News Column

Breaking Into the Chains

October 2004, HISPANIC BUSINESS Magazine

Julie Bennett

Generating an estimated $1.5 trillion a year, accounting for almost 10 million jobs, and providing 10 percent or more of the economic output of 20 states, the franchising industry is proving a lucrative market for a growing number of the nation's 760,000 franchise owners.

While owners of a single franchise be it a UPS Store, a Fantastic Sam's Hair Salon, or a Quizno's Sandwich Shop make a sustainable living, franchisees who can parlay one store into string of them are becoming millionaires.

Hector Hera

Everybody in the Kitchen
Since crossing the U.S. border in 1996, El Taco Tote has signed 38 franchise commitments.

The Heras family opened its first restaurant in 1988 based on family recipes from Cuidad Juarez, Mexico. The family has become inseparable from the operation ever since. "It's a family of seven brothers, including my father," says Hector Heras Jr., the company's director of operations, "and everybody's involved."

After scoring a "huge success" with five El Taco Totes in Mexico, the family crossed the U.S. border in 1996 and opened a store in El Paso, Texas. By 1999 the family had three U.S. stores and a line of customers asking to open similar establishments. The Herases hired a consultant, spent hundreds of thousands of dollars on the manuals, documentation, and registration process required of U.S. franchisors, and started selling franchises last year. So far, they have signed commitments for 38 franchises, and two of their new franchisees have opened for business.

"Our competition," Mr. Heras says, "is Anglo chains, like Taco Bell and Baja Fresh, selling food to other Anglos. We offer real Mexican food, and it's a niche we can exploit." So far, most of the people who have agreed to spend $400,000 to $600,000 to open El Taco Tote franchises are all Hispanic, he says.

Becoming a U.S. franchisor has taken a "huge investment and commitment from all family members," Mr. Heras says, "but we think it can make us rich. One of our goals is to see our brand all over the U.S."

Take Russ Umphenour, CEO of the RTM Restaurant Group in Atlanta, who started with a single Arby's franchise in the 1950s. Today Mr. Umphenour's company has 811 Arby's, 16 Sbarro pizza restaurants, and generates $754 million in annual sales. In fact, when the Restaurant Finance Monitor published its list this year of the Top 200 food-service franchisees, 58 multi-unit franchisee companies were each generating revenues of more than $90 million a year.

Several Hispanic market leaders are familiar names among franchising's brightest stars. Linda Alvarado, an owner of the Colorado Rockies baseball team and Alvarado Construction, also runs Palo Alto Inc., a multi-unit franchise company with 82 Taco Bells and 48 Pizza Huts.

Lopez Foods Inc., No. 11 on the 2004 Hispanic Business 500, is lead by John Lopez, a former McDonald's multi-unit franchisee who now is a key vendor to the McDonald's franchise system. Cuban-born Al Cabrera operates 138 Burger Kings in Florida and Illinois. And Ralph Alvarez, who began his career as an executive at Burger King and Wendy's, is now president of McDonald's USA, responsible for over 13,000 restaurants across the country.

Still, while statistics are elusive because most of the country's 2,200 franchisors don't track their franchisees by race or ethnicity, experts say Hispanics and other minorities are participating in this thriving business sector in fewer numbers than might be expected.

C. Everett Wallace, chairman of the International Franchise Association's Minorities in Franchising Steering Committee, estimates 6 percent to 9 percent of the country's franchised businesses are owned by Hispanics, African Americans, Asian Americans, and Native Americans combined.

Industry experts differ on why the numbers are low. Some blame cultural bias; others see an uneven playing field. Some say the cost to open a franchise anywhere from about $30,000 for a maid service, to millions of dollars to build and open a full-service restaurant is prohibitive. And still others say franchisors need to do more to reach out.

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