive Associates to continually recruit new distributors who are also willing to buy and self-consume, inventory load, discard, or give away the efusjon products. There is no incentive to make outside retail sales. This fact alone renders efusjon a classic recruitment pyramid scheme.”

DOCUMENT (PDF): 22852924-COOK-v-EFUSJON

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Written by ADMIN · Filed Under ALL POSTS, MLM / Direct Sales

KUMON Franchise Owner Complains of Overexpansion

November 23, 2009

According to the Kumon franchise website, Kumon is “an after-school math and reading program that employs a unique learning method designed to help each child develop the skills needed to perform to his or her full potential.”

With an international network of independently owned and operated franchises, Kumon claims it the largest and most established program of its kind in the world. States the website: “Kumon has nearly 250,000 students enrolled at more than 1,500 individually owned and operated Math & Reading Centers in U.S. and Canada alone.”

One would think that having brand dominance of the supplemental education market would be a benefit for Kumon franchise owners… unless continued expansion results in cannibalization of sales between competing franchisees. We received an email from “concerned owner” who worries that, among other things, Kumon is overexpanding at the expense of existing owners.

Concerned Owner writes:

Many Kumon franchise owners are concerned about recent expansion of Kumon in seemingly saturated areas. The corporation is using generic criteria to evaluate potential market areas, namely family income and a specific number of children in K-8. The generic criteria is not adjusted based on disposable income, cost of living, and who actually contributes to average family income. The exclusion of important market data has led the corporation to overestimate their market potential and an unjustified expansion plan.

Kumon corporate also does not have a good understanding of their customer. Kumon offer a good value but they do not know the segment of customer that respond to the value. Instead, they are trying a shot gun approach to increase brand awareness. They are trying to sell expansion as an investment in brand awareness but awareness is no substitute to a targeted message to the customer segment that responds to a companies value prop. Again, this lack of market knowledge and poorly thought out increase in brand awareness leads to over expansion.

In more saturated areas, such as the tri-state NY, NJ, CT area, the corporation is just trying to open up centers in close proximity to some of their largest centers. The corporation does not seem to care that an owner can lose 20 to 30% of their revenue because the corporation hopes to net an additional 5 to 10% growth between the 2 centers. Kumon corporate does not put in capital for the center, that responsibility is on the franchisee. Because the franchisee puts up the capital, Kumon does not share in the risk of the current and new owner. For the current owner, its a loss because they are losing on their top line. For the new owner, they will not get an adequate payback on their investment (build out, furniture, advertisement, etc). Kumon corporate does not care because they can get an extra 5 to 10% without risking anything.

The poor market data, cavalier attitude towards existing/potential franchisee owners, and no risk sharing between franchiser and franchisee leads me to believe that a Kumon franchise may no longer be a wise investment.

Most franchisors have an expansion strategy based on market saturation. Their goal is to dominate viable markets with the greatest possible presence in order to create strong brand recognition, to squeeze out competitors and to maximize systemwide revenue. Overexpansion can result in franchise encroachment, perhaps the greatest source of franchise litigation and unhappy franchisees.

What do you think? Is Kumon Math & Reading franchise doing what it needs to do to create a strong system, or is it overexpanding to the detriment of its franchise owners?

ARE YOU FAMILIAR WITH THE KUMON FRANCHISE? WHAT DO YOU THINK? SHARE A COMMENT BELOW.

Written by ADMIN · Filed Under ALL POSTS, Franchise Encroachment, Kids Franchises, KUMON

CURVES: Complaints of Unauthorized Membership Charges

November 18, 2009

Most of the Curves for Women comments and emails we receive are requests for guidance and/or complaints from struggling Curves franchisees. However, we do receive complaints about Curve franchisees. The most common complaint regards the unauthorized billing of membership fees from ex-members.

Curves ex-member still billed 5 years later

Several different scenarios have prompted these complaints. One of the strangest was the recent report in the Chicago Tribune of a member who was billed $117 by the Curves club in Park Ridge, IL 5 years after she had cancelled her membership. The franchise owner, Michelle Aviles, claimed “the $117 was withdrawn from Bichkoff’s bank account after Curves for Women changed its accounting system in July. Due to a glitch in the process, some former members were accidentally charged.”

The franchise owner apologized and promised a refund. Months passed. The member never heard from her, nor received the refund. The ex-member drove to the club only to find it shuttered. She called Curves International, which was no help. She only got action after getting the Tribune’s Consumer Watch columnist (The Problem Solver) involved. She’s still waiting for the check.

The franchise owner seemed contrite about the supposed “mix-up,” but why did they even have this ex-members credit card information on file after 5 years? Was this really an honest mistake? How many others were “accidentally” billed right before the club closed? Have they received refunds?

Complaints about billing before a club closure

Member complaints have also been lodged by those who claim that they were charged for membership fees shortly before a Curves club closed. Members feel bad that the club closed, but protest that that’s not their problem. Curves franchise owners are entrusted with their private billing information. Some have asked: If owners abuse that trust and bill them for services they know will never be provided, isn’t that fraud? How can they complain about Curves International, they ask, when they are, in essence, stealing from their members?

Complaints about inflated memberships prior to selling a club

One of the most disturbing stories was from a franchisee who bought an established club from a Curves franchisee. The price was based on having an established base of paying customers. After the sale, the franchise buyer changed billing companies, which resulted in “Curves” showing up on credit card statements instead of a more generic company name used by the previous owner. Slews of outraged ex-members realized that they had been billed for membership dues long after they had terminated their memberships. The new owner not only claimed to be a victim of a fraudulent sale, but was maligned in the community for the unauthorized charges.

How many other credit cards of Curves ex-members are being charged each month? It makes you wonder.

Here’s the Question: How widespread is the practice of questionable or fraudulent billing by desperate Curves franchise owners?

Written by ADMIN · Filed Under 30 Minute Fitness, ALL POSTS, Curves for Women

SUBWAY: What Do Franchisees Make on $5 Footlongs?

November 17, 2009

Discount promotions like Subway’s $5 Footlongs sub campaign provide are attractive to consumers and great for the franchisor… but what about the Subway franchise owner who foots the bill? According to Smart Money, Subway franchisees make a “Profit of roughly $1.20 a sandwich.”

Product discounting is one of the hottest topics in franchising. Here’s why: Franchisors make money off the gross sales of their franchisees, regardless of franchisee profitability.

Some franchisors make additional money marking up ingredients and food products to their franchisees.

Public franchisors benefit from higher sales – and stock prices – that are not tied to franchisee profitability.

SmartMoney.com surveyed franchisees from different franchise chains regarding the cost to them of some current and recent promotions. The Smart Money article points out that franchisees generally bear the brunt of a promotions’s cost, including the food, labor, rent and utilities, among other things.

Here’s the Smart Money finding for Subway’s $5 Footlongs sub campaign:

Subway

Promotion: $5 Footlongs – The chain offers any regular sub for $5. (Which subs getting this price tag will vary by store.)

What they normally charge: $5.89 (12-inch turkey sub)

Promotion Price: $5

Bottom line for restaurant: Profit of roughly $1.20 a sandwich

The $5 Footlong is a catchy marketing slogan but the discounting on the turkey sub isn’t as deep as some other big fast food promotions. For Subway operators you can still eke out a decent per item profit — and hope the diner is thirsty for a large, high-margin soda. To make the footlong turkey sub, the ingredients cost $1.65 at a New York location. Mack Bridenbaker, a Subway spokesman, declined to discuss the economics of hosting the company’s $5 footlong promotion.

LITTLE CAESARS: What Franchisees Make on a $5 Pizza

McDONALD’S: What Franchisees Make on a $1 Burger

BASKIN ROBBINS: Franchisees Lose $1.45 per Scoop on Promo

QUIZNOS: Franchisees Lost $2.25 per Sub on Giveaway

BURGER KING Franchisees Sue Over $1 Cheeseburgers

WHAT DO YOU THINK OF SUBWAY’S PROMOTIONS? SHARE A COMMENT BELOW.

Written by ADMIN · Filed Under ALL POSTS, Sub shop franchise, SUBWAY

LITTLE CAESARS: What Franchisees Make on a $5 Pizza

November 17, 2009

Question: Can Little Caesar’s franchise owners really make money on a five-dollar pizza?

Answer: Not much.

Here’s the Little Caesars HOT-N-READY pizza promotion, which report a $.90 profit per $5 pizza:

Little Caesars

Promotion: HOT-N-READY Pizza – Get one 14-inch large cheese or pepperoni pizza for $5 at participating locations.

Pre-promotion price: $10.99 (one large one-topping pizza)

Promotion Price: $5

Bottom line for restaurant: Profit of roughly 90 cents a pizza

Introduced six years ago, Little Ceasars [sic]HOT-N-READY Pizza promotion offers 14-inch cheese and pepperoni pies for just $5. Even though some stores charge about 55 cents more than that, margins are still slim. The cost of a single pizza’s ingredients and packaging amounts to about $3.50, according to a franchise operator in Georgia. Tack on another 60 cents for rent, labor and utilities and franchisees earn roughly 90 cents a pie. Little Caesars’ spokeswoman Colleen Kmiecik says the company’s own calculation on per-item profitability differs from those provided to us by franchisees, but she declined to provide specific figures. She also says the company provides long-term profitability information to its franchisees to show how the promotion will boost their bottom line, but would not provide further details.

LITTLE CAESARS: What Franchisees Make on a $5 Pizza

McDONALD’S: What Franchisees Make on a $1 Burger

BASKIN ROBBINS: Franchisees Lose $1.45 per Scoop on Promo

QUIZNOS: Franchisees Lost $2.25 per Sub on Giveaway

BURGER KING Franchisees Sue Over $1 Cheeseburgers

WHAT DO YOU THINK OF LITTLE CAESARS PROMOTIONS? SHARE A COMMENT BELOW.

Written by ADMIN · Filed Under ALL POSTS, Pizza Franchises

McDONALD’S: What Franchisees Make on a $1 Burger

November 17, 2009

Question: Can McDonald’s franchise owners really make money on a dollar-menu hamburger?

Answer: A little. But they’ve got to make it up on higher profit items – like fries and soda – if they want to stay in business.

Here’s the Smart Money finding for the McDonald’s $1 burger on their dollar menu, which report a $.06 profit per sandwich:

McDonald’s

Promotion: Dollar Menu – McDonald’s customers may purchase a number of items, including French fries, an ice cream sundae, a four-piece chicken nuggets and a double cheeseburger for a dollar each.

Pre-promotion price: $1.50 (double cheeseburger)

Promotion Price: $1

Bottom line for restaurant: Profit of roughly 6 cents a burger

The McDonald’s Dollar Menu may be the best value in town, but some franchisees find the six-year-old promotion hard to stomach. While food and packaging costs just 45 cents for a double cheese burger, franchisees also have to pay for rent, labor and utilities. In total, a promotional price of just $1 leaves store operators with a measly 6 cents of profit, according to a franchisee in Florida. Of course the markup on fountain drinks and French fries is typically pretty high. However, many consumers these days are forgoing such add-ons. McDonald’s did not immediately return phone calls and emails seeking comment.

LITTLE CAESARS: What Franchisees Make on a $5 Pizza

McDONALD’S: What Franchisees Make on a $1 Burger

BASKIN ROBBINS: Franchisees Lose $1.45 per Scoop on Promo

QUIZNOS: Franchisees Lost $2.25 per Sub on Giveaway

BURGER KING Franchisees Sue Over $1 Cheeseburgers

WHAT DO YOU THINK OF McDONALD’S VALUE MENU PROMOTIONS? SHARE A COMMENT BELOW.

Written by ADMIN · Filed Under ALL POSTS, Fast Food franchise, FOOD FRANCHISES, McDonald's

BASKIN ROBBINS: Franchisees Lose $1.45 per Scoop on Promo

November 17, 2009

Discount promotions like Baskin Robbins 31 Cent Scoop Night might be great for ice cream lovers and great for the franchisor… but what about the Baskin Robbins franchise owner who foots the bill? According to Smart Money, BR franchisees lose roughly $1.45 a scoop on 31 Cent Scoop Night

It’s one of the hottest topics in franchising. Here’s why: Franchisors make money off the gross sales of their franchisees, regardless of franchisee profitability. Some franchisors make additional money marking up ingredients and food products to their franchisees. Public franchisors benefit from higher sales – and stock prices – that are not tied to franchisee profitability.

Here’s the Smart Money finding for Baskin Robbins 31 Cent Scoop Night, which report a $1.45 loss per sandwich:

Baskin Robbins

Promotion: 31 Cent Scoop Night – This annual promotion occurred between the hours of 5pm and 10pm on April 29.

What they normally charge: $2.29 (one single scoop)

Promotion Price: 31 cents

Bottom line for restaurant: Loss of roughly $1.45 a scoop

Baskin-Robbins’ 31 Cent Scoop Night is done in the name of charity. Not only does the company donate $100,000 to NVFC National Junior Firefighter Program, but it’s also quite generous to ice cream lovers as well. One scoop (of any flavor you choose) for just 31 cents compared to the regular price of $2.29 at one location in Wisconsin is a pretty sweet deal. Franchisees don’t feel much of that goodwill, however: Beyond the approximate 60-cent cost of the ice cream, a spoon and a cup, store operators also pay another $1.15 per scoop for rent, utilities and labor, estimates one store owner in Wisconsin. Baskin-Robbins spokeswoman, Danielle Sullivan, says the company’s own calculation on per-item profitability differs from those provided to us by franchisees, but she declined to give specific figures. She also declined to comment further on costs and profits.