Focus on Franchising

Three major brand franchisees offer a peek into their lives.

By  Abbey Lewis, Executive Editor

Article Preview: 

ampm

Founded: 1975

Franchising since: 1979

U.S. franchise units in 2009: 1,055; in 2008, 772

Franchise fee: $30,000-$70,000

Ongoing royalty fee: 5%

Term of agreement: 20 years, renewable

 Cash liquidity requirement: $700,000-$1,000,000

Training: Seven weeks of in-class sessions and hands-on training

 Franchise 500 rank, 2010: 10

Source: Entrepreneur.com   

Store background

Tony and Rania Dahabreh run 20 locations, seven of which are ampm franchise locations, with sites located in the Pacific Northwest and Southern California. The couple opened their first ampm franchise in October 2008, but they have industry experience dating back to 1999. “My wife and I run the operation with a group of exceptional personnel,” Tony says of their approximately 244 employees

Recalling the first year in business

Tony has one word for his first year as an ampm franchisee: “exciting.” He and Rania had to be persistent when trying to secure financing for the acquisition, which they say was stressful.

“Trying to package a deal with multiple stores can be very challenging. The key thing was to have all the paperwork ready and in order when approaching a lender. Also, I worked with several lenders on the same acquisition to ensure that if one fell through I had a backup plan. We were financing these stores just as the financial meltdown occurred with all the banks. Always have a plan No. 1, No. 2 and No. 3.”

The first day on the job

The couple’s ampm sites were already part of the ampm brand when they were purchased. They purchased the sites as BP was divesting its assets to a franchisee class of trade.

 “The first day on the job was just ensuring that the conversion of these sites went as smooth as can be so customers were not affected,” Rania says.

What are the advantages of being a franchisee?

The Dahabrehs enjoy the benefits of the brand and the corporate support in all aspects of the business.

What makes your store unique?

“We employ first-class employees that are passionate about the business. We distinguish ourselves in the marketplace by offering exclusive customer service and a strong offering to the consumer. We are also very competitive when it comes to pricing in the marketplace.”

What motivates you?

“The thing that motivates us is knowing that there is infinite potential to grow the business as well as grow our portfolio.”

What is your biggest seller?

Almost 37% of the couple’s sales come from cigarettes.

What are some of your challenges?

Every business has its challenges, but today’s economic conditions create new challenges in convenience stores, the two say. They have chosen to focus on the ampm foodservice brand, which they are able to offer at a lower retail price to appeal to cost-conscious customers. For example, they offer corn dogs and hot dogs for 79 cents, and breakfast items for 99 cents.

 “By being creative, reviewing all aspects of the business and the experience we carry, we don’t let any challenge become a barrier for us.”

Why do you choose to franchise and not own independently?

The couple currently operates both franchised and independently owned operations. However, with the franchised locations, the ampm programs enable them to “capture and grow all incremental categories.”

How do you deal with new products?

New products are managed by both ampm and the Dahabrehs. BP’s ampm launches and markets new products nationally, but based on the demographics of the marketplace, franchises have the flexibility to present new items appropriate for their consumer demographic. And by reviewing the item sales reports, Rania and Tony can determine which items are kept and which need to be discontinued. Also, an IRI data report is provided to the couple by their distributor, which helps them to bring in existing items not yet in their set.

Do you have any growth or expansion opportunities?

Within the ampm network, Tony and Rania are focusing on embracing the food offering and growing that category. As for expanding their portfolio, the couple is always looking for a new site to buy, and they have also considered building from the ground up.

“We need to ensure that we have the right brands that our customers are shopping for and executing for excellence. We have a good brand, first-class operation and always find ways to improve our offering.”

How is business different now from when you started?

“Technology keeps changing daily for the better. Also, the consumers’ spending habits have changed; therefore, we need to cater to the needs of the customers.”

How does your day begin and end?

The day begins at 6 a.m. with their three children. Mom and Dad prepare them for their day and get them off to school: “Then our day is pretty much booked minute by minute.”


7 Eleven

Founded: 1927

Franchising since: 1964

U.S. franchise units in 2009: 6,378; in 2008, 5,622

Franchise fee: Varies; based on percentage of a store’s gross profits over the last 12 months, starting at $10,000 for stores with gross profits of $200,000 or less. The average initial fee is about $139,000.

Ongoing royalty fee: Varies

Term of agreement: 15 years, renewable

Cash liquidity requirement: $0

Training: Six weeks of in-class sessions at a local training center

Franchise 500 rank, 2010: 3

Source: Entrepreneur.com 

Store background

Joe Galea opened his first 7-Eleven franchise in September 1972 in Mountain View, Calif. Fourteen months later he transferred to a new store in the same town, and in 2003 purchased a second local store—marking the only time he would operate more than one store. In 2004, he sold the older location; a year later, he sold the second and opened a 7-Eleven in Santa Cruz, which he owns to this day. He had been looking for a new store near a retirement community, and when this one became available, he couldn’t pass up the opportunity.

“Right now, I just want one store. A lot of that is because of my involvement in our local 7-Eleven franchisee association [as president]. And then I’ve got my position with the national coalition.”

Recalling the first year in business

Back then, the store was open from 7 a.m. to 11 p.m. He and his wife ran the first store that year with another parttime employee. When Galea began in 1972, other 7-Eleven stores began to trend away from their signature hours, with some starting to open for 24-hour service. That year, Galea began to keep the store open 24 hours a day, and it’s been open ever since.

The first day on the job

“For the first day you’re kind of just in a daze. You go through the everyday functions of operating a store, and 7-Eleven was a big support to help you through it. The first day actually went relatively well. The thing I remember the most about the first day was the number of customers that came in and introduced themselves and said ‘I’m so and so’ and you got to know them on a first-name basis.”

What are the advantages of being a franchisee?

Galea was interested in one thing when he began: the 7-Eleven trademark. It gave him a sense of pride to be part of something bigger than his single store. The immediate recognition of his brand also afforded endless marketing opportunities.

What makes your store unique?

Superior customers, Galea says.

What motivates you?

“I really enjoy what I do. I never really wake up in the morning and say, ‘Oh, man, I have to go to work.’ What motivates me is the idea of getting to meet the customers throughout the day, and just seeing the results from the effort you put in.”

What is your biggest seller?

The bulk of Galea’s business is in cigarettes, coffee and beer. His store is close to the beach and the University of California at Santa Cruz, so he sells a lot of snack food and beverages.

What are some of your challenges?

Retaining good, long-term employees is always a challenge for any business owner. But Galea, despite any hiring difficulty he’s had, has retained one employee for almost 14 years: “He’s part of the family! I have been very fortunate.”

Why do you choose to franchise and not own independently?

“You know, it’s been 38 years in September with 7-Eleven. And if it ended today, I could honestly say I’ve had a great relationship with them.”

 How do you deal with new products?

7-Eleven has always encouraged Galea to gear his store toward what the market needs. While consistency is also encouraged, he’s given some flexibility to cater to his neighborhood. Galea also uses 7-Eleven’s proprietary software system, which gives him the sales history of every SKU. That way he can determine a peak and whether a product is growing or declining. The slower sellers are then discounted and removed from the shelf to make way for new items.

How is business different now from when you started?

7-Eleven doesn’t offer the same training and marketing for its new franchisees as it did in 1972, he says. Galea feels he may have been a little bit better prepared for taking on his new challenge than many of the new franchisees he meets today.

“Part of that training was that you had to do the everyday functions in the store. Nowadays, you can go through the process of franchising, but training is not as in-depth.”  and say, ‘Oh, man, I have to go to work.’ What motivates me is the idea of getting to meet the customers throughout the day, and just seeing the results from the effort you put in.”


K

Founded: 1951

Franchising since: 1995

U.S. franchise units in 2009: 495; in 2008, 460

Franchise fee: $15,000

Ongoing royalty fee: 4%

Term of agreement: 10 years, renewable

Cash liquidity requirement: $200,000

Training: Two weeks of in-class sessions at headquarters; two weeks at franchisee location

Franchise 500 rank, 2010: 25 Source: Entrepreneur.com

Store background

C-store retailing runs in Doug Devin’s family. His grandfather started in 1951 as a Chevron distributor. His father, Richard, took the helm and started Devin Oil, which officially operates eight Circle K franchise locations and one independent location. The region in Oregon where the stores are located is relatively remote. And while the area is still stocked with its share of McDonald’s and Subway chain

Recalling the first year in business

The family opened its first store in 2006, and Circle K made the experience very easy, Devin says. So easy, in fact, that the family is always looking for another store in the area that they can convert to a Circle K franchise with the help of the parent company.

What are the advantages of being a franchisee?

 The family also runs a gasoline wholesale business, so from an operational standpoint, being part of a bigger brand has been nothing but helpful, they say. The branding and product offering is beyond compare. All of their Circle K stores, as well as the independent locations, have fuel under either the Chevron or Shell brands.

“We really appreciate the familiarity [the brand] has with our customers. Within our little area, obviously we want them to stop in one of our stores. Hopefully we’ll provide outstanding customer service and a good cup of coffee.”

What makes your store unique?

Most of their stores feature foodservice, including fried foods, as well as a few full-service delis (similar to Subway) operating under the Take Away Café proprietary brand. The store in Irrigon, Ore., is one of the largest in the Circle K chain both in size and sales (5,000 square feet; the food prep area adds another 1,000 square feet). In addition to sub sandwiches, it serves hot breakfast, lunch and dinner, with customer seating.

“Our stores are only the same in that we have the opportunity for similar product offering. But within each individual store, some will have more foodservice options. They all have general Circle K as far as the coffee and fountain … but we have flexibility to make it more of a neighborhood store.”

What is your biggest seller?

Cigarettes, for now. But Devin’s big push is foodservice. As tobacco sales have fallen in the wake of FET and state tax increases, foodservice has more than made up for the company’s shortfall.

What are some of your challenges?

“In Oregon, I think, there are a lot of tax issues. Everything seems to come back to the c-store, of course: increased gas tax, tobacco tax, everything you basically do on a day-today basis is getting taxed.”

Why do you choose to franchise and not own independently?

The family chose Circle K franchises because of its brand. Being that all the stores are located in the same remote area, the strength of the brand has become more acute. They now enjoy relatively strong brand presence in their Oregon hamlet.

Do you have any growth or expansion opportunities?

The company has grown in the past through the purchase of one or two stores here and there, and Devin plans to continue that gradual trend.

“Circle K is really good at providing capital to buy another store and remodel it.”

How is business different now from when you started?

When the family started its first Circle K franchise four years ago, the brand didn’t have as much to offer—today, the stores “just look nicer.” The branded coffee and fountain offering is a vast improvement over just a few years ago, Devin says.

How does your day begin and end?

Devin doesn’t spend as much time as he’d like in the stores. His day starts at 7:30 a.m., but he’s off to a central office where the family’s main business has headquarters. There he fields daily e-mails from store managers to deal with whatever issues have popped up over the past 24 hours. He tries to get to each store at least once a week and looks forward to the time he gets to spend there: “I wear a lot of different hats.”  

Click here to download full article

Also in this issue