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NOVEMBER 2024
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“Yeah,” he said, “and they also would like me to open another division in the Midwest. And I should just buy a trucking company, too, because the cost of trucking has gone off the charts.”
Time to Sell?
How Franchisees Know When to Move On
“So, are you going to do those things?” I asked.
“No,” he replied. “I’ll sell this business to somebody who has the energy.” To an outsider, this business owner was a picture of success. But he had found other priorities. People always assume sellers want to maximize their selling price at all costs. But for some franchisees, the difference between getting $18 million and $20 million for their business isn’t a dealbreaker. Sure, they could wait another year for a better price. But maybe they’re 72 years old and never going to spend that extra $2 million. The only difference it makes is in how much they leave their grandkids. Does it really matter, especially if you want to spend more time with the grandkids? Deciding to exit your closely held business is a little like selling your house or the family farm. Growing up in Wisconsin, I had a friend whose dad was a dairy farmer. He worked 365 days a year milking cows, while his wife Cheryl kept the books and managed their finances from their kitchen table. After my friend’s dad died, one of the kids decided to give the farm a go. So Cheryl stayed on the farm with the books and finances. But when her son decided two years later to quit and go to trade school, Cheryl got the hell out of there. Within a month, she sold the cows, the buildings, and the land, and became a flight attendant, flying all over the country. She married an executive and spent her next chapter living in an upscale neighborhood in Dallas. It was breathtaking to watch. I still shake my head thinking about her kicking ass and moving on. Cheryl sold that farm because it was time. She didn’t give a damn whether the cows would be worth more if she waited another six months. She was done. If you’re thinking about whether it’s time to sell, take some time to imagine your next chapter. A little reflection might open some new doors you hadn’t even considered.
How can a business owner tell when it’s time to sell and move on?
A growing number of franchisees are calling it quits, a business broker recently told Restaurant Finance Monitor. Hit hard by rising labor costs and declining customer traffic, “a lot of guys ... are throwing in the towel,” the broker said. Some franchisees are financing part of the transaction themselves. Franchisees are clearly less optimistic than they were a year ago. The proportion who are at least somewhat confident that they will meet their growth goals this year fell to 48% from 77% in 2023, according to 700 franchise executives surveyed by Boefly, a small-business financing platform. It’s usually best to sell a business when you’re doing well and prospects are good, of course. If you know you want to exit in the next three years, you might time your exit to take advantage of lower interest rates or to increase your earnings before interest, taxes, depreciation, and amortization (known as EBITDA). While I help clients with these decisions, I also encourage them to wrestle with other issues. A question I like to ask is, “What would you do if you weren’t doing this?” The question gets them thinking about the next chapter. Are you still healthy? Do you have a plan for retirement so you won’t just be sitting around, looking out the window, wondering what the hell just happened to your life? Do you and your partner have things you want to do while you still have the ability? Have you saved enough to enjoy retirement? For the youngest baby boomers, now in their 60s, the most powerful motivation is “I just want to do something different” or “I am getting old, and I just found out my son is absolutely not going to take over this business.” One successful business owner I know, who is in his 60s, is a large supplier to several chains and recently expanded his operation. I said that with the additional capacity his customers must be happy.
– Nate Riordan
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The $93,750 Spud Uncover Fabergé’s Unexpected Masterpiece When you think of the name Fabergé, you probably imagine opulent, jewel-encrusted eggs that epitomize luxury and elegance. But did you know the famous Russian jeweler Peter Carl Fabergé, the mastermind behind the glittering eggs, also created a humble potato? And not just any potato, but one that fetched an astounding $93,750 at a Christie’s auction in 2016.
A Full-Circle Moment
Fast food is many things to many people — a budget meal, a quick family dinner, a midday snack. But can fast food unite the nation around nostalgia over shared childhood memories? An eatery called Chain in Los Angeles is betting it can by hosting a series of pop-up festivals offering upscale remakes of the fast food industry’s biggest hits. After a sold-out debut in Los Angeles last year, ChainFEST recently held its first East Coast event in New York City and a second Los Angeles event last month. The events have been drawing as many as 10,000 guests at a time. The vibe is vintage McDonald’s, intended to bring fans together around memories of favorite chains. “You’re creating this new memory based on an old memory,” Tim Hollingsworth, a Michelin- starred chef and one of ChainFEST’s founders, said at a news conference, as reported by Forbes. “It’s like that full-circle moment.” B.J. Novak, an actor and writer who starred as Ryan Howard in the sitcom “The Office,” is a co-founder. Hollingsworth isn’t serving the burgers and fries of the 1980s. He developed gourmet versions of fast-food favorites. Domino’s offerings include a new Bougie Pizza. Panda Express features a Blazing Bourbon Chicken. Cracker Barrel dishes Country Fried Steak topped with Dijon cheddar gravy, and White Castle embellishes its 1921 Slider with a “top-secret sauce.” Red Lobster’s Cheddar Bay Biscuit is topped with lobster poached in butter. And a new gourmet burger from Red Robin offers five spicy sauces. Fast-Food Nostalgia Brings Foodies Together
FABERGÉ’S GLORIOUS SPUD In the late 19th and early 20th centuries, Peter Carl Fabergé was the go-to jeweler for Russian royalty. His intricate and lavish creations, particularly the famous Fabergé eggs, were commissioned by
Czars Alexander III and Nicholas II as Easter gifts for their wives and mothers. Each egg was a masterpiece, often containing hidden surprises like miniature portraits, mechanical wonders, expensive jewels, or even tiny replicas of royal palaces. But amidst these exquisite creations, Fabergé had a sense of humor and a knack for the unexpected. Enter the Fabergé potato — a far cry from the shimmering eggs but equally fascinating in its own right. This potato, crafted from pink agate, was a whimsical departure from his usual opulent fare. THE HUMBLE POTATO’S JOURNEY Fast-forward to 2016, and this extraordinary potato was again in the spotlight. When Christie’s auction house announced the sale of a Fabergé potato, the world did a collective double-take. After all, who would have thought a potato — albeit one crafted by a master jeweler — would garner such attention and a hefty price tag to match? The bidding war was intense, with collectors and Fabergé enthusiasts eager to own this unique piece of history. When the gavel finally came down, the potato had sold for a staggering $93,750. Not bad for a root vegetable! WHY A POTATO? You might wonder why Fabergé, a jeweler known for his elaborate and luxurious designs, chose to make a potato. Perhaps it was his way of showing artistry could be found in the simplest of things. Or maybe it was a playful nod to the significance of potatoes in Russian culture — a staple food that sustained many through tough times. Whatever the reason, Fabergé’s potato reminds us that even the most mundane objects can be transformed into something extraordinary with a bit of creativity and a touch of humor.
The ambiance is unique, too, featuring pop-up replicas of many of the restaurants’ vintage interior designs. The Chuck E. Cheese arcade pop-up includes an appearance by Charles Entertainment Cheese himself.
You won’t find any value meals here. Tickets start at $99.99. All- inclusive VIP tickets with bites of everything and an open bar start at $399.99. And reserved seats at the Chef’s Tasting VIP Table, with access to a chain food buffet, start at a mere $1,299.99.
A recent addition from a new sponsor in LA: Free samples at Pepto Bismol’s “fast-relief station.”
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“It is only when we take chances that our lives improve.”
— Walter Anderson
Value Wars Fast-Food Price Cuts Spark Long-Running Battle
The fast-food value wars are heating up as more leading chains join the fray and others extend their price cuts.
From deals to innovative use of apps and subscriptions, fast-food giants are pulling out all the stops. McDonald’s has extended its $5 Meal Deal through the end of the year, and Burger King extended its $5 Your Way Meal for several weeks into the fall. Carl’s Jr. and White Castle dove into the fray in August with ongoing price cuts. And Sonic Drive-In’s FUN.99 menu and Jack in the Box’s $4 Munchies meals are permanent price changes. The price cuts appear to be drawing more customers, lifting fast- food traffic by a modest 2%–5% above year-earlier levels since the value wars began, according to Placer.ai. The marketing wars may yield other lasting changes. Fast-food chains are using apps in innovative ways. Taco Bell recently introduced a “name your price tool” within its mobile app, asking customers to set a spending limit and offering them various menu combinations within that range. Chosen items can be pinned and re-mixed with other options to generate the budget order of the customer’s choice. Nearly half (46%) of 2,000 adults surveyed by Lending Tree said using apps entices them to visit fast-food restaurants more often. Fast-food chains also are testing subscription plans that have been so successful in other industries. Taco Bell turned heads in 2022 by offering loyalty members who buy a $10-a-month
subscription access to a special section in their app enabling them to order a free taco or nacho fries every day. In a test run, the chain said the offering yielded a 20% increase in rewards memberships. Subway also has made subscriptions available intermittently, offering a 50% discount to loyalty members who purchase a $15-a-month subscription. The industry faces fundamental problems, however. Nearly 80% of consumers have come to view fast food as a luxury, and two-thirds of them are cutting back, the Lending Tree survey shows. For franchisees, making value pricing work on an ongoing basis is a challenge. According to research at Georgia State University, the best strategy is to bundle popular menu items with low- cost offerings, such as sodas, and to train employees to upsell customers on desserts or other higher-margin items.
Visit our blog for helpful franchise law insights and industry trends: westcoastfanchiselaw.com/insights
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In This Issue 1
Franchisees Weigh the Right Time to Sell Fast Food Gets a Hollywood Remake at ChainFEST Discover Fabergé’s Playful Potato Masterpiece Bargain-Hungry Customers Slow to
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Return to Fast-Food Chains You May Need More Cyber Insurance Than You Think
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Evade Cybercrooks
Any business with computers connected to the internet is at risk. Criminals may use malware to access bank account information and wire millions of dollars to a fraudulent account before it is detected by your bank. If your customers or clients pay you by check, be aware that cybercriminals are skilled at “washing checks” — removing the ink on check stock and changing the payee name and amount to their own benefit. Business owners can reduce these risks by training employees to spot suspicious emails and downloads, securing their internet connections, and using antivirus software and updating it often. Other preventive measures include requiring users to provide more than a username and password to log in, monitoring cloud service provider accounts, and securing payment processing data. Also, have at least two people looking into and authorizing financial transfers, and buy adequate cyber insurance to protect you from a hacking attack or data breach. Many small businesses set their policy limits at $1 million, but the most effective coverage choices are based on your security exposure and the kind and amount of data you store. Your business lawyer can help you make the wisest decisions, providing help with risk assessment, determining compliance requirements, and negotiating policy terms with insurers. The Small Business Administration maintains helpful cybersecurity resources for small businesses at sba.gov/cybersecurity .
Many owners of small- and medium-size businesses think they’re too small, or their data isn’t valuable enough, to require insurance against a cyberattack. You may not be doing megadeals or storing the secret formula for Coca-Cola in your company’s computers, but you are still vulnerable to major financial and reputational damage by cybercriminals. In fact, hackers may target small businesses because they expect them to have weaker defenses. By the time you realize what has happened, you may have sustained major business losses. The average cost of a data breach rose to $4.88 million in 2024, up 10% from last year, according to IBM. Some 70% of the 604 organizations surveyed said the breach caused significant disruptions. Recovery took more than 100 days even in the best-case situations, where businesses were actually able to fully recover. Many never did. Protect Your Business With Insurance for Cybercrimes
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