Franchise Graduates Face a Tough Start

Of the 16, only six could say they would open a Baskin-Robbins if they had to do it all over again — and five of these folks reported plenty of frustrations. Five classmates wished they'd never taken the plunge. One ducked my repeated calls. The remaining four never opened their stores, citing financial or personal reasons.

Wall Street Journal
March 1, 2001

Franchise Graduates Face a Tough Start
Dan Morse

David Bassiri, Quyen Le, Doloris Coit, Lee Ravji, Shiraz Ravji, Lynda Walker, Russell Walker, Willie McGinest, Harjeet Grewal, Jasbir Grewal, Alex Abebe

Imagine a class reunion where almost everyone stands against the walls and looks down at their shoes. That's the picture I drew in my mind recently while calling up my 1998 classmates from Baskin-Robbins's franchise school. As a reporter, I'd trained with them in order to write an article for this newspaper. Now, it was time to find out how the real ice-cream-shop owners were doing in their new businesses.

As a whole, not so well.

Of the 16, only six could say they would open a Baskin-Robbins if they had to do it all over again — and five of these folks reported plenty of frustrations. Five classmates wished they'd never taken the plunge. One ducked my repeated calls. The remaining four never opened their stores, citing financial or personal reasons.

All who did take up scoops walked right into a one-two punch: the nationwide labor shortage and a Baskin-Robbins push to revitalize its shops nationwide — store overhauls that had to be paid for by the individual franchisees.

"It's just been a couple of years, but it feels longer than that," says 30-year-old David Bassiri, from his shop in Laurel, Md.

Like a number of his classmates, Mr. Bassiri says sales have been disappointing. In his first year after graduation, he says, revenue was $40,000 less than he'd expected, essentially wiping out his planned salary. Cold months were particularly tough. "You're just sitting here, praying for customers to come in," he says.

Laxity and Competition
Mr. Bassiri also has faced poor staff performance and competition from a nearby Baskin-Robbins store. But he's more optimistic than others. He likes his revitalized shop. Sales are up $20,000 this year, he says, because of his improving management skills. "I can see, actually, the light at the end of the tunnel," he says.

The group left franchising school with big smiles and high hopes. They are a subset of the more than 20,000 new franchise units that open each year, selling everything from French fries to formal wear, according to figures compiled by FranData Corp., a Washington, D.C., company that tracks franchise records. My classmates invested between $145,000 and $325,000 to open their stores. (One Canadian class member, in ice-cold Ottawa, paid about $60,000 in U.S. dollars.)

I checked in with the franchisees at the toughest time — the second and third year in business, which experts say are typically the most challenging, especially since a lot of franchisees have never run a business before. It's tough to say how their survival rate compares with averages among
franchisees as a whole. In the last three years, the International Franchisee Association has studied franchisee turnover, and found that it's increasing, slightly. The IFA estimates that 5% to 10% of all franchise units change hands every year.

My own survey of the Baskin-Robbins training class is hardly scientific. Indeed, there are numerous happy Baskin-Robbins franchisees among the 2,000 nationwide. While executives at the company's headquarters in Glendale, Calif., can't do much about the nation's labor shortage, in other areas, they say, they try to make life as easy as they can for new franchisees while still striving for companywide profits. They concede the first 18 months to 24 months can be tough out there. "In any organization you go into, there's an amount of time that is hard," says Todd Bartmess, senior market executive. My classmates found interesting ways to cope with the ordeal.

Labor Woes
That franchisees have trouble finding good workers isn't startling in such a tight labor market. Even the following four franchisees, who say they'd open a Baskin-Robbins again, are frustrated by labor woes.

Mr. Bassiri, the Maryland store owner, reports minor theft by his young employees. At first, "I sort of wanted everyone to like me," he says. He let them eat free ice cream. "When they like you in that way," he learned, "they take advantage of you." He has resorted to calling parents to try to straighten staffers up.

He has also learned to spend more time at the office — keeping an eye on employees and teaching them to "up-sell" products to, say, a larger drink size. He's got a new crew, he says, who are working out a lot better.

Quyen Le, in Oklahoma City, says she's had staffers pocket customer payments or give away free ice cream to their friends. "It's either one or the other," she says. Ms. Le, 26, gets rid of flagrant offenders, but allows other workers to arrive late, or take random days off because it's so hard to replace them. One day, she says, a local gang member ran into her shop to escape an assailant. Ms. Le locked the doors behind him, called the police, and the kid was able to leave safely. A few days later, he came back asking for a job. Ms. Le felt she had to pass on this one, fearing he might attract more trouble.

Unskilled Teens
In general, my classmates don't paint a flattering picture of the work ethic of today's youth. "Most teens," says Doloris Coit, of Ridgecrest, Calif., "don't know how to clean or even do dishes."

Yet she finds compensations. Ms. Coit says, "Running an ice-cream store is fun. Bringing a smile to a child's face makes it all worth it."

The one classmate who seems to be doing best is Lee Ravji, who picked up the less expensive Baskin-Robbins store in Canada. In the past two years, three or four Baskin-Robbins stores have closed down in Ottawa, she says. So the remaining half-dozen operators have more customers. Ms. Ravji and her husband Shiraz work full time at the store, offering what they consider extra customer service and report sales gains in 24 consecutive months. "So I'm very happy," Ms. Ravji says.

Store Updates
At the company headquarters in Glendale, executives must deal with America's changing ice-cream landscape. These days, consumers can zip down to the nearest grocer to pick up a pint of Haagen-Dazs or Ben & Jerry's, which is mighty fine stuff. So, in October 1999, the company gave its franchisees a choice: spend as much as $20,000 to revitalize their stores — to make purchasing ice cream more of an "event" — or miss out on a corporate ice-cream discount.

The company had decided the neon-white, operating-room motif of yesteryear is out. The new look: cream-colored wallpaper with funky cone drawings, plenty of wood accents, and mauve countertops. "Much warmer and more inviting," says Carolyn O'Keefe, vice president of retail concepts. Baskin wanted to move fast before the big summer season, and demanded the participating franchisee use preselected contractors — for speed and systemwide continuity.

As of April of this year, 1,200 Baskin-Robbins stores had been updated. Franchisees who participated pay less for ice cream — about $15 a bucket instead of about $25. But they must pay higher royalties to the corporation-5.9% of sales, up from 0.5% of sales. Also, their mandatory payment to national advertising and marketing increases to 5% of sales from 3.5% of sales.

The corporation points out that many renovations were completed for less than $20,000. And Ms. O'Keefe says that store refurbishments were designed to be "cash-flow neutral" for franchisees, including the interest they'd have to pay if they borrowed up to $20,000. The corporation set up an outside, turnkey financing plan.

But all this doesn't sit so well with Lynda and Russell Walker, who are struggling with their Baskin-Robbins shop in South Lake Tahoe, Calif. She says nothing has gone as she had hoped.

Ms. Walker says she spent nearly $20,000 on the store update, including a fancy new cash register, and may have to shell out another $6,000 for an elaborately hung, outdoor sign. But she says the cash register doesn't fit well in her small shop, and her employees managed to hack into the manager-level functions. (Baskin-Robbins executives, while not commenting specifically on her cash register, say passwords should keep staffers out of the systems. They say the new registers are standard size and are more secure than the old ones, and say the Walkers may be entitled to a far less expensive refurbishment of their existing sign.) Ms. Walker still uses the old cash register, and says she is getting static from the corporation to get with the program.

Campaign Costs
She explains how local franchisees can bear the brunt of national marketing campaigns, like the one for a Wednesday night of free ice cream that cost her $1,000. She recalls that during that promotion one customer at her counter said to another: "Isn't this nice of Baskin-Robbins."

"I had to bite my tongue," Ms. Walker says, "from saying: 'Baskin-Robbins?! You're looking at him right here."'

Ms. Walker reports an average of $820 a day in sales, which is typical for Baskin stores. But she says all profits have gone into updating the store as required. If she could go back in time, she says, she wouldn't have purchased the store. "We would have been far ahead if we would have invested that money in stocks," Ms. Walker says.

The revitalization scheme was just as upsetting for Willie McGinest of Southern California.

His son, Willie McGinest Jr., is a star defensive end for the New England Patriots, and invested in a new Baskin-Robbins in Carson, Calif., near the McGinest home. The senior Mr. McGinest went to franchise school to learn how to manage it. The McGinests signed a one-year purchase option.

Their store also featured a Togo's sandwich shop. (Togo's is owned by British-based Allied Domecq, the liquor giant that also owns Baskin-Robbins and Dunkin' Donuts. Such "combo stores" are a corporate strategy.) The McGinests operation was part of a "Store of the Future" concept for Allied Domecq, the senior Mr. McGinest says. Other prospective franchisees came in for a look. "Our store was a showpiece," Mr. McGinest Sr. says.

But within a year, Mr. McGinest says, Baskin announced its refurbishment scheme and wanted the McGinests to pay $20,000 to change his store. "We flat said no," he says. He didn't go forward with his purchase option, and is no longer operating the outlet.

Baskin-Robbins says these newer combo stores typically needed only $10,000 in renovations. They say the McGinest store wasn't a "Store of the Future."

Many of my classmates also groused that they aren't treated as individuals. In San Diego, Calif., Harjeet Grewal says he's spent $50,000 on renovations. Baskin-Robbins' corporate office said "it is possible" the Grewals spent more than $20,000 on the renovation, but say that the Grewals didn't follow refurbishment requirements, and were required to correct them.

Mr. Grewal says that he wouldn't again open a Baskin-Robbins. He and his wife Jasbir also own a 7-Eleven, and say they receive more support from that franchise corporation. (7-Eleven Inc., based in Dallas, is majority owned by IYG Holding Co., Tokyo.)

In Hollywood, Calif., Alex Abebe wants more flexibility, too. He owns a combo store, which also has a Togo's sandwich shop. For his particular store, his corporate supervisors say, he only has enough room to offer 12 flavors. Mr. Abebe hopes his low ice cream sales — as little as $150 a day — will persuade corporate supervisors to allow him to rearrange his dipping counters. "This isn't enough," Mr. Abebe laments.

- Mr. Morse is a reporter in The Wall Street Journal's Washington, D.C., bureau.

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