Franchise Update Magazine Issue IV, 2016 | Page 48

Shopping for Improvement
tions asked relating to these areas, along
with the overall FSI scores given were:
Current financial picture. (65.9)
The fees I pay my franchisor are fair.
(68.1)
The total investment in my business,
including both time and money, has been
consistent with my expectations. (69.7)
Marketing and promotional programs.
(68.6)
Effective use of technology. (64.7)
Senior management involves franchisees in important decisions. (65.2)
• Top 10 FLDC brands. The 10
brands attending this year’s FLDC with
the highest overall franchisee satisfaction are: 1) Home Instead Senior Care;
2) Fastsigns; 3) Wild Birds Unlimited; 4)
CruiseOne Dream Vacations; 5) Christian Brothers Automotive; 6) Zaxby’s; 7)
Pinot’s Palette; 8) Pinch A Penny; 9) Two
Men and a Truck; and 10) Captain D’s.
Summary
The higher revenue, strong performance
in eight key areas, and better performance
overall that the 53 FLDC brands demonstrated compared against FBR’s benchmark
are a testament to their commitment to
serving and engaging their franchisees,
and to making their satisfaction and performance top priorities.

FDD Grading

F

BY JEFF LEFLER

ranchiseGrade.com is proud to have
played a key role in the selection
of the STAR Award recipients at
the recent FLDC.
We graded 167 franchise systems that
participated, and provided a look behind
the scenes to show how these franchises
graded and how they compared with the
entire franchise industry. Our grading
evaluated each franchise in a number
of areas including investment structure,
ongoing fees, franchisee rights, franchise
relations, system growth, system turnover,
and Item 19 disclosure.
Our methodology consists of extracting data from Franchise Disclosure Documents (FDDs) and comparing franchise
systems based on similar characteristics
such as sector and investment range. For
every franchise system, we reviewed multiple years of Item 19 disclosure, grad-

46

Website Mystery
Shopping Results
66% provide unique starting
points on franchise site (25% last
year)
68% provide a process for
learning (54% last year)
60% have video on the franchise
site (40% last year)
59% have an investment chart—
not properly qualifying? (46% last
year)
49% have financials on the
qualification form (44% last year)
74% of franchise sites are mobile
friendly (52% last year)
40% do not provide franchisee
testimonials

“The franchisors
attending the
FLDC continue
to seek ways to
develop and grow
their franchise
system.”
ing the level of disclosure each system
provides. As an example, some franchise
systems may provide system-wide average gross revenue, which is not as useful
as a breakdown of revenue by quartiles.
However, some franchise systems may
only disclose data from 25 percent of their
franchised locations, potentially skewing
the revenue numbers to a limited number
of franchisees.
In general, a disclosure with more data
is helpful for a prospective franchisee to
create a pro forma income statement
and cash flow projections. The financial
disclosure can be presented in the form
of expense data, historical sales, outletby-outlet data, and other presentations

that provide useful insights for a franchise investor.
Findings
• Of the 167 franchise systems we
graded, 39% received an A+ or A grade,
whereas for the entire franchise industry
only 20% are A+ or A grades.
• Only 1% of attendees were graded
a D investment.
• Item 19 disclosure was one of the
biggest surprises to us as 86% of franchise
systems that participated in the FLDC
made a disclosure, compared with only
54% for all of franchising.
• In terms of an Item 19 disclosure,
not only were there above-average disclosure rates, but the amount of disclosure
provided was more detailed and useful
than industry averages. Of the FLDC
attendees, 54% include expense data in
their Item 19 disclosure compared with
only 23% for the entire franchise industry.
• From 2010 to 2015 the FLDC franchise systems grew from 62,381 outlets
to 76,733, representing an increase of
14,352 outlets (23%).
• Since 2010, FLDC franchise systems
have received more than $21.2 billion
invested by franchisees into new franchised locations.
Summary/recommendations
The results of our grading indicates that the
167 franchise systems that participated in
the 2016 FLDC represent top-performing
franchise systems when measured against
the overall franchise industry.
These results indicate that the FLDC
franchise system attendees are successful,
strong franchise systems focused on the
most effective and correct ways to grow
their franchise systems. It also reveals that
successful franchise systems share certain
attributes that have led to their sustained
success, such as more transparency in Item
19 disclosures.
Franchise leaders that focus on their
metrics and how they compare with their
franchise sector can provide this information to prospective franchisees. This will
validate the strength of their franchise
system and draw a favorable distinction
compared with their competitors. The
franchisors attending the FLDC continue
to seek ways to develop and grow their
franchise system the right way by attending these conferences and participating
in workshops designed to improve franchisee sales and system performance. n

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