Peterbrooke, Selling Franchises?

Saturday, September 22, 2007

After some disappointment over losing the bid on the library building, the company is making its franchise dreams a reality, within Jacksonville and without.

The sweet-smelling footprint of Peterbrooke Chocolatier will soon be tip-toeing across Florida - and if all goes as the company hopes, across the country within five years.

The Jacksonville-based chocolatier has sold 14 freshly baked franchises in Jacksonville, Orlando and Tampa since it began marketing them in November, surpassing even the company's own initial expectations. The first franchise store, located in Julington Creek, had its grand opening last week, and the company says that it's entertaining offers from potential franchisees in Fort Lauderdale, Nashville, Tenn. and Birmingham, Ala. The second franchise, located at the St. Johns Town Center, will open Oct. 9.

It's a healthy start to a nationwide expansion, especially for a company that lost a much-publicized bid for the downtown Haydon Burns Library building last year. That snuffed the company's grand plans for a downtown chocolate-themed tourist attraction and candy-making operation that Peterbrooke estimated would attract three bus-loads of visitors a day.

If things had gone as planned, Peterbrooke would be in the thick of opening a chocolate factory and museum akin to something out of a certain Roald Dahl novel. It was also to house production facilities that would churn out chocolate-drizzled popcorn and toffees meant for the network of still-nascent franchises that would finance the move downtown and Peterbrooke's growing ambitions to go national.

But things did not go as planned.

In its proposal to the city last year, the company projected that it would sell 72 franchises within three years, central to funding the move to the downtown building. Twelve franchises were planned for the first year alone, a number that was met with skepticism from businesspeople and analysts alike who questioned the company's ability to sell that many franchises, and wondered about the company's estimates that doing so would catapult their earnings from $25,000 to $16 million.

The critics weren't altogether wrong.

Peterbrooke's hopes for a multi-faceted chocolate facility quickly melted when the chocolatier lost the bid for the Haydon Burns building to the Atkins Group, which planned to demolish the retro-looking building and erect a condo tower instead. That plan was later scrapped, and the city turned to Peterbrooke.

But a host of environmental hazards, like asbestos, proved to be too expensive for the chocolatier to remove and still develop the factory. They bowed out and local developer Main Branch LLC has since stepped to the plate. Now, a grocery store and condos are planned for the site.

"I hope to [open a museum] someday still," said Peterbrooke founder Phyllis Lockwood Geiger, while whipping up a caramel sauce at her home. "But we had to move on." Back to basics Without the expanded production space the library would have afforded, the company was forced to retool its business model, says Peter Behringer, president of Peterbrooke. Determined to plow ahead with the franchising plans, they looked for an option that would be able to support the vision of a national brand and still provide inventory for a network of franchisees. The company's San Marco production center, at one time producing 92 products, was straining to keep up with the company's eight corporate stores already.

The result was a return to Peterbrooke's roots - when the stores were also working kitchens. When Geiger opened the first Peterbrooke, she did everything in-store: hand tempering liquefied chocolate on marble slabs, dipping pretzels and fruits and popping the company's famous popcorn. Now, franchises will have product demonstrations and in-store "showcases" for products.

"It's more profitable and more exciting to the customer," Geiger explained. Plus, she added, it smells great.

Per the originally conceptualized franchising plan, franchisees were to purchase most of their inventory from the production centers in San Marco and the ill-fated downtown location. Now, franchisees will only purchase more complex items like chocolate-covered popcorn, fondants and cherry cordials from the central production center. The rest will be made in-house at each store - or purchased from outside vendors expressly approved by Peterbrooke management (to keep inventory consistent among stores).

"It could be a blessing in disguise because [products] are fresher," said Marshall Reddy, president of Ponte Vedra Beach-based consulting firm Franchise Network. "It's the difference between something sitting in a warehouse versus something that's being made in front of you." Peterbrooke insists that the in-store manufacturing of products will make the franchises more profitable.

"We're cutting out the middle man," said Allison Behringer, Peterbrooke's director of franchise relations.

Orlando franchisee Scott Barr purchased five franchises, paying $65,000 apiece for the first two that are slated to open, the first of which will debut in December (other costs, like equipment, could top $200,000, not uncommon for franchises). In addition, Barr paid a $6,000 deposit for each of the remaining three stores, a figure that will be applied to the remaining stores' initial franchise fees as they open. And, Barr, like all Peterbrooke franchisees, will send 6 percent of all sales back to the corporate office, plus commit 1 percent of sales to advertising in the local market. He says the in-house production may increase upfront labor costs, but he sees those as investments, not financial slowdowns.

"This cuts out the transportation and packaging costs, as opposed to it being made centrally and then shipped," Barr said.

Chris Sams, Peterbooke's spokesperson and owner of the Julington Creek franchise, agrees. "Sure, the initial investment is more, but when I buy those raw goods and make them a Peterbrooke product, my margin is so much greater," he said. "I'm the factory." On the whole, Peterbrooke franchises are far pricier than, say, Mrs. Fields Cookies or TCBY franchises. Those companies' initial franchise fees range from $25,000 to $30,000. Subway franchisees pay $15,000 as their initial fee. But those companies also tack on a 5 percent or 6 percent sales royalty on top of advertising fees that range from 1 percent to 5 percent of gross sales.

Peter Behringer says the heftier initial fee means more personal attention for franchisees.

"They're not on their own," he said. "We organize the build-out and send our staff down there to assist and create their inventory." Sarasota-based Franchising Consultants initially helped streamline Peterbrooke's franchise offering - taking a 30 percent cut of the initial franchising fee, too. After the library deal fell through, Peterbrooke decided to shift the franchising operation internally. The first order of business: snipping $20,000 off the initial franchise fee to its current price tag of $65,000. Although Peterbrooke is still under contract with Franchise Consultants, the firm is now involved only peripherally in the venture.

"We're more competent to sell the franchises," Behringer said. "We made strides after we put them on the sidelines." Peter Wolf, president of Franchise Consultants, seemed unconcerned when asked about his company's dramatically reduced role in the chocolatier's franchising efforts. His firm, which is under contract with Peterbrooke through 2007, will receive its financial cut regardless of whether it is directly involved in selling the franchises.

"Whatever [Peter] feels is best for the company, I'm going to have to go with," Wolf said.

To lure in potential franchise owners, Peterbrooke hosts wine and chocolate tastings in various cities. It's a strategy that netted them six franchise sales in Tampa, in addition to the five sold in Orlando.

And although the company contends it has groomed a loyal cross-country following, and trade publication Candy Industry featured Peterbrooke on the magazine's cover in 1997, the company still has not attained the national recognition that precipitates companies like Hershey or Godiva.

To achieve that, the company says it will grow in "concentric circles," filling out the rest of the state's major markets - particularly the South Florida area - before moving into Southeastern cities like Atlanta, said Allison Behringer.

"That's smart," said consultant Reddy. "The worst thing they can do is try to be everywhere right away. There's just too many growing pains."

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Jacksonville, FL

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