Premium content from Business Courier – by Tom Demeropolis, Courier Staff Reporter
Date: Friday, March 11, 2011, 6:00am EST
Ray Wiley knows the challenges of being both a franchisee and a franchisor. The longtime Subway franchisee launched his own Mexican fast-casual restaurant concept in Dayton back in 2007. Now, Hot Head Burritos is one of the fastest-growing franchise concepts in the region.
And in the wake of the Great Recession, Hot Head Burritos could have as many as 100 locations in some stage of development before the end of the year.
Wiley is far from alone, as franchise businesses across the country are gearing up for growth.
Coming out of recessions, franchises historically have grown at a faster clip. Matt Haller, director of communications for the International Franchise Association, said franchises perform better in down economies because of the nature of franchising. Franchises are easier to operate and easier to expand because franchisees can draw from experience in the franchise system and support from the franchisor.
Many who lost their jobs during the recession don’t want to be dependent on someone else for their income. Franchising offers a way to be independent without starting from the ground up.
Don Boroian, founder and chairman of Chicago-based Francorp International, said franchising offers entrepreneurs an easier way to own a business.
“Ninety-five percent of people who try to start a business from scratch fail,” Boroian said.
Franchising is the fastest and strongest way to scale a business to create new jobs and expand a business, Haller said.
For the first quarter of the year, activity is up 10 percent compared to the fourth quarter of 2010, Richardson said. He’s seeing increased interest from two different segments: those who have lost their jobs during the recession and those who are looking to franchises to supplement their existing income.
For those making a career change, Richardson helps them investigate the type of franchise business that fits them best.
“If you’re considering starting a business, perform a self-assessment first. Figure out what’s important to you,” Richardson said.
And franchising goes far beyond restaurants. That way, you don’t have to come home smelling like hamburgers if you don’t want to, he said.
Franchise segments that are seeing continued expansion are senior care, personal care, such as hair salons, and business related to pets, Richardson said. There are more than 300 business format lines that operate as franchises, Haller said.
The biggest obstacle facing both franchisees and franchisors is access to credit. Banks have tightened restrictions on lending, in turn making it more difficult for franchisees to get money to start up their own business.
“We’re making the argument now that we can turn this economic recovery into a jobs recovery if we can get the banks lending again,” Haller said.
For every $1 million loaned to franchises, 34 jobs are generated, Haller said.
Credit has been a hindrance for potential franchisees in the past, but a growing number of franchisors are acting as banks for their franchisees. Haller said this is a trend across the board for franchises.
“Franchises are looking for creative solutions to grow their systems,” Haller said.
Toledo-based Marco’s Pizza, for example, has several programs aimed at helping franchisees open stores, including providing them financing or guaranteeing their loans with banks. The 225-unit company has roughly 60 stores in development.
ServiceMaster Clean is offering qualified prospects up to 80 percent financing to start their cleaning business.
Another franchise offering lease finance options is Hoodz Kitchen Exhaust Cleaning, Richardson said.
Franchises of all shapes and sizes have targeted 2011 as a growth year.
Locally, LaRosa’s is looking to expand through multi-unit franchise operators in cities such as Nashville, Louisville and Columbus.
Dunkin’ Donuts experienced a 50 percent increase in development deals last year, crediting existing franchisees and incentives. The chain opened 206 new locations in the U.S.
In some markets, the Canton, Mass.-based franchise offered reduced royalty fees for three years and an extra $10,000 in local store marketing.
After more than 35 years in the franchise business, Boroian said there is always room for another franchise, as long as it’s well-run.
“The naysayers in 1970 said there was no room for another burger operation. We’ve seen burger operation after burger operation go on to flourish,” he said. “There’s always room for one more.”
Read more: Franchise growth sizzling nationwide in recession’s wake | Business Courier