News Column

In Hard Times, More Buying Into Idea of Franchises

Ocotrber 14, 2002

Porus P. Cooper

Steven Rosen, a consultant in Blue Bell who has brought together buyers and sellers of franchised businesses for 14 years, can't recall being busier.

The Web site for the International Franchise Association is recording visitors at twice the pace of two years ago.

The number of inquiries to 7-Eleven about buying a franchise has grown to Big Gulp size.

The economy looks bleak; the job market has stalled. For many, the time seems right to dream about becoming their own bosses, and a franchise is often the first thing that comes to mind because it tends to be a proven business.

The phenomenon is typical of economic downturns, some franchising experts said

Two years ago, franchisers were "trying to attract new franchisees, with not great success," said Don DeBolt, president of the International Franchise Association, which claims 800 franchisers, 28,000 franchisees, and 300 suppliers of professional services as members. Its Web site (www.franchise.org) is getting 100,000 visitors a month, he said.

Others suspect something deeper is at work.

A "cultural change" in corporate America since the 1980s has eroded workers' feelings of security and job loyalty, said Frank Hoy, former dean of the College of Business Administration at the University of Texas-El Paso, a founder of the college's Franchise Center, and now director of the school's entrepreneurship program.

The risk of owning a business now appears to many to be no worse than "the risk of going to work and being laid off when you are 50," Hoy said.

"No question, there are more people looking into it than ever before," he said, emphasizing that his training center is not affiliated with any franchise company and does not necessarily recommend franchising.

The motives of those who take the plunge can be complex.

"Like anything, when you make a big decision, there is not just one factor," said Gerard Pernot of Duryea, Pa., who bought a franchised children's tutoring service in May after consulting with Rosen.

Keystone Points of Knowledge plans to provide tutoring at multiple locations, including at YMCAs.

Pernot's job in a financial-services firm involved a lot of travel, taking him away from his wife and three young children, he said. Pernot, 40, quit in April.

Now he is closer to home more, wife Patricia works in the business, he is more available to help his ailing mother, and he expects to do something he loves - working with children. Plus, "I always wanted to be my own boss, I knew I could do this, and I had a very good idea," he said.

Rosen, managing partner at FranNet in Blue Bell, said he gets many of his leads from seminars he conducts on behalf of outplacement firms. As recently as 1999, a good crowd was four or five people. Now audiences have grown to 15 to 20, he said.

At 7-Eleven, which is second to McDonald's among franchise businesses in worldwide sales, there have been 20,545 inquiries from potential franchisees in the United States this year. That is about 4,000 more than in all of last year and double the 1999 total.

There was no unusual advertising seeking franchisees, said Jack Wilkie, a vice president at 7-Eleven's Dallas corporate headquarters.

The inquiries are especially heavy from metropolitan regions where the economic downturn appears to be severe, Wilkie said, citing New York, Boston, Detroit and Chicago.

With quantity has come quality, he added.

"We're getting an increasingly higher-quality candidate in terms of education, retail experience, and, in many cases, senior-level or midlevel management experience," Wilkie said.

Hoy said the appeal of franchising also had grown because of a cleaner image.

The industry, once disgraced by fly-by-night operators, was cleaned up after the Federal Trade Commission got involved in the late 1970s and required disclosures. Several states now also require franchisers to register.

"I would assume that there is a matching increase in the number of people inquiring about starting any business, but there is no way of knowing that," said Bill Dunkelberg, a Temple University professor who is chief economist for the National Federation of Independent Business, which claims 600,000 small businesses on its rolls.

How many of the inquirers become business owners is hard to say. Franchising is not one industry but many, DeBolt said. The U.S. Department of Commerce gave up on gathering franchising data after briefly trying in the 1980s.

Each year, between 100 and 200 franchisers enter the marketplace, but about as many drop out, DeBolt said.

Loan guarantees by the Small Business Administration show a modest increase from 2000 to 2001, as does the proportion of such loans made to franchise owners. But an SBA spokeswoman said she would not read too much into the increase.

Finally, there are limitations: 7-Eleven, for instance, opens 150 to 200 stores every year while, on average, the owners of 130 existing stores sell out. There won't be enough for everyone who wants one.



Source: Copyright ©2002 Philadelphia Inquirer. All Rights Reserved.


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