2009 Annual Franchise Review

How Do Their Gardens Grow?

Just when you thought there was very little left to consolidate in the franchise segment of the printing industry, Franchise Services buys Signal Graphics. What this means to our study is that there are now only seven systems remaining.

This year, for the first time in quite a while, we have estimated numbers for one of the franchise groups. There are no updated numbers for LAZERQUICK's 2008 performance other than what could be found on line and extrapolated from last year's figures.

Aside from those two items, the franchise segment of the quick/small commercial printing industry seems to have held fairly steady in 2008. The trend toward fewer, more profitable shops continues, as do the efforts to convert independent companies to franchise members, especially as independent owners prepare for retirement.

Flowers in the Garden

At the dawn of 2009, there were 2,931 franchise locations. That is down by 186 from the previous year, for a 6.3% loss. Be aware that these numbers reflect not only businesses that closed, but also locations that were consolidated and franchisees who left their systems to continue in business as independents.

Every system decreased its number of shops this year. Franchise Services, whose previous year numbers were adjusted to account for the Signal Graphics acquisition, declined by 86 locations. ICED decreased its numbers by 37. Allegra Network saw 31 shops fall by the wayside. CPrint's members fell by 14, which is in keeping with the way that particular franchise is structured. Minuteman Press (seven), AlphaGraphics (five), and LAZERQUICK (one) experienced single digit departures.

Minuteman, with 973 locations, remains the largest system overall. Franchise Services is the second largest, with 665 shops. And ICED has 529 shops. There are 386 locations in the Allegra Network and 259 in the AlphaGraphics system. CPrint has 101 affiliates. LAZERQUICK, the only remaining regional franchise, has 23 locations, 12 of which are owned by the parent company GISI. The only other system that still holds a corporately owned location is ICED.

Please note that if you are adding up the numbers for yourself, you will not get the same totals. Our totals take into consideration that there were five locations with combined sales of $2,975,000 that are part of CPrint as well as their primary franchise. Those figures were backed out of the overall totals so that they would not be counted twice.

Five systems opened new locations in 2008. They were: Minuteman (40), Allegra (32), AlphaGraphics (16), CPrint (14), and Franchise Services (5).

All systems had locations that either closed, were consolidated, or left the franchise to continue their business as independents. The tally runs: Franchise Services (51), Minuteman (47), ICED (34), Allegra (33), CPrint (27), AlphaGraphics (21), and LAZERQUICK (one).

The systems that resold franchise contracts within their own systems were: Minuteman (72), Allegra (31), Franchise Services (18), AlphaGraphics (14), and ICED (five).

Of the 2,931 franchise locations, 2,341 are in North America and 590 are international. LAZERQUICK is found only in the U.S. Allegra and CPrint both have franchisees in the U.S. and Canada. Minuteman can be found in five countries and AlphaGraphics in eight. ICED has franchisees in 11 nations, and Franchise Services has affiliates in 13 spots around the world.

There are franchised print shops in all 50 states, but no one franchise is present in all of them. Minuteman has locations in 47 states, Allegra in 45, and Franchise Services in 42. You'll find AlphaGraphics in 39 states and ICED brands in 33, but LAZERQUICK is available only in the three states along the West Coast.

Bountiful Harvest

In 2008, total system-wide sales for U.S.-based quick printing franchises were $2,008,538,426, a decline of 3.4% on the year. Conversely, average system-wide sales were $286,934,061; up 10.8% over the previous year. This odd quirk of the numbers is due to the fact that there are fewer systems this year.

All systems except Minuteman reported decreases in overall system-wide sales. Even with a 2.5% loss, Franchise Services led in sales with $562,124,500. Minuteman's sales were up 1.1% to $465 million. ICED's 8.8% drop left them with sales of $301,729,632. AlphaGraphics cleared $289,841,000 despite a 2.8% dip. A 3.9% loss resulted in $274,104,000 for Allegra. CPrint had sales of $101,464,294 after falling off by 6.6%. And based on the loss of a single location, we estimate LAZERQUICK's sales to be down 4.2% to $17,250,000.

This year, we also asked the systems to break out their North American sales, and the total in that category was $1,636,128,913. Since they are only located in North America, CPrint's and LAZERQUICK's system-wide totals are also their North American totals. Here are the North American sales for the systems that maintain a presence overseas: Franchise Services, $475,930,900; Minuteman, $400 million; Allegra, $274,104,000; AlphaGraphics, $243,444,000; and ICED, $126,910,719.

Of course, the real strength of any franchise resides in the healthy sales of its members. It is encouraging to report that even in challenging times, the average sales per shop (SPS) for companies more than one year old was up 2.9% to $685,279. Every system except Franchise Services and LAZERQUICK, which was estimated, reported an increase in sales per shop.

Two systems reported average SPS in excess of $1 million. AlphaGraphics is still tops with SPS up 0.01% to $1,125,829. CPrint reported a 5.99% increase for an average SPS of $1,004,597. Franchise Services saw SPS slip by 4.43% to $845,000. Allegra's SPS rose by 0.78% to $771,000. ICED reported SPS of $603,158; a 3.08% increase, which is the second best improvement in the group. And Minuteman's SPS was up by 0.91% to $550,000.

Sowing the Seeds

Naturally, it costs a bit more to get into a franchise these days if you are building a business from the ground up. On the other hand, if an established independent printer is investigating conversion programs, that's a rose of a different color. We have not gathered data on the costs conversion entails, but plan to do so in the future.

There are two factors to consider when weighing the cost of entry to a franchise system. The first is the initial cash investment and the second is the total cost. The average start up cost is $60,188; up 3.2% over last year. Of course, potential franchisees would also investigate royalties and compare equipment packages, among other factors. But the start up cost and total investment figures are a good place to begin.

Only two systems changed the amount of their initial start up costs. AlphaGraphics raised it by $10,000 to $85,000; an 11.76% increase. Minuteman posted a $5,000 increase (9.09%) to $55,000. The other systems maintained their up front commitment at last year's level. If you'd like to join one of the Franchise Services brands, plan to have $150,000 on hand. Allegra's initial ante is $90,000 and ICED's is $72,500. If you are an independent who would like to investigate the alternative business model offered by CPrint, you'll need to pony up $4,000. We can't say for certain whether LAZERQUICK is still actively offering franchises, but last year they listed their start up cost as $25,000, and we have no data to contradict that.

Total investment required ranges widely from $12,579 to $425,991—the average is $228,834; up 5.1% over last year. Those figures cover a vast array of differences. CPrint is at the low end, reporting a total investment ranging between $4,000 and $12,574. The program is only available to existing printing businesses that meet the system requirements. Since all franchise members are already in business, there is no need to factor in the cost of equipment, premises, or other start up expenses. Potential franchisees can expect a total investment of $180,000 to join Minuteman. The investment to become part of the Allegra Network ranges between $159,055 and $425,991. Buying into one of the ICED brands (Kwik Kopy, Kwik Kopy Business Centers, Ink Well, Franklin's) will ultimately cost $209,468. Sign on with one of the Franchise Services stable (Sir Speedy, PIP, Signal Graphics, Copies Now) and you'll invest $288,000. AlphaGraphics requires a total investment of between $280,130 and $414,630. If LAZERQUICK is still open to new franchisees, the total investment quoted last year was $300,000.

Turning the Soil

It's always interesting to take a closer look at the work that goes into creating the sales figures the franchise systems report. With system-wide sales of more than $2 billion, even a small percentage represents a sizable chunk of change.

Prepress services made up 6.3% of sales; down 0.3% from the previous year. In the offset arena, single-color press work accounted for 6.2% of sales; falling 1.7%, and multi-color offset was down 1.2%, but still brought in 18.8% of sales. Four-color process offset was up by a slight 0.1% for 8.2% of sales. All told, offset accounted for 33.2% of sales, or $666,834,757.

Digital printing accounted for 37.8% of sales, or $759,227,525. It breaks down to 13.2% from monochrome digital output; up 0.6% from the previous year, 21.3% from color digital printing; up 1.7% on the year, and 3.3% from wide-format printing; the same amount as in 2007.

From the back of the shop, bindery and finishing services accounted for 8.2% of sales; up 0.8% on the year. Mailing services was up 0.2% to provide 4.3% of sales. And 10.2% of sales came from brokered work and undefined products and services listed as "other." That category was up 0.1% over the previous year.

Category % of Sales Dollar Amount
Prepress 6.3% $126,537,921
Single-Color Offset 6.2% $124,529,382
Multi-Color Offset 18.8% $377,605,224
Four-Color 8.2% $164,700,151
B/W Digital 13.2% $265,127,072
Color Digital 21.3% $427,818,685
Wide-Format 3.3% $66,281,768
Finishing 8.2% $164,700,151
Mailing Services 4.3% $86,367,152
Brokered/Other 10.2% $204,870,919

To break all that down in to dollar amounts, see the chart above.

Allegra Network
Mr. Carl Gerhardt, President
21680 Haggerty Road
Northville, MI 48167
Phone: 248/596-8600
Website: www.allegranetwork.com
Franchise Services
(Sir Speedy Printing, PIP Printing & Document Services, Signal Graphics, Copies Now, MultiCopy)
Mr. Richard Lowe, CEO
26722 Plaza Drive
Mission Viejo, CA 92691
Phone: 949/348-5000
Websites: www.sirspeedy.com, www.pip.com, www.signalgraphics.com, www.copiesnow.com, www.multicopy.com, www.franserv.com
Phone: 281/256-4100
Websites: www.copyclub.com, www.franklins-printing.com, www.iwa.com, www.kkbconline.com, www.kwikkopy.com, www.iced.net
Mr. Kevin Cushing, CEO
268 S. State Street, #300
Salt Lake City, UT 84111
Phone: 801/595-7231
Website: www.alphagraphics.com
(Copy Club, Franklin's, Ink Well, Kwik Kopy Printing, Kwik Kopy Business Centers)
Mr. Bob Metzger, CEO
12715 Telge Road
Cypress, TX 77429
Mr. Eben Swett, CEO
29900 SW Kinsman Road, #200
Wilsonville, OR 97070
Phone: 503/682-1322
Website: www.lazerquick.com
Mr. Tom Crouser, CEO
4710 Chimney Drive
Charleston, WV 25302
Phone: 304/965-7100
Website: www.cprint.org
Minuteman Press International
Mr. Robert Titus, CEO
61 Executive Drive
Farmingdale, NY 11735
Phone: 631/249-1370
Website: www.minutemanpress.com

Gardening Co-op

Especially in the face of a recession, being part of a larger organization can offer many benefits. Franchisees can draw on the resources offered by their parent companies to improve their marketing capabilities, offer more services to their customers, obtain preferred pricing on equipment, and even get advice when a business plan needs to be reworked or a little extra financing is needed.

Senior contributing columnist John Stewart wrote last month about the number of printers facing retirement who are considering selling their businesses. In such cases, the various conversion programs offered by the franchisors can benefit even those who are not part of their systems. By matching up independent sellers with pre-qualified buyers and incorporating the business into the franchise, they create a win-win-win situation across the board. To learn more about how this works, read our Web Exclusive feature "Still a Champion."

The current year poses challenges most printers haven't seen for a long time—and some have never seen. But as the franchise companies stand behind their franchisees with strong support, we expect that most will weather the storm and come out stronger on the other side.

Observations from Franchise Leaders

By Joe Kerns

To view PDF version of Composting the Numbers, click here.

Every year, we offer the franchise leaders an opportunity to share their views and observations about their systems and the franchise segment, in general. The following is their commentary.

Franchise Services, Richard Lowe, President & COO

I'm inspired to write you a brief note about our franchise network. My inspiration comes from conversations I've had with franchisees across the country on their experiences in these very unique and difficult times. Although there are owners who experienced growth in 2008 and are doing the same as we start 2009, the greater majority of franchise owners are looking at declines simply not experienced before.

I'm impressed by the decisive actions they've taken to trim/cut costs, resulting in more work with longer hours for them. They've gone through the personal pain of laying off employees; some had been with them a long time and were almost like family. Many of them have evaluated and taken action on all of their operating expenses. They've also had to aggressively pursue their accounts receivables, as some customers became very slow payers as their businesses began to suffer. I know that many of them worry about cash flow. All the while, most of them are absorbing our new marketing services strategy and are beginning to implement it.

What I am in awe of is their attitude. There is simply no quit in any of them. They "keep on keeping on." Many of them tell me they have been through recessions before, albeit not quite this severe. They know they'll come out of this leaner and meaner than before, and they'll be better positioned with more efficient employees and operations to capitalize on opportunities as the economy improves. On every center visit, I see where they've recognized the importance of leadership, as that same positive attitude is reflected in the actions and attitudes of their employees.

Everyone I talk to is fully aware of the harsh reality of the challenges we face today. The alternative is closer to the door than some are comfortable with. However, failure is not an option! Every day is about the plan: To manage costs, to talk to customers about new services and how to grow their businesses, to visit with prospects on how to grow their businesses, and of course, to offer world class customer service and quality. And then, we get up the next morning with the same mission: It is about the plan. A key element to that daily plan is to prospect, and prospect, and prospect. We must be cautious to not sacrifice tomorrow to save today. We can't just cut costs to stay profitable. We must always look at ways to grow our business through customer acquisition. And, we must not fall into the all too familiar trap of trying to grow business through lower prices.

I know from experience it is not always easy to keep the leadership battery fully charged. There are so many things in just the daily operations that drain our energies, not to speak of visioning and preparing for the future. If our operations and employees truly mirror the attitude and energy we reflect, then there is not a choice. We must "keep on keeping on." If their battery needs a bit of a charge, they don't hesitate to call on their corporate support team. Our daily plan remains the same: To help them to succeed.

ICED, Bob Metzger, Vice Chairman

As was the case with most small businesses, 2008 proved to be quite challenging for our owners in many ways, particularly in the third and fourth quarter.

While average sales per center indicate an increase during 2008, it was due in large part to the termination of centers that were unable to achieve a profitable performance level and could no longer sustain their business. In some cases, decisions were made not to renew their franchise agreements for similar reasons. Subsequently, by eliminating these centers from our system, it had a positive affect on the remaining centers in terms of an increase in average annual sales.

Interestingly enough, those centers that were consistently high performers continued to lead the pack in 2008. While their sales may have fallen slightly over the previous year, they were not nearly as significant as others that experienced a much higher percentage of decrease, some in the double-digit category.

The current economic climate brings even more uncertainty as to what lies ahead in 2009. The challenge will be to maintain the business you currently have and continue to market your products and services through a sustained sales effort.

To this end, we are working on a variety of programs in conjunction with our preferred vendors and others, aimed at providing the necessary tools to assist in this endeavor. Our partnership with InfoTrends and its E-Learning program is such an example. Other programs include our new online lead generation system, in concert with Leads Please, which makes available a comprehensive database that can be used in sales and marketing initiatives. We are also working with Mindfire, for improved variable data and PURL opportunities. Also, we have implemented online training through webinars, video clips, and podcasts via our company intranet.

Minuteman Press, Robert Titus, President

The last quarter of 2008 held pretty consistent to the previous quarter, and I believe 2009 will be a tough year in our industry; especially for the people who sit there and wait for everything to happen. I feel 2009 will be a competitive year and the people that are out there actively seeking new customers will not only survive, but even have a good shot at growing and expanding in this year.

Everyone needs to look at their costs and do what they can to cut those costs. Everyone must put a strong effort towards sales and marketing, and building a good relationship with their customers will be very important. I believe the quick printing segment of our industry will continue to grow in dollars and cents, primarily in the form of short-run digital color and high-speed black-and-white. The larger commercial printers will feel the crunch of this recession because companies throughout the world will look to conserve their funds. They will not order large quantities. They will order small quantities; just enough to get through the next month or two.

We have seen it happen before with recessions in the 80's. We built our company during recessionary times and will continue to do so with the current economy the way it is. Let's just hope the economy starts turning around soon!

AlphaGraphics, Kevin Cushing, CEO

It's often said by the best athletes that they relish the opportunity to play against the toughest competition; they want the ball when the game is on the line. It's because they have the skill, preparation, experience, and the CONFIDENCE to perform under the most trying of circumstances.

At AlphaGraphics we feel the same way. Our network is saying, "Give us the ball!"

AlphaGraphics has never been afraid of a challenge. For over 38 years we have provided quality products and services to our customers with great success, whether times were good or bad. We have adapted, we have grown, we have persevered, and together we have built an organization to be proud of. We're not going to let ourselves "participate" in the doldrums so many are consumed by. We will address reality for what it is and pursue growth with a disciplined and aggressive mindset.

I shudder to think about going it alone in today's business climate and am grateful to lead this network and to be a franchisee of two business centers in the Minneapolis market.

AlphaGraphics ended 2008 with industry-leading average center sales of $1,125,829 and system-wide sales of $289,841,000–basically matching our record year of 2007. We attribute our relatively strong performance to the fact that we have worked hard to establish a relationship with our customers—not just as their printer, but also as their marketing and communications partner. Our business centers are run by dedicated, hardworking individuals who embody a culture that gives our customers the confidence that we will do whatever it takes to get the job done. So even during tough times, when companies are cutting back on print, our customers keep coming to us to fulfill their communication needs.

Today, AlphaGraphics is in an excellent position to grow organically as well as through welcoming qualified independents into our family and "tucking in" independents seeking to retire, into our own business centers. Our brand is strong and our people are talented and capable of achieving tremendous results for both themselves and their customers. Our strategy is right—a strategy that focuses on finding new and effective ways for our customers to reach their customers. When we promote optimism for the future in a way that is relevant to our customers and we work with them to create and implement marketing programs that bring results, we inspire their hope and confidence.

Sam Veda said, "The mettle of a man is tested in adversities and he who remains firm in his belief comes out shining." Don't allow the constant media negativity to become part of your own language and eventually a self-fulfilling prophecy. I challenge everyone in our industry to be a crusader for the solution and not a messenger for the problem.

Allegra Network, Carl Gerhardt, President & CEO

It's interesting to think just one year ago in the Franchise Review we discussed whether or not we were experiencing a recession, when today it is clear that the recession began long ago and continues to accelerate. Although 2008 historically brought about much change that created serious challenges, a paradigm shift occurred allowing business owners of financially well managed operations and industry innovators to rise to the top. Of course, how the industry will weather the storm, is a topic for industry pundits and leaders alike. At Allegra, we are focusing on three key strategies to ensure our future:

1. First, we serve as a consolidator in a consolidating industry. We have added nearly 40 new centers to our system through our Allegra MatchMaker program, whereby we match independent printers looking to sell with buyers and convert the center to Allegra Print & Imaging. In addition, our franchise members have acquired more than 200 independent printers through our Acquisition Program. Some of our centers merge/consolidate with others to get critical mass to be competitive. Although this consolidation has reduced our number of locations, stronger centers result. We have also completed four corporate acquisitions, Signs Now, Insty-Prints, a number Quik Print and Instant Copy centers from XYAN, and Zippy Print. These acquisitions have allowed us to continue to expand our network without opening start-ups.

2. Second, we are helping our franchise members diversify into exciting growth segments in the "new age of graphic arts." We have worked hard to provide our franchise members with the tools to focus on digital, direct mail, wide-format, marketing services, and cross media. Our locations that have adopted this strategy and are pursuing Marketing Central certification are experiencing their best years ever.

3. Third, we are continuing to invest in training and technology to assure our franchise members provide value to their market niche. We are fortunate to be privately owned, which allows us to continue to invest, despite a difficult market. Our franchise members appreciate the critical support and tools we provide, as 90% renew their contracts when their initial terms expire. As franchise members continue to build strong customer relationships with small to medium size businesses, big box stores and online suppliers are left to focus on commodity output in a price driven market.

In short, our view is that the future is brighter now than it was when I opened a location in Colorado Springs 23 years ago—it's just different. In today's climate, those who focus on sound financial management principles and compete in the growth segments of our industry beyond printing will succeed. We believe that with these building blocks in place, the rest will take care of itself.

CPrint International, Tom Crouser, President

CPrint International finished our fourth year as the franchise exclusively serving printers that are already in business, and quite a year this has been. With all the economic turmoil, we are pleased to have assisted a number of our franchisees to sell their business as well as others to make progress in their personal goals. Nonetheless, the market has been difficult for all.

Very early in the year, as a response to the changing landscape, CPrint embarked on our Essentials model that places consultants in a coaching role with smaller businesses and forgoes the requirement that all affiliates be assigned to boards. That and a strict review of board expenses allowed us to achieve as much as a 30% cost reduction for some companies, without forgoing the essential strength of the network.

The heart of our program remains real business assistance—where a trained business advisor comes into your shop to work with you on your budget, your issues, your workers, and your action plan within your market. This remains our core mission. As such, you will find CPrint business advisors located throughout the country, allowing them to reach you more easily.

Not only that, but our focus extends beyond business consulting as it goes heavily into business training and coaching while delivering a unique compliment of marketing and advertising services.

Uniquely, the CPrint program does not require an affiliate to change their company name or look. In fact, our trademarks are used similar to how AAA's trademark is used with its hotel and motel affiliates. So, we support independent printers while delivering the benefits of a broad network that is unavailable to any of our affiliates' direct competitors.

Training has always been an important emphasis for us and we provide 78 business and technical training programs online to our affiliates 24/7, which is a 30% increase over the previous year. We also provide residential training, featuring a business-to-business sales course, a production manager's course, as well as a management course. And that doesn't count the training received at our annual World Conference or Owners' Winter Conference.

After four years as the newest franchise concept in the printing industry, we are proud of our accomplishments. We will see even more additions to our infrastructure and services in this coming year as we continue to build real differentiations for our affiliates.