2010 Annual Franchise Review

Members of the print community may find themselves quoting Queen Elizabeth II when referring to 2009. It was, for the majority of the industry, the “annus horribilis”—the horrible year. Last year marked the peak of the worst recession most of us have ever seen. A great many printing company owners were forced to sell their businesses or simply close their doors.

As the most identifiable microcosm of the print universe, the franchise segment presents us with a snapshot of the troubles that have dogged the larger industry. It also offers a glimpse of the turning tide as financial recovery begins. The observations offered up by the franchise leaders provide insight into their varied strategies for leading their affiliates into a brighter future.

The only franchise that did not report this year was LAZERQUICK. As a general rule, when a system fails to report, we estimate its sales to be on a fairly even par with the latest reported figures we have from them. In this case, however, that method is not supported. We must presume that LAZERQUICK was dealing with the same economy that everyone else endured. Because of that, the system’s sales figures have been adjusted downward. Information about shop locations and franchise fees were obtained from various reliable sources on the Internet, including the company’s own website.

Cast of Characters
At the end of 2009, virtually every metric tracked in QP’s Annual Franchise Review was down across the board. System-wide sales were down. Sales per shop dipped sharply. The number of franchise locations decreased—although, admittedly, that has been happening every year for about a decade now. The only category that seemed to be on the rise was the number of shops that left their franchise systems. Most struck out on their own as independents, some were consolidated, and a few went out of business completely.

As the curtain rose on the second decade of the millennium, there were seven U.S. based franchise systems with 2,795 shops worldwide. That is 138 fewer shops than the previous year; down by 4.7%. There were 2,153 shops in North America; a loss of 188 units, or 8.03% on the year.

Minuteman Press, with 942 locations, is still the largest system worldwide. Franchise Services, has a total of 634 locations. It is followed by ICED with 488, Allegra with 350, AlphaGraphics with 267, CPrint International with 95, and LAZERQUICK with 21 locations.

Of those companies, Allegra, CPrint, and LAZERQUICK are strictly North American concerns, meaning that all of their franchisees are in either the U.S. or Canada. Franchise Services has 498 franchisees in North America under the banners of Sir Speedy Printing and Marketing Services, PIP Printing and Marketing Services, and Signal Graphics. The majority of AlphaGraphics’ locations—234 of them—are in North America. ICED, on the other hand, maintains only 148 of its locations in the U.S. and Canada under the names of Kwik Kopy Printing, Franklin’s Printing, The Ink Well, and Kwik Kopy Business Centers.

If you are adding up the numbers on your own, you will need to subtract two U.S. locations from your total. Affinity franchise CPrint has two franchisees that are also members of other, primary franchises. Therefore, they have been backed out of the total so that they would not be counted twice. That is also the reason that the total number of shops will show a variance in some of the charts that accompany this article. The total numbers are correct.

While it was once quite common for franchisors to maintain locations that were corporately owned and operated, that practice began to fade about 12-15 years ago. LAZERQUICK and ICED are now the only systems that have corporate locations. ICED has a single such location. LAZERQUICK, however, owns 11 of the 21 locations that make up its system. It is also the only franchise that is still a strictly regional interest, with all locations operating on the West Coast.

Neither ICED nor LAZERQUICK opened any new locations in 2009. Minuteman opened 29 shops, AlphaGraphics opened 24, Allegra opened 15, CPrint added 11, and Franchise Services opened four shops. That’s a total of 83 new locations.

Those openings were offset, in most cases, by franchisees leaving the systems for various reasons. Minuteman saw 55 shops leave. ICED bid goodbye to 41 stores. Franchise Services lost 35, and Allegra lost 31. AlphaGraphics and CPrint each dropped 16 locations, and LAZERQUICK closed one corporate location and lost one franchised shop. The total number of shops leaving franchise systems was 196. CPrint president Todd Nuckols points out that five of the 16 businesses reported as leaving that system were sold to new owners.

One of the ways that franchisors stay healthy is by reselling franchise locations to new owners when franchisees depart the system. The total number of shops resold in 2009 was 93. Minuteman is at the top of this category, as always, with 64 shops resold. AlphaGraphics and Franchise Services each resold 10 locations, Allegra resold eight, and ICED resold one.

Box Office
Overall, system-wide sales were down by 17.13% in 2009, with total sales from the franchise segment of the quick/small commercial printing industry being $1,666,453,846. Average system-wide sales came in at $238,269,549; a 20.6% shortfall from the previous year.

Franchise Services reported the highest system-wide sales with $460 million, an 18.17% drop from the previous year. Minuteman, with total sales of $400 million, was down by 13.98% on the year. AlphaGraphics fell by 16.54% to $241,893,547. The $233 million reported by Allegra reflected a 15% shortfall. ICED, with sales of $222,135,254, was down by 26.38%. CPrint reported the shallowest cut of 5.23% to garner total sales of $96,158,045. And LAZERQUICK’s estimated $14.7 million system-wide sales add up to a 13.98% decline.

If there is a bright spot in this year’s Franchise Review, it is that average sales per shop (SPS) was not down nearly as much as system-wide sales. The overall average SPS was $596,227, down by 14.9% on the year.

This year, CPrint is the SPS leader with average sales per shop of $1,012,089. It is also the only system to report an increase in SPS, even if it is only 0.74%. AlphaGraphics, which frequently holds the top spot in this category, saw SPS fall by 18.74% to $948,125. Franchise Services, with SPS of $730,000, slid by 15.75%. Allegra’s average SPS fell 12.55% to $685,000. Minuteman’s franchisees, on average, felt a pinch of 10%, with SPS of $500,000. ICED suffered the greatest SPS loss of 24.05%, with average sales of $486,218.

North American sales for the franchise systems only fared slightly better. Total sales of $1,357,828,486 were off by 17.07%. Allegra, CPrint, and LAZERQUICK have no locations outside the U.S. and Canada, so their system-wide figures are unchanged. Here are the North American sales results for the more global systems. Franchise Services, with total sales of $363 million, was down by 23.73%. Minuteman’s 12.5% shortfall accompanied sales of $350 million. AlphaGraphics’ sales totaled $205,843,753, with a 15.45% decrease from the previous year. And ICED posted a 23.92% decline, with North American sales of $96,559,688.

Average SPS for all North American franchisees was $630,668—considerably better than the worldwide average. However, that did not carry over to individual systems. For AlphaGraphics’ franchisees on this continent, average SPS was $879,674. Franchise Services’ average SPS was $728,915. Minuteman posted average SPS of $432,632. And ICED toted up average SPS of $410,892 on this side of the pond.

Pay the Piper
The benefits of belonging to a franchise system are many. They range in scope from pricing agreements with equipment vendors and training programs to assistance with financial planning and designing business plans. There is also the more intangible benefit of having a built in group of business associates who can be called upon for advice and feedback.

Of course, there is a price for gaining access to those advantages. In 2009, the price paid to join most systems went up. Not all franchisors raised the cost of entry or the total investment required, but most did. And, of course, there are royalties to be paid as well.

The initial investment required to become a franchisee held steady for Franchise Services ($150,000), Minuteman ($55,000), and LAZERQUICK ($25,000). ICED raised its entry price 2.03% to $74,000. CPrint’s start-up cost jumped 20% to $5,000. And Allegra bumped up its ante by 40% to $150,000. Bucking the trend, AlphaGraphics lowered its start-up investment by 8.97% to $78,000.

The total investment required to be part of Franchise Services or CPrint was unchanged at $288,000 and $12,579, respectively. Please note that CPrint’s investment costs are considerably lower than other franchises because it accepts only established printing companies, meaning that no major equipment purchases are required.

Allegra, AlphaGraphics, and ICED raised their total investment requirements. Allegra’s 12.22% increase brought the maximum investment amount to $485,000. AlphaGraphics raised it’s final cost by 2.21% to $424,000. And ICED’s total investment jumped 17.1% to $252,680. LAZERQUICK dropped its total investment by 9.09% to $275,000. Minuteman decreased its total cost by a whopping 44% to $125,000.

Method Acting
Even for a comparatively disappointing year, more than $1.66 billion is not exactly chump change. It is even more impressive when you take into consideration that the franchise segment makes up less than 10% of the quick/small commercial printing industry.

So how did the franchises bring in that amount of cash? The lion’s share came from color digital printing, which brought in 23.9% of sales. For those of you who are counting, that totals $398,282,469. The second largest block of work was multi-color offset, which at 17.8% of sales, brought in $296,644,805. Monochrome digital printing made up 12.6% of sales, or $209,973,185.

Ten percent of sales ($166,645,385) fell into the brokered/other category. Four-color offset and bindery/finishing services each brought in 8.3% of sales, or $138,315,669. Prepress work accounted for $103,320,138, or 6.2% of total sales.

Single-color offset work has been in a slow decline for a number of years. This year it fell to 4% of sales; off from 7.9% last year. Nonetheless, that is still worth $66,658,154. The numbers reported in this year’s survey indicate that the work that has fallen out of this category has been shifted to the color digital and multi-color offset categories. That is a positive sign, considering how much more profitable color work is.

Wide-format printing and mailing services have been on the rise in recent years. Both categories increased their percentage of sales in 2009. Mailing services made up 5% of sales, or $83,322,692, up from 4.1%. Wide-format printing accounted for $64,991,700, or 3.9% of overall sales, up from 3.3%.

Curtain Call
The dismal economy of the past 18 months may be as good an argument as any for the value of franchise affiliation. Independent printing business owners may feel a tinge of envy for those who have the option of reaching out for help from a larger organization that has a vested interest in their success. The training and business services offered to franchisees probably saved some from failure and helped others minimize their losses during these tough times.

Comments from the franchise leaders indicate that they are positioning their systems to leverage new capabilities and customer demands to build a stronger future. It’s no wonder that many who are new to the industry (and a few who have been around for a while) are opting to take advantage of the various conversion programs.

As the economy begins to improve, the franchisees who take advantage of the tools that are available to them will likely find themselves well equipped to take on the next opportunities the industry offers.


Director’s Cut

Commentary from the Franchise Leaders

Allegra Network
Carl Gerhardt, President & CEO

Most in our industry would probably like to forget 2009—the culmination of the most severe recession ever experienced. Although much of this was precipitated by the worldwide recession, it was exacerbated by the industry’s continuing structural shift. Most industry pundits predict we may not recover as we have in the past.

Although this may play out somewhat differently in our print and sign divisions, we see this as a golden opportunity to change the very nature of our business model, which will result in an historic opportunity. Thus, we are not depending on economic recovery and have implemented the following key initiatives:

  1. Transition our franchise members from printing/sign centers to true added value marketing services providers. Last year we welcomed Bob Milroy as our chief marketing officer to oversee execution of the effort. Bob was CEO of a perennial Top 50 B2B marketing services firm, has been an outstanding addition to our executive team, and recently became an investor in the company.
  2. Accelerate this transition through the Marketing Central certification of our members via Allegra University webinars and on campus training.
  3. Rebrand our centers. For example, Allegra Print & Imaging will now be branded Allegra Marketing • Print • Mail.
  4. Establish a Marketing Resource Center to assist our members as they provide their customers with “agency” quality marketing services.

As a franchise committed to the long term success of our members and the company overall, we are able to provide the needed resources to facilitate this transition.

Like much of the industry, our network experienced the closing and consolidation of printing firms as a result of the impact from the recession, but a large number of our lost/closed centers were consolidated with other locations.

We continue with strong emphasis on growth through new locations with three initiatives for both divisions:

  1. Acquire independent businesses via our successful MatchMaker program. We continue to have many entrepreneurs interested in buying these businesses and converting them to Allegra/Signs Now. Despite financing challenges, we still opened 12 new locations in 2009 and helped our members complete 17 acquisitions.
  2. Introduce Allegra Advantage, a program whereby independents can join Allegra Network and benefit from our programs such as Marketing Central, Profit Mastery, and ownership transition.
  3. Rollout the new Allegra Marketing • Print • Mail startup franchise that focuses on providing comprehensive marketing services to small-medium size businesses.

As Andy Paparozzi, chief economist for NAPL, says, we can look upon industry change as either “an historic opportunity or profound threat.” We see it as an opportunity of historic proportions and are excited about the new decade.

AlphaGraphics
Kevin Cushing, CEO

News flash for 2009! The AlphaGraphics network grew during 2009! Our network was comprised of 267 locations at the end of 2009, an increase of eight locations over last year. We did it by adding quality new franchisees to our system one at a time and not by acquiring another chain of businesses.

Now in our 40th year, we have provided quality products and services to our customers with great success, whether times were good or bad. We have adapted, grown, and persevered, and together we have built a network of which we are proud. While the recession brought challenges in terms of sales, the momentum we built over the years allowed us to emerge stronger and to deliver industry leading performance numbers. We have prepared ourselves to take advantage of the opportunities presented to us by the recessionary period. Our recent National Sales Blitz resulted in 8,574 calls and more than 500 appointments set. That’s the power of a network!

Clients of all sizes are doing more with less; looking to grow revenues and stretch their dollars further. The AlphaGraphics network has become the vital connection needed to boost the effectiveness and efficiency of our clients. With capabilities like our industry leading agOnline e-commerce offering through to direct marketing services backed by agDirect Marketing, we are ensuring that the AlphaGraphics brand builds off of our 40 year legacy of “high tech, high touch” and stays relevant and energized.

How “vital” is the AlphaGraphics brand?

  • Our location count is growing in the most trying economic period in many decades
  • 10 of the Top 100 Quick Printing companies in the U.S operate under the AlphaGraphics banner
  • 100% of our qualified and invited franchisees have re-newed their franchise agreements at term end
  • Our monthly Discovery Days bring diverse, qualified prospects from across the country and all walks of life, including independent printers
  • Our international operations showed fantastic growth in Brazil as well as solid growth in Saudi Arabia
  • This past year, 12 independent printers chose to operate their businesses under our brand. They appreciate our strategic vision, the support and the approach to business development, and marketing that is hard to achieve alone.

Congratulations to those of you who, like AlphaGraphics, have persevered and strengthened your fundamentals during these times. There may be more rough seas ahead of us before this storm calms, but how fast we’ll sail with some wind at our back!

CPrint International
Todd Nuckols, President

CPrint International finished its fifth year of exclusively serving printers that are already in the printing industry. Despite the economic news, we are proud to have assisted five printers in selling their businesses and numerous others in their pursuit of prosperity. CPrinters, as a whole, are in a powerful position to thrive as the economy begins to turn.

A major change for our organization is that I took over as president of CPrint International from founder Tom Crouser. This move is one of many to assure that CPrint will live forever to serve its affiliates for years to come. Additionally, we added to our professional staff while many others were downsizing.

As we go forward, it is my job to assure that CPrint evolves as the industry as a whole evolves. At CPrint, we continue to conduct original research to identify industry trends; sometimes years before independent printers realize the necessity. This allows CPrinters everywhere to continue to sell based on differentiating factors other than price.

In our view, the key to ongoing success is education. And in 2009 we added to our CPrint University online training center, which had more than 75 training courses that are available 24/7 to both owners and workers. Additionally, we conducted 100 hours of residential training in 2009 on sales, general management, and production. This further allows our affiliates to be on the leading edge of changing industry trends.

The print shop of tomorrow will not be like the print shop of today and printers must prepare to monetize processes that they never have before. And because we are continually testing new marketing methods ourselves, CPrint is in a great place to help printers through these exciting times. We look forward to continuing our pursuit of helping printers prosper!

Franchise Services
Rich Lowe, COO

2009 was clearly the most challenging year for the printing industry in any of our careers. The combination of the recession and the changing nature of the printing and communication industry made for the “perfect storm.” Just about everyone experienced the same thing. Simply put, the printing business model has been challenged and the need for change is here.

Business for our networks has certainly improved in the fourth quarter of 2009 and the first quarter of 2010. But over the last 18 to 24 months many customers have found alternative ways to communicate internally with their organizations, and they have found alternative ways to market to their customers and prospects.

Our focus is to transition our centers to providing printing and marketing services while we maintain revenue from our traditional printing products. We do not expect this transition to take place overnight. It is going to take conviction and commitment on our part. We have started by training our franchisees and their teams to deliver the expanded products and services our customers are demanding, while continuing aggressive marketing efforts to communicate our new product and services offering and remaining consistent in our consultative sales approach with our customers and prospects.

Many people ask us why we think we can transition to providing printing and marketing services to our customers. My answer is simple. We have been print providers for more than 40 years. Our quality and reputation are well known in the community. We are local and have the ability to understand customers’ specific needs and deploy programs quickly. We have spent many years creating direct mail programs that have helped our business customers reach their objectives and we are prepared to continue to do that for small and mid-sized businesses in the future. Our customers need us. We will grow our businesses by providing more value to our customers from new products and services that compliment our traditional printing products.

We know we have to change. Change is not the issue—our owners have adapted to many changes since they first opened their doors. The issue is how fast we can change. We have already started the transition and our franchisees are up to the task of finishing the job.

ICED
Bob Metzger, Chairman & CEO

As a weakened economy continued in 2009, the impact was felt by many of our center owners as they experienced some very challenging issues. We are extremely proud of the effort taken by our owners to cope, and in some cases prosper, with the challenges of doing business in a down economy.

While many are still running “mean and lean,” they continue to explore new opportunities to expand their portfolios with new applications and services, creating additional revenue streams that compliment their existing business. Some have implemented improvements in their workflow and work process, resulting in a much more streamlined approach, improving efficiencies, and cutting costs.

For most, the ability to control and maintain the business they have by focusing on core competencies remains a priority. The signs for recovery are starting to show a glimmer of encouragement, although there is still a long way to go.

Moving into 2010 we will focus on how we can “Make a Difference” and continue to provide programs and events that will enable our owners not only to survive, but thrive. Our marketing and educational programs, as well as our executive conference this year, are designed to help each and every owner to make a difference—in their centers, with their clients, in their sales and marketing efforts, and more.

We continue to work with our preferred vendor partners and others to assist in bringing many opportunities to fruition this year. Together, we can provide the tools needed to help our owners grow their businesses and strengthen their bottom lines.

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