2010 ANNUAL FRANCHISE REVIEW: 2009 DRAMA SETS THE STAGE FOR RECOVERY
By Karen Lowery Hall
Members of the print community may find themselves quoting Queen Elizabeth II when referring to 2009. It was, for the majority of the industry, the "annus horribilis"--the horrible year. Last year marked the peak of the worst recession most of us have ever seen. A great many printing company owners were forced to sell their businesses or simply close their doors.
As the most identifiable microcosm of the print universe, the franchise segment presents us with a snapshot of the troubles that have dogged the larger industry. It also offers a glimpse of the turning tide as financial recovery begins. The observations offered up by the franchise leaders provide insight into their varied strategies for leading their affiliates into a brighter future.
The only franchise that did not report this year was LAZERQUICK. As a general rule, when a system fails to report, we estimate its sales to be on a fairly even par with the latest reported figures we have from them. In this case, however, that method is not supported. We must presume that LAZERQUICK was dealing with the same economy that everyone else endured. Because of that, the system's sales figures have been adjusted downward. Information about shop locations and franchise fees were obtained from various reliable sources on the Internet, including the company's own website.
Cast of Characters
At the end of 2009, virtually every metric tracked in QP's Annual Franchise Review was down across the board. System-wide sales were down. Sales per shop dipped sharply. The number of franchise locations decreased--although, admittedly, that has been happening every year for about a decade now. The only category that seemed to be on the rise was the number of shops that left their franchise systems. Most struck out on their own as independents, some were consolidated, and a few went out of business completely.
As the curtain rose on the second decade of the millennium, there were seven U.S. based franchise systems with 2,795 shops worldwide. That is 138 fewer shops than the previous year; down by 4.7%. There were 2,153 shops in North America; a loss of 188 units, or 8.03% on the year.
Minuteman Press, with 942 locations, is still the largest system worldwide. Franchise Services, has a total of 634 locations. It is followed by ICED with 488, Allegra with 350, AlphaGraphics with 267, CPrint International with 95, and LAZERQUICK with 21 locations.
Of those companies, Allegra, CPrint, and LAZERQUICK are strictly North American concerns, meaning that all of their franchisees are in either the U.S. or Canada. Franchise Services has 498 franchisees in North America under the banners of Sir Speedy Printing and Marketing Services, PIP Printing and Marketing Services, and Signal Graphics. The majority of AlphaGraphics' locations--234 of them--are in North America. ICED, on the other hand, maintains only 148 of its locations in the U.S. and Canada under the names of Kwik Kopy Printing, Franklin's Printing, The Ink Well, and Kwik Kopy Business Centers.
If you are adding up the numbers on your own, you will need to subtract two U.S. locations from your total. Affinity franchise CPrint has two franchisees that are also members of other, primary franchises. Therefore, they have been backed out of the total so that they would not be counted twice. That is also the reason that the total number of shops will show a variance in some of the charts that accompany this article. The total numbers are correct.
While it was once quite common for franchisors to maintain locations that were corporately owned and operated, that practice began to fade about 12-15 years ago. LAZERQUICK and ICED are now the only systems that have corporate locations. ICED has a single such location. LAZERQUICK, however, owns 11 of the 21 locations that make up its system. It is also the only franchise that is still a strictly regional interest, with all locations operating on the West Coast.
Neither ICED nor LAZERQUICK opened any new locations in 2009. Minuteman opened 29 shops, AlphaGraphics opened 24, Allegra opened 15, CPrint added 11, and Franchise Services opened four shops. That's a total of 83 new locations.
Those openings were offset, in most cases, by franchisees leaving the systems for various reasons. Minuteman saw 55 shops leave. ICED bid goodbye to 41 stores. Franchise Services lost 35, and Allegra lost 31. AlphaGraphics and CPrint each dropped 16 locations, and LAZERQUICK closed one corporate location and lost one franchised shop. The total number of shops leaving franchise systems was 196. CPrint president Todd Nuckols points out that five of the 16 businesses reported as leaving that system were sold to new owners.
One of the ways that franchisors stay healthy is by reselling franchise locations to new owners when franchisees depart the system. The total number of shops resold in 2009 was 93. Minuteman is at the top of this category, as always, with 64 shops resold. AlphaGraphics and Franchise Services each resold 10 locations, Allegra resold eight, and ICED resold one.
Box Office
Overall, system-wide sales were down by 17.13% in 2009, with total sales from the franchise segment of the quick/small commercial printing industry being $1,666,453,846. Average system-wide sales came in at $238,269,549; a 20.6% shortfall from the previous year.
Franchise Services reported the highest system-wide sales with $460 million, an 18.17% drop from the previous year. Minuteman, with total sales of $400 million, was down by 13.98% on the year. AlphaGraphics fell by 16.54% to $241,893,547. The $233 million reported by Allegra reflected a 15% shortfall. ICED, with sales of $222,135,254, was down by 26.38%. CPrint reported the shallowest cut of 5.23% to garner total sales of $96,158,045. And LAZERQUICK's estimated $14.7 million system-wide sales add up to a 13.98% decline.
If there is a bright spot in this year's Franchise Review, it is that average sales per shop (SPS) was not down nearly as much as system-wide sales. The overall average SPS was $596,227, down by 14.9% on the year.
This year, CPrint is the SPS leader with average sales per shop of $1,012,089. It is also the only system to report an increase in SPS, even if it is only 0.74%. AlphaGraphics, which frequently holds the top spot in this category, saw SPS fall by 18.74% to $948,125. Franchise Services, with SPS of $730,000, slid by 15.75%. Allegra's average SPS fell 12.55% to $685,000. Minuteman's franchisees, on average, felt a pinch of 10%, with SPS of $500,000. ICED suffered the greatest SPS loss of 24.05%, with average sales of $486,218.
North American sales for the franchise systems only fared slightly better. Total sales of $1,357,828,486 were off by 17.07%. Allegra, CPrint, and LAZERQUICK have no locations outside the U.S. and Canada, so their system-wide figures are unchanged. Here are the North American sales results for the more global systems. Franchise Services, with total sales of $363 million, was down by 23.73%. Minuteman's 12.5% shortfall accompanied sales of $350 million. AlphaGraphics' sales totaled $205,843,753, with a 15.45% decrease from the previous year. And ICED posted a 23.92% decline, with North American sales of $96,559,688.
Average SPS for all North American franchisees was $630,668--considerably better than the worldwide average. However, that did not carry over to individual systems. For AlphaGraphics' franchisees on this continent, average SPS was $879,674. Franchise Services' average SPS was $728,915. Minuteman posted average SPS of $432,632. And ICED toted up average SPS of $410,892 on this side of the pond.
Pay the Piper
The benefits of belonging to a franchise system are many. They range in scope from pricing agreements with equipment vendors and training programs to assistance with financial planning and designing business plans. There is also the more intangible benefit of having a built in group of business associates who can be called upon for advice and feedback.
Of course, there is a price for gaining access to those advantages. In 2009, the price paid to join most systems went up. Not all franchisors raised the cost of entry or the total investment required, but most did. And, of course, there are royalties to be paid as well.
The initial investment required to become a franchisee held steady for Franchise Services ($150,000), Minuteman ($55,000), and LAZERQUICK ($25,000). ICED raised its entry price 2.03% to $74,000. CPrint's start-up cost jumped 20% to $5,000. And Allegra bumped up its ante by 40% to $150,000. Bucking the trend, AlphaGraphics lowered its start-up investment by 8.97% to $78,000.
The total investment required to be part of Franchise Services or CPrint was unchanged at $288,000 and $12,579, respectively. Please note that CPrint's investment costs are considerably lower than other franchises because it accepts only established printing companies, meaning that no major equipment purchases are required.
Allegra, AlphaGraphics, and ICED raised their total investment requirements. Allegra's 12.22% increase brought the maximum investment amount to $485,000. AlphaGraphics raised it's final cost by 2.21% to $424,000. And ICED's total investment jumped 17.1% to $252,680. LAZERQUICK dropped its total investment by 9.09% to $275,000. Minuteman decreased its total cost by a whopping 44% to $125,000.
Method Acting
Even for a comparatively disappointing year, more than $1.66 billion is not exactly chump change. It is even more impressive when you take into consideration that the franchise segment makes up less than 10% of the quick/small commercial printing industry.
So how did the franchises bring in that amount of cash? The lion's share came from color digital printing, which brought in 23.9% of sales. For those of you who are counting, that totals $398,282,469. The second largest block of work was multi-color offset, which at 17.8% of sales, brought in $296,644,805. Monochrome digital printing made up 12.6% of sales, or $209,973,185.
Ten percent of sales ($166,645,385) fell into the brokered/other category. Four-color offset and bindery/finishing services each brought in 8.3% of sales, or $138,315,669. Prepress work accounted for $103,320,138, or 6.2% of total sales.
Single-color offset work has been in a slow decline for a number of years. This year it fell to 4% of sales; off from 7.9% last year. Nonetheless, that is still worth $66,658,154. The numbers reported in this year's survey indicate that the work that has fallen out of this category has been shifted to the color digital and multi-color offset categories. That is a positive sign, considering how much more profitable color work is.
Wide-format printing and mailing services have been on the rise in recent years. Both categories increased their percentage of sales in 2009. Mailing services made up 5% of sales, or $83,322,692, up from 4.1%. Wide-format printing accounted for $64,991,700, or 3.9% of overall sales, up from 3.3%.
Curtain Call
The dismal economy of the past 18 months may be as good an argument as any for the value of franchise affiliation. Independent printing business owners may feel a tinge of envy for those who have the option of reaching out for help from a larger organization that has a vested interest in their success. The training and business services offered to franchisees probably saved some from failure and helped others minimize their losses during these tough times.
Comments from the franchise leaders indicate that they are positioning their systems to leverage new capabilities and customer demands to build a stronger future. It's no wonder that many who are new to the industry (and a few who have been around for a while) are opting to take advantage of the various conversion programs.
As the economy begins to improve, the franchisees who take advantage of the tools that are available to them will likely find themselves well equipped to take on the next opportunities the industry offers.
Yes, But What About ...?
Every year after the annual Franchise Review hits the streets, we get questions from readers asking why a particular print-related franchise has not been included. So, before that happens this year, here are the criteria and the reasons that some systems are not on the list.
First, those included in the Franchise Review must be actual quick and small commercial printers whose main products are printing and copying produced in-house. With the changes in technology, these printers now do more than simple ink or toner on paper, but that remains the mainstay of their business.
Thus, although the 625-franchise Proforma system has several million dollar franchisees, they are not included because they broker printing rather than producing it. Also not included is the UPS Store/Mailboxes, Etc. franchise system which, while actually producing printing, gets the majority of its business from packing and shipping. There are also about 18 franchise systems of varying sizes in the sign/wide-format segment that are not included. (They will be reviewed in the July issue of our sister publication, Wide-Format Imaging.)
One shipping/printing franchise operation which may someday be added to the list is PostNet, which is mounting a major effort to expand its digital quick and small commercial print offerings and capabilities.
Finally, we have the old FedEx Kinko's (now FedEx Office) operation, which is corporate owned, is not a franchise, and has never been included.
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