Growing Franchises In The Garden State: Companies Talk Strategy And Financing At Industry Expo

Back in Mike Sarao's day, a college student with almost no business experience could drop out of school to buy a Blimpie franchise.

In his case, it was the same Jersey City shop where he had swept floors part-time during high school.

After learning the ropes there, he purchased rights to open stores in Freehold, Lakewood and Trenton. Now he owns more than 60 units and oversees Blimpie's development in the tri-state area.

The industry has had to change a lot as it adapts to potential owners who want to feel protected from an uncertain economy and lenders who still seem reluctant to provide financing to qualified buyers.

During the recession, some New Jersey Blimpie stores very acutely felt the impact of fragile local economies, said Sarao. One shop in Springfield suffered when a nearby supermarket closed and foot traffic dropped.

"The company helped that franchisee move to a store in Jersey City instead," he said, "and he is thrilled." Stories of similar corporate support were popular at the Jacob Javits Center in New York City last weekend as an estimated 10,000 people gathered to meet 300 exhibitors at the International Franchise Expo. In the wake of the recession, companies have had to emphasize their strong support networks, adaptable business models and lower licensing fees.

In 2007, franchises represented 11 percent of businesses with paid employees across 295 industries for which data was collected by the U.S. Census Bureau. They posted annual sales of $1.3 trillion and employed 7.9 million workers.

The International Franchise Association � a D.C.-based trade group that represents franchise systems, franchise owners and suppliers � predicts industry employment will reach 8.1 million this year, topping its 2007 high for the first time since the recession.

Matthew Haller, the association's vice president of public affairs, said projections that the industry will grow this year have been tempered by the reality that lending availability has lagged behind demand.

"Financing is still an issue," he said, "but it's better this year than last year." In 2011, the association estimated that 20 percent of financing needs in the industry were unmet. This year, Haller said, the gap will shrink to an 18 percent difference between borrowers' needs and approvals.

bz22franchise2.JPGClaudio Papapietro/For The Star-LedgerThe booth for Steak 'n Shake is pictured at the International Franchise Expo at the Javits Center in Manhattan, N.Y.

"We've tried to do a lot to educate potential franchisees and lending institutions about what to expect from each other," he said. "It's been an intense, two-year campaign." In the meantime, the companies selling franchises have adopted some common selling points while they vie for the attention of people fortunate enough to beat the odds by securing capital.

When someone buys a franchise, they are buying the rights to open a business using an existing company's name, branding and product line. As part of the deal the company provides management support, training and often helps finance the business because each successful franchise represents a steady stream of royalties.

Although the franchise industry tends to sell its opportunities as safe alternatives to buying independent businesses, there's more to the story.

Potential franchise owners can start researching franchises using data the Small Business Administration has kept on loans it approves for franchise owners since 2001. The list of franchise companies, which includes 580 of an estimated 3,000 in the U.S., was updated last month.

For example, Blimpie franchisees have been approved for $19.3 million in SBA loans since 2001 and 46 percent of those loans were not repaid, according to the administration.

The does not mean that 46 percent of all Blimpie franchises have failed, but it does start to provide a counterbalance to the popular perception that a buying a franchise means walking into a turn-key operation or purchasing a business-in-a-box.

Even successful franchisees and companies can't afford to rest on their laurels, said Mark Jameson, senior vice president of franchise support and development at Fast Signs.

The company currently has 10 stores in New Jersey and would like to double its presence by the end of the year. It wants to grow in areas dense with changing businesses, like Newark, said Jameson, where a significant amount of revitilization has been taking place.

The Texas-based franchisor emerged from the recession with a new tagline emphasizing its ability to keep pace with market demand.

"Now we're telling people we're ‘More than fast. More than signs,'" he said. "We've added digital signs and mobile technology to our offerings to keep up."

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