Sold but not open – Don Sniegowski

Another BMM metric: Sold-but-not-Opened by brand


The more locked up your franchise fee is in doing nothing, the longer it takes for any possible return on investment. In some brands, when enough time goes by without an opened store, the franchisee loses not only their right to be a franchise but also their unused fee or deposit as well. For a businessperson, time is money.
Of the better burger batch, Culver’s, Jack in the Box and Dairy Queen Grill & Chill look as if they can help a franchise investor quickly find a prime location for a store to get your money working for you, asap.
That makes sense. Founded in 1940, Dairy Queen was among the first quick service restaurant chains to stake out the best locations in cities and small townships across America. They have a huge head start.
On the other hand, Five Guys has outrageously high numbers of sold-but-not-opened stores. You know, that’s where you pay the franchisor money but don’t get to open a store for your money because a suitable location can’t be found in the big and secondary cities because the good spaces are already taken. Or, now that the franchisor has your money, they are just too busy to accommodate you until hell freezes over.
In fairness to Five Guys, there may not be any ill intent. They may have just bitten off more than they can operationally chew because they’ve been able to sell so many franchises of late. A few years from now may find a very different scenario for an investor looking at these burger chains.
WEAKNESS: The sold-but-not-opened data is gathered from franchise disclosure documents submitted to regulators. It is assumed that franchisors and their attorneys generally know how to fill the FDD correctly when it comes to listing sold-but-not-opened units. They may not. It is also assumed that franchisors are reasonably honest in the disclosure of sold-but-not-opened franchise units, even though revealing significant SNO could dampen a franchisor’s ability to sell franchises – and they know it. Buyers will also want to see how quickly a franchise system is growing. That way they can weigh the risk of their money stagnating for a long time from the initial fee because they think they are on the ground floor of the next McDonald’s. That is once the franchisor figures out how to convert newly sold to new operating units with the efficiency of McDonald’s — or Dairy Queen, Jack in the Box or even fast growing Culver’s
By Don Sniegowski2015-02-15 14:06