A22-Lancaster Farming, Saturday, April 22, 2000 COLUMBUS, Ohio - More than one-quarter of all new restaurants fail during their first year of business. About 60 percent fail within five years. Although many are independent operations, failures also occur with franchised restaurants. One reason is that fran chisees and their regional or national parent companies sometimes work at cross-pur poses, said H.G. Parsa, associate professor of hospitality manage ment at Ohio State University. Parsa, who is housed in the College of Human Ecology, is known nationally for his research on franchise manage ment practices. It’s an area of study few researchers have focused on, although franchising accounts for nearly 41 percent of all retail sales in the United States, or $BOO billion annually. “Usually, franchising is the way to go,” Parsa said. “In fran chise systems, somebody has tested the product, and if some thing goes wrong, you have someone to talk to for some sup port.” However, most parent compa nies, or franchisers, make their money by taking a percentage of the revenue from individual stores as royalties, irrespective of those stores’ expenses or prof its, Parsa said So, franchisers often like to increase sales, no HEATMOR OUTDOOR WOOD FURNACE Stainless Steel When you need COLFJfcL '* S' Dealer Inqu TRACTOR & WJWrW / TRUCK MiSMJMS Carroll County Agricultural Center • Westminster, MD Farm Stock S . _ _ 2 6,000, 8,000,13,000 U APRIL 30 0 12:00 Noon - A pedal pull for kids ages 4to 8 Rain Date Sun - May 2 0 1:00 p.m. - Point Pull - Featuring Two-Wheel and Four-Wheel, Modified and Super and Pro-Stock Tractors 9:00 a.m. - Breakfast starts at 9 a.m. Pit beef, BBQ Chicken Platters SERVED ALL DAY For Information or Directions Admission $lO Call 410-848-9426 This is the biggest fund raiser of the year for the Carroll County Ag Center. Management Key To Success Of Franchise Operators, Parent Companies matter what. On the other hand, the stores!franchisees) are inter ested in maximizing profits, or their revenue minus expenses. If a new product or service costs too much to provide to cus tomers, stores might hesitate to offer it unless sales increase substantially When the goals of franchisers and franchisees collide, prudent management is key to success, Parsa said. In any franchise sys tem, stores and the parent com pany each have some power, although the parent company has considerably more. How that power is wielded affects both store owners’ satisfaction, and the eventual financial results for both franchiser and franchisee, Parsa said. For example, in the early 1980 s, Wendy’s International decided to offer breakfast at its quick-service, or fast-food restaurants. The omelets, scram bled eggs, pancakes, and other breakfast items increased rev enues, but also increased indi vidual restaurants’ expenses. The stores’ extra outlay actually decreased their profits, even though the parent company was benefiting from the increased revenue. What happened next was a classic case of using the wrong management style at the wrong time, Parsa said Many fran- • Heat Home, Hot Water, Outbuildings • No Fire Danger or Chimney Worries • Forced Air or Hot Water Heating • 3 Sizes - 18 Colors * Forced Draft - Ash Auger Clean-out • Wood or Coal Grates • High Efficiency - Clean Burning • 10 Year Corrosion Warranty • Financing & Dealerships Available Outback Heating Dist. “ 888-763-8617 HAMPEL COUP. B Y chisees quickly figured out that their own bottom line would be hurt if they offered the breakfast program, and they decided not to participate. That prompted the parent company to try to force franchisees into offering breakfasts, telling them to either do it “or take the sign down,” Parsa said. The result? Some stores filed for bankrupt cy, and the breakfast concept was eventually abandoned. This scenario has the poten tial to be replayed whenever a parent company wants its restaurants to introduce a new product that might generate higher volume but yield a low profit margin, Parsa said. While such a heavy-handed approach can work when franchisers and franchisees are working toward the same goal, it wasn’t a good strategy in this particular case, Parsa said. Similar problems can happen when a franchise tries to grow too fast, Parsa said. For exam ple, Subway experienced a high TMtVQQWr*V*Q tB7 Merts Drive Elizabethtown, PA 17022 Phone #717-367-1319 1-800-222-3373 Fax #717-367-6662 cA I fcAfi/cl/ SPRING HOURS ARE BACK! 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Wendy’s chose a better method later in that decade, when it launched a buffet con cept called the “Super Bar.” Although many store owners hesitated because of the sub stantial capital investment nec essary and the reduced floor space for customer seating, the parent company coaxed them into trying it by offering limited expert and financial assistance, allowing time delays in imple menting the concept if neces sary, and helping redesign din ing areas to prevent loss of seat ing. This collaborative approach helped the Super Bar concept become a success until changing times brought the concept to a close. Wendy’s is now known as a franchisee-friendly parent com pany, Parsa said, as is McDonald’s, Papa John’s and other companies. In his studies of various franchises, Parsa has found the most successful are those in which both the parent company and individual stores financially perform at or above the industry average. He has found that in those cases, which he calls “Progressive Franchise Systems,” the franchiser/fran chisee system: •Consistently makes adjust ments to their products and operations to maintain a com petitive advantage. •Is proactive in its marketing activities. •Understands the impor tance of franchise relations and INSTOCK Maid Vinyl Rolls from (Armstrong Ist Quality ' @ 2nd Prices j 'lrstCome FtritS&fod While Supplies Last V Flooring itffr. CARPET ONE Just Off Rt. 897 Fivepointvilie 717-445-7799 Toll Free 877-445-7799 (Turn to Page A 27)
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