2011 Annual Franchise Review: The Dawn of Recovery

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.

 

Squaring Accounts

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.

 

Job Jacket

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.

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