Restaurant owners unite to survive

Three options exist long-term: Find a buyer. Create a publicly traded corporation. Retain the cooperative, with the owners continuing to do the work and taking the risks and earning the financial rewards that aren't part of most franchise arrangements.

Portland Press Herald
September 1, 2005

Restaurant owners unite to survive
Eric Blom

People buy franchises for the organization's assets: a recognized brand, collective marketing and technical expertise.

But for the entrepreneurs holding Ground Round franchises early last year, the parent company became an albatross.

On Feb. 13, 2004, American Hospitality Group of Burlington, Mass., abruptly closed 59 company-owned restaurants and the corporate offices. It filed for bankruptcy restructuring, and left the franchised restaurants to fend for themselves amid the ill will caused by the sudden shutdowns of locations such as the one in South Portland.

No longer was there central marketing and coordination of operations. Restaurant owners had to figure out for themselves how to promote the business and maintain the menu.

Everybody struggled financially, and a few of the restaurants closed. But the survivors soon came together to form a group, Independent Owners Cooperative LLC, that bought the brand in July 2004 for $4.8 million and headquartered it in Freeport.

The IOC reported a $660,000 profit in its first partial year of operation, compared to a $7 million loss for the prior year.

That turnaround helped IOC receive Nation's Restaurant News' 2005 Franchise Excellence Award for Leadership in Franchise Management.

The cooperative has four new restaurants lined up for the fourth quarter of this year - in South Boston, Wisconsin and Georgia. It expects to open six in 2006, and hopes to grow by six to 10 stores annually.

"The challenge is in our unit penetration," said Jack Crawford, chief executive officer of the cooperative. The organization dropped overnight from 130 Ground Rounds in 19 states to 64 in 19 states, though it has since bounced back to 71.

"We really need to get to 100 stores or more" to have the desired joint marketing strength, Crawford said. Otherwise, it'll be hard to compete for attention with other casual-dining options, such as Applebee's.

Crawford's business, Maine Course Hospitality Group, owns Ground Rounds in Auburn and Bangor, as well as Manchester, N.H., and Mystic, Conn. That gives him four votes in the cooperative, which operates on a one-restaurant, one-vote basis.

"Their sense of urgency is very high because they have skin in the game," Crawford said. The voting method also encourages growth by giving more control to individuals who buy or open restaurants.

An owners' cooperative is still something of a rarity among franchises. And the Ground Round owners may not always want to run the business themselves, Crawford said.

"We really are franchise owners and not corporate people," he said.

Three options exist long-term: Find a buyer. Create a publicly traded corporation. Retain the cooperative, with the owners continuing to do the work and taking the risks and earning the financial rewards that aren't part of most franchise arrangements.

"We believe we need to right the ship for a couple of years and we're on that path, and then we're more attractive to a partner," Crawford said.

Whatever the ultimate choice, the entrepreneurs can take pride in surviving what would have caused many other franchise owners to give up.


Risks: When the franchisor tanks, so does the franchisee, Franchisees buy franchise system, United States, 20050901 Restaurant owners

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