Let's Have Some Rebuild Discussion !

Last year I stuck my neck out a bit by predicting
the current approach to rewrites and rebuilds had
wiped out HALF of the typical Owner/Operator's
Equity.

Based on stories I've heard since then it appears
that losing half your Equity might be the best you
can do.

Let's see ... the average Owner/Operator in the
USA has five stores (11,050 ÷ 2,200).

Store # 1 has several hundred thousand in
negative equity, (you owe more than you can sell

it for).

Store # 2 is a few years old and has no equity.

Store # 3 is doing national average with 13 years
left on the franchise and holds substantial equity.

Store # 4 is above national average but the franchise
expires in five years and it's on the list for a rebuild.
The cost of the rebuild drives the possible net equity
down to 25% of annual sales.

Store # 5 is also above national average, has eight
years left on the franchise - but the drive thru layout
makes it a candidate for a rebuild and it's also on the
list of stores to be rebuilt. Any possible buyer would
want to deduct the a $1.0 to $1.5 million for the
upcoming rebuild. The resulting net equity is also now
approximately 25% of sales.

Of course, the Operator is told they are unrewritable

and unexpandable until the rebuilds are completed.

Does anyone think this is overstated?

By themselves ... without MCD Operators working

together to change these policies ... what can the

above "Average Operator" do about the loss of most

of their equity?

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Why Franchisees Fail (again)

Last week we posted an article by Richard Gibson
who has written extensively about McDonald's and the

franchise business. The link in that posting was only for

Wall Street Journal subscribers. The article of interest

has been moved to their free site so if you were frustrated

by the previous post -

please try this new link.

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McDONALD'S IS AMONG THE "2007 World's Most Ethical Companies

according to Ethisphere Magazine. As best I can tell
from thier website the magazine looks at politically
correct, touchy feelly issues. There is no indication
that they look at business practices, franchise policies,
or full financial and vendor disclosures.

Ethisphere article is HERE

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Rebuilds - Getting at the Numbers

Concannon, Miller is sending around an
article about doing a complete evaluation
before committing to a rebuild. The only
flaw in this article is that it implies Operators
have a "decision" to make about whether
they'll do a a rebuild or not.

That's certainly not the case with a Rewrite.

But, it appears that a study of this type might
give an Operator some insight into how a
rebuild might impact their overall equity
position.


Concannon, Miller & Co Article is Here

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