Economists assure us that the recession ended in late 2009. And there are signs that in 2010 a slow recovery cycle began. The first step in the recovery was to stop the worst of the bleeding. That may not necessarily look like recovery—unless you’re the one doing the bleeding. Indeed, many printers still feel as if they are waiting for a transfusion. So we turn to the microcosm of the franchise segment to get a better idea of what actually took place in 2010.
Before delving into the numbers, let me explain a few adjustments that have been made to this year’s study. LAZERQUICK was not included in the calculations. The system has not been actively franchising for several years and did not report last year. It seemed more realistic to adjust its numbers out of last year’s figures and work with the six remaining franchise organizations on a level playing field.
You may notice that ICED has reported more shops in North American than it did last year. This is because it previously only reported U.S. shops and now has added those in Canada for better accuracy. Accordingly, last year’s figure has been corrected in order to prevent skewing the statistics.
And finally, if you find that the numbers are not adding up the way they should, you’ll need to adjust for the CPrint duplicates. There are two companies that are members of both CPrint International and another franchise (two different franchise systems, in case you’re interested). They are counted in each system’s totals, but the duplication is backed out of the overall totals so that they are not counted twice. Therefore, I have subtracted two from the total number of shops. I have also subtracted their combined sales of $1.35 million from the totals of system-wide sales and North American sales.
In 2010, the franchise segment of the industry produced $1,639,412,515 in system-wide sales. That was down 0.79% from 2009. That may not sound very encouraging until you recall that the previous year saw sales freefall by more than 17%. That is what I meant by stopping the bleeding. North American sales slid by 2.52% to a total of $1,309,289,088.
Average system-wide sales were $273,249,253, down by a mere 0.7%. Once again, Franchise Services posted the highest system-wide sales at $442 million, down 3.91% on the year. Minuteman Press International was hard on its heels with sales of $424 million, marking a 6% increase. AlphaGraphics ?reported sales up by 8.86% to $263,321,927. Allegra Network, with total sales of $231.2 million was off a scant 0.77% on the year. ICED saw sales dip by 11.53% to $196,519,439. And CPrint’s sales fell by 12.85% to $83,804,149.
Average North American system-wide sales dipped by 2.6% to $218,228,681. Allegra and CPrint have no franchises located outside North America, so their system-wide and North American sales are the same. Of the other four systems, Minuteman had the highest North American sales at $370 million. Franchise Services reported $342 million. AlphaGraphics’ sales grew to $214,205,939. And ICED’s North American sales slid to $69,512,000.
The good news is that sales per shop (SPS) were up for shops that have been in business for more than one year. The average sales per shop, system-wide, was up 3.7% to $617,248. Average SPS for North American franchisees was up by 2.5% to $625,895.
CPrint is the only system that continues to report average SPS in excess of $1 million. Its franchisees averaged $1,065,246 per shop. AlphaGraphics’ average SPS was $973,013. Franchise Services and Allegra Network were in the same neighborhood with SPS of $740,000 and $719,000, respectively. Minuteman franchisees saw an average SPS of $480,000, and those who call ICED home reported SPS of $434,778.
Location, Location, Location
U.S. based quick printing franchise systems operated 2,656 locations worldwide in 2010. That is a loss of 122 shops, or 6.3%, from the previous year. Of those shops, 2,092 (79%) are located in North America. All but two of them are franchisee owned. Franchise Services is now the only system that maintains company owned locations.
Minuteman remains the largest system, with 926 locations worldwide, 785 of which are in North America. Twenty shops left the system last year for a 2.16% decrease in numbers. You can find Minuteman franchises in six countries.
Of Franchise Services’ 598 locations, 462 are in North America. The system franchises Sir Speedy, PIP, and Signal Graphics on this continent and operates the Multi-Copy brand elsewhere in the world. Its franchisees can be found in 11 nations. The system lost 36 locations (6.02%) last year.
ICED is home to Kwik Kopy Printing, Kwik Kopy Business Centers, Franklin’s Printing, and Ink Well in North America. It offers Kall Kwik and Kwik Kopy abroad and is present in 10 countries. The system parted ways with 36 shops (7.96%) in 2010, leaving it with 452 total locations, 202 of which are in North America.
AlphaGraphics can be found in seven countries. In 2010 it had a total of 272 shops, 235 in North America. AlphaGraphics was the only system to actually increase its number of shops in 2010, growing 1.84% over the previous year. Considering the ongoing trend of ever decreasing franchise numbers, that’s quite an accomplishment.
Allegra Network, franchisor of Allegra Marketing • Print • Mail, American Speedy, and Insty-Prints, reported its total number of locations at 319, all in North America. That is a loss of 31 shops, or 9.72%.
CPrint International, which is a non-traditional franchise that serves established printing businesses that are looking for help in improving their sales and profitability, lost four shops (4.4%) for a total of 91 locations in 2010. Its franchisees are also in North America only.
All of the franchises now offer conversion programs that allow existing printing companies to become part of their systems. These programs are often promoted as a way for owners who wish to retire or sell their businesses to make the transition without having to go it alone.
These conversion programs are also advertised to potential entrepreneurs who are interested in owning their own businesses, but who don’t want to start from scratch. In light of the support offered by the systems, the unemployment rate for mature workers, and the general economic conditions, one might expect the time to be ripe for such programs to prosper.
A word of caution and common sense here: The advantages of conversion programs and the support services available to those who are part of a franchise system can be very appealing. This is especially true for potential owners who have no experience in the printing industry, but who want to start their own business. Anyone considering a franchise conversion, whether buyer or seller, still must complete all the due diligence that would be required for any such business transaction. Doing so does not indicate any mistrust of the franchise system or any of the parties involved. However, anyone who is party to such a major transaction must take responsibility and advocate for their own best interests.
Price of Admission
Whether converting an existing business or opening a completely new franchise location, there are costs involved. For the segment as a whole, both the minimum start-up capital and the total investment amounts rose in 2010.
Because it deals only with existing businesses, CPrint does not have the same capital requirements as the other franchises. Its members already have their equipment and premises in place before they join the group so those expenses do not come into play. CPrint requires $5,000 to get started and the maximum investment required is $12,579. That did not change in 2010. Because it works with significantly different criteria, CPrint is not figured into the averages in this category this year. To do so would skew the averages of the other systems, which must deal with equipment and property costs.
That said, the average minimum start-up capital required in 2010 was $123,000. Potential Allegra franchisees now must have $200,000 on hand. That is up 25% from $150,000 in 2009. Franchise Services still requires at least $150,000, and AlphaGraphics raised its ante by 48% to $150,000. It also requires prospects to have a net worth of at least $500,000.
On the other hand, ICED and Minuteman both lowered their start-up minimums. Minuteman lowered the amount 10% from $55,000 to $50,000. ICED dropped the amount from $74,000 to $65,000; a 13.85% decrease.
Delve a little deeper and we find the average total investment to join a franchise jumped by 2.7% to $377,994. Most franchises indicate that the total investment can vary, depending on the options the individual franchisee chooses. There are basic must-haves and there are limits.
Allegra’s total investment can range from $166,117 to $524,552. At the top of the range, that is a 7.48% increase over the previous year. Those looking to get into the AlphaGraphics system can expect to invest between $242,000 and $412,000, excluding real estate costs. That’s down by 2.91% from 2009. ICED expects franchisees to invest between $219,578 and $248,626—1.63% less than the previous year.
Franchise Services and Minuteman both cite fixed amounts for the total investment required. Franchise Services froze the amount at $288,000. Minuteman increased its cost by 13.79% to $145,000.
Every year when I break down the sales figures to see where the money comes from, it becomes apparent that even in a down economy, there is still a lot of money being made. Based on total sales of $1,639,412,515, here are the breakouts for the percent of sales by job type.
Category Percent of Sales Dollar Value
Prepress 7.1% $116,717,182
Single-Color Offset 3.8% $62,300,830
Multi-Color Offset 12.8% $209,855,426
Four-Color Offset 6% $98,369,731
B/W Digital 13.6% $222,971,390
Color Digital 23.3% $382,002,455
Wide-Format 5.1% $83,614,271
Finishing 10. 4% $170,507,534
Mailing Services 5.2% $85,253,767
Brokered/Other 12.7% $208,215,930
While there were no dramatic variations in the breakout of percentages, it is interesting to note that this is the first time wide-format printing has made up more than 5% of sales. At 5.1% of sales, it was up 1.2% from last year. It may also be worth noting that brokered services were up almost 3% to comprise 12.7% of sales. It is possible that this could be a symptom of the recessionary economy.
The balance between offset and digital printing is trending ever more in favor of digital. This year, offset made up 22.6% of sales, down 7.5% from last year. Digital printing rose slightly by 0.4% to account for 36.9% of sales.
Breaking them out into their individual components, single color offset work only made up 3.8% of sales, a dip of 0.2% from last year. Multi-color offset printing fell off sharply (5%) to bring in 12.8% of sales in 2010. Four-color process work also decreased. It was down by 2.3% to account for 6% of total sales.
Digital printing breaks out with 13.6% of sales coming from monochrome digital output, up 1% on the year. Color digital printing, at 23.3% of sales, is the largest single category of work. Still, even color digital work saw a slight decrease of 0.6% on the year.
In the back of the shop, both postpress and mailing services saw increases. Traditional postpress work such as binding and finishing rose by 2.1% to ring up 10.4% of sales. Mailing services saw a slim 0.2% increase, but still brought in 5.2% of sales for the year.
Brighter Days Ahead
Already in 2011, there are signs that the recovery is getting stronger. I hear anecdotal evidence of improvement in conversations with printers from around the country. The observations and prognostications offered by the franchise leaders are considerably rosier than they were last year, although they are still guardedly optimistic, as most of us are.
As I mentioned at the beginning of this article, the economists talk about stopping the bleeding. That always reminds me of an observation I heard attributed to an ER doctor. He said, “The bleeding always stops—one way or another.” At least, in this case, it appears that the patient was treated in time and recovery is expected.
The path to our industry’s future will require printers to embrace the changes taking place. Marks on paper are not going away, but new services that help customers grow and thrive in an increasingly electronic world must be part of the mix. Franchisees are fortunate to have organizations that can help them analyze and act upon the needs of their markets.
I look forward to next year when, hopefully, the numbers included in this annual report will indicate that the positive trend continues.
Franchise leaders speak out about their industry observations
Allegra Network, Carl Gerhardt, president & CEO
In 2010, many printers came face to face with an unpleasant reality: a slight upturn in the economy simply wasn’t going to be the life raft they needed to ride out the choppy waters in the wake of one of the worst U.S. recessions in history—one that hit our industry with particular force. While we are now seeing some light on the horizon, economic revitalization is slow, and the growth years of the past for the conventional business are just that…a thing of the past. Prospering during a slow recovery and beyond requires a different mindset and a new way of thinking, because the truth is our industry will never be the same.
At Allegra Network, we made an important strategic decision at the end of 2008. Even though we faced declining sales for an unknown recessionary period, we committed to a path that would best position our company and franchise members for the long term. More importantly, we continued to make key investments that would be essential for the long haul. During 2010, we made important progress with those vital initiatives:
We accelerated the transition of our franchise members to be true marketing services providers with multiple education/training courses, new marketing/technology support personnel and business building product rollouts.
More than 75 of our franchise members are fully Marketing Central certified, and we expect to certify another 100 in 2011.
To accommodate our growth and invest in our future, we purchased and moved into a new headquarters. This facility houses our full-service Marketing Resource Center, complete with marketing strategists, graphic designers, copywriters, and Web designers. The MRC provides ongoing strategic support to our franchise members, making the transition to a marketing services provider within reach of all our centers that choose to align with this business shift.
We completed the rebranding of our centers to more accurately reflect the full scope of their services. For example, our former Allegra Print & Imaging centers are now in the marketplace as Allegra Marketing • Print • Mail. Insty-Prints and American Speedy also have these designations.
We blew open the gateway to e-commerce with the rollout of our new, state of the art Web-to-print solution, Direct 3.0, which utilizes the robust variable platform XMPie.
Our system-wide sales were essentially flat for the year. Like most of the industry, we experienced a loss in units as many were consolidated with more financially sound franchises in our network. Additionally, many of our stronger franchise members acquired unaffiliated printers through our Acquisitions Program.
Our focus in 2011 will include:
• A heavy emphasis on sales and marketing for our franchise members, facilitating the delivery of higher level marketing services and cross media solutions.
• Expanding our Allegra Advantage program, allowing unaffiliated, independent printers to join our Network.
• Continuing to provide an exit strategy for printers and sign shops through our Allegra MatchMaker program. As in the past, we have a steady flow of prospects from corporate America wanting to own their own business.
• The first quarter of 2011 is producing the best results we have seen since 2008, and our franchise members are well positioned for what we consider to be an historic opportunity in this exciting industry.
AlphaGraphics, Kevin K. Cushing, CEO
As a team, the AlphaGraphics network has enjoyed a solid stretch of “wins.”
• AlphaGraphics signed 28 new franchise agreements in 2010 that will result in 17 new locations and successful transfers of existing AlphaGraphics Business Centers to new franchisees. We’re proud of our track record in helping our long term franchisees sell their businesses and pursue the next stage of their business lives or retirement.
• Six of our new franchise agreements represent independent printers who see value in the AlphaGraphics network and our conversion program.
• Our network grew to 272 locations and, with new franchisees still in the opening process, I expect to announce a network of greater than 300 locations by year end.
• 100% of our qualified and invited U.S. franchisees have renewed their franchise agreements at term end.
• Forest Stewardship Council (FSC) certification is being achieved by every AlphaGraphics location.
• We have enjoyed 13 consecutive months of network sales growth and have recovered a large percentage of our “recession dip.”
• We have partnered with the Direct Marketing Association (DMA) in the U.S. to develop a Direct Marketing curriculum and certification program for our centers.
• In Brazil we have opened three business centers and have achieved a record sales year in 2010 of over $32 million. This was a 52% increase and we expect a similar increase in 2011!
• We launched the agBook and agFoto brands in Brazil to great success.
Most importantly, our network has embraced the latest iteration of the strategic plan for our brand, NetVision4, “The New Now.”
Since 1995, AlphaGraphics, in cooperation with our franchisee Network Leadership Council, has issued strategic plans for the network that have driven our growth and capacity to evolve as a brand and business concept.
We are embracing the opportunities presented by “The New Now” with confidence and enthusiasm! What got us here, will take us there…Industry leading businesspeople boldly stepping into the blue ocean of marketing services and print. Sure, we have some sore muscles but it’s a “good soreness,” the kind associated with growth and readiness for new opportunities!
The business world is filled with companies of vision and strategy and the business world is starving for those that can execute. We are fortunate to have seasoned business owners that can put the three together. Award winning owners like Ed and Carol LeClair of Cary, NC, who received a PODi Best Practices Award for the best self-promotion event and who, along with Clare and Bill Meehan of Pittsburgh, PA, received 2010 PrintImage Excellence Awards for their multi channel campaigns. Our Brazil teams were honored with top awards from ABIGRAF (Brazil Printing Association) and AMAUTA (Latin America Direct Marketing Association) as well as an Echo Award from the DMA. Walking the talk!
The independents who are joining our network are seeing immediate benefits. As I write this article, a new member of our network who converted their multi-million independent business to AlphaGraphics (specifically to gain digital and marketing services expertise) wrote, “Yesterday, we closed our first deal—a $9,000 test marketing plan. If we can make the tests work (with AG’s help), the main deal is worth $50,000 or more! We feel really good about it.” That’s a nice testimonial in the first 60 days!
AlphaGraphics will be an exciting brand to watch these next few years. Don’t just watch us. Join us!
CPrint International, Todd Nuckols, president
2010 was an important transition year for CPrint as well as the printing industry as a whole. This past year marked my first full year as president since taking over for CPrint founder Tom Crouser. Additionally, it became very apparent early in the year that print buyers weren’t returning to the same habits they had pre-recession. So we took bold steps and peered into the future to help CPrinters survive and thrive for many years to come.
As a result of the cards dealt before us, we began training our affiliates on ManagedMarketing, which is a proprietary CPrint program that teaches printers how to help their customers increase sales. CPrint affiliates are not becoming advertising agencies, but instead are using the same skills we teach them to sell printing and converting them to the plumber down the street. As a result, CPrint affiliates feel as if sales calls are getting easier and, more importantly, less focused on price and price alone. CPrinters are getting paid for the value they bring and not just the transaction they deliver.
Don’t get me wrong, CPrint shops are still making a lot of money by putting ink or toner on paper. However, they are seeing that decline and are taking steps to do something about it. They are looking at themselves as entrepreneurs and not just print shop owners. And, it’s working.
In fact, this past year we awarded three of our shops with the top award in our program called the Superior Performance in Print Shop Management Award. To receive this, a print shop owner must achieve a 2:1 or higher current ratio, 20% or more profitability, and 15% or greater sales growth over the last three years. We feel this puts a print shop in the top 5% of all shops in North America, and we are proud to say that three CPrinters achieved these marks while many print shops were struggling to keep the doors open.
The future looks bright for CPrint affiliates because they have tools at their disposal that their competition doesn’t even know exist yet. And, instead of staying in the shop, pulling the covers over their heads, and waiting for the storm to pass, CPrint affiliates are making money, having fun, and spending a lot more time with their families.
Franchise Services, Richard Lowe, COO
We have a number of reasons to be optimistic about prospects for a good year in 2011. Business for our networks has not rebounded to pre-recession levels; however, 2010 was an improvement over 2009. Business has stabilized and the peaks and valleys have shallowed to more consistent levels. Our franchisees have right sized their expense models and redoubled their sales and marketing efforts. Those activities have positioned them well to take advantage of the business opportunities available in the market today.
Being a service provider in this ever changing marketplace remains challenging, but our franchisees have proven to be extremely resilient and open to all opportunities to improve their business. Much of our revenue still comes from traditional printing applications. Where appropriate for our customers, we will continue to deliver high quality, fast turnaround digital and traditional print products. We are also driving demand for print by providing and expanded mix of marketing and communication products to our customers.
The transition to providing more than just print is well under way. We started the process of positioning ourselves as providers of print and marketing services three years ago. The great recession drove us even faster to adapt our products and services to the changing needs of our customers. We believe our best opportunity to grow is to get a greater share of our customers’ communication dollar.
All businesses need to communicate their messages to internal and external customers effectively and efficiently. We want to help them deliver the message through integrated campaigns, where print works hand-in-hand with online tools to get the right message to the right person efficiently. When we do that, we provide high value for our customers and good profits for us.
Our franchisees have embraced this strategy and are training themselves and their staffs to be able to implement it.
ICED, Jay Groot, president, ICED Print Brands
There s no question that 2009-2010 has been the most challenging period for franchises under the ICED umbrella than any since our beginning in 1967. Of course, we are not alone; the recession and the rapid evolution in technology, along with the changing marketplace, is affecting everyone in the graphics industry.
What we’ve chosen to do is ignore the naysayers and focus on the positive. It requires a change in thinking for many of our center owners, who have had to redefine themselves as something other than print providers. We are guiding those with a desire to grow toward being Marketing Solutions Providers (MSP). That means our owners must—not should—learn how to market better, how to develop successful campaigns, how to track their ROI, how to be more efficient, and so on.
On the plus side, a good number of our owners not only saw, but read the handwriting on the wall and started making adjustments. They have attended our very in-depth focus group meetings, a minimum of a two year commitment, ignoring the inconvenience and the cost, because they wanted to succeed. We can work with people with that mindset. We can help them achieve that success.
Our focus group members saw a steady increase in sales for 2010 over 2009. But more importantly, many improved their bottom line by a double digit percentage increase, with the average increase of 6.9%. Increasing sales and sacrificing profitability creates a false sense of comfort that won’t last long; not for the franchisee or for the franchisor.
One of our two biggest challenges today—and our biggest opportunity—is online print ordering, or Web-to-print. In the last few years, 20% of print orders have migrated to the Web. Post cards, business cards, letterheads, brochures, and more can now be customized and ordered online. It is expected that another 5% per year will move to the Web. As a franchise system, we need to find a way to capture that business and bring it back.
That’s why it is critical for our owners to embrace the MSP role—our second biggest challenge. They must not only become an MSP for those clients that need the whole consultant package, they must become a Web-to-print provider for those customers that are more price-oriented, the commodity print market.
My key objective for 2011 is to deploy a robust Web-to-print system that will allow our owners to compete online and capture that eroding business. Toward that end, I am working with a couple of primary providers of those services, and I expect to see some immediate improvements in revenue for our owners.
Online ordering and higher paper costs have really cut into profit margins, but so have customer buying habits. As client companies streamline their operations, the message being pushed down the line is to cut costs, buy cheaper, place smaller orders, get bids on everything.
This reinforces the need for being an MSP rather than “just a printer.” Those beleaguered clients need solutions to their problems; they need a partner—an MSP! —to help them keep their message to their clients strong.
We can do this 1) by helping our owners identify new markets and opportunities, 2) with online training and education, and 3) identifying and collaborating with vendors who can help with competitive product pricing and technology. We are looking for companies that are willing to explore new ideas and markets that help both of us. We don’t want someone who will just supply products.
This is a digital world, and we have to be comfortable and conversant in that world. Having an online communications portal seems to be the very basis for operating within that world. With that tool and dedicated online providers, our owners can be competitive without added overhead.
You know, direct mail has gotten a bad name in recent years, with everyone assuming that digital communications had replaced the days when a piece of mail was delivered by the post office. Not so! Direct mail has a definite place in a well designed marketing campaign. Now that campaign will include some digital communications and some print, but it will start with a face-to-face relationship between the MSP—our owner—and the client.
It is our belief that constant education is the route to success for our owners. That education comes in multiple venues and methods, and covers a myriad of subjects that a business owner needs to know; but it is essential to profitable growth. We constantly stress that to our center owners, and whether we are convening for our conference, holding regional workshops, producing or partnering in webinars, posting podcasts and e-zines, or distributing our company magazine, education is the vehicle that will carry us through—or over—the economic hurdles that are certain to remain part of our immediate future.
I remain hopeful that our franchise system will thrive as we initiate new plans or continue established plans. While most of our centers might be considered “mature,” given the maturity of our franchise system, our center owners also look to the future with hope, and look to us for guidance on that journey. We believe we are up to the task.