2013 Annual Franchise Review: Running to Stand Still

Download the 2013 Franchise Review Charts PDF here.

The hottest thing happening in the quick printing franchise segment has actually been a quiet undercurrent of activity for the last few years. It is the merging of the quick printing franchises with sign franchises. Sign-A-Rama was perhaps the model; starting out as a sister company to the Minuteman franchise.

Several years ago, Allegra Network acquired Signs Now and it is currently integrating the Signs By Tomorrow system into its franchise family. In February, it also announced a new sign brand, Image360. The new brand is designed so that existing Signs Now and Signs By Tomorrow franchisees can adopt the upscaled Image360 branding, or it can be sold as a new start-up.

At last year’s Franchise Services convention, there were several references to the company being in the market to buy a sign franchise. I’ve heard FastSigns mentioned at two different franchise conventions, but that may only be wishful thinking. FastSigns is an obvious choice, as is currently led by former PIP Printing president Catherine Monson, who knows her way around both sides of the equation. Why do quick printing franchise systems want to acquire sign franchises? In a word: Growth. While the shop numbers continue to decline and sales tread water in the mature quick printing franchise segment, sign franchises are in a growth cycle. The acquisition of a healthy sign franchise system can perk up a franchisor’s bottom line in a big hurry.

There may come a time when we will consider including the sales from the sign divisions of these franchises, but not this year. At least for now, we will continue to compare apples-to-apples as much as possible. If you would like more in depth information about sign franchises, read Wide-Format Imaging’s “2012 Sign Franchise Review” at MyPRINTResource.com/10714614.

 

System-wide Sales in Limbo

In 2012, total sales for the franchise segment of the industry were almost unchanged. Slipping by less than one percent (0.87 percent), the franchises produced gross sales of $1,538,383,512. North American sales were also down, but only by 0.42 percent. So, for all practical considerations, sales would be considered flat when compared year-over-year. Individual gains were scattered and rare in our survey of 2012 sales.

In 2012, Franchise Services Inc. (FSI) continued to lead in system-wide sales with a total of $439,190,000; up 1.9 percent over 2011 numbers. FSI is the franchisor of Sir Speedy Printing & Marketing Services, PIP Printing & Marketing Services, Signal Graphics Printing & Marketing Services, and Multi Copy. The Multi Copy brand operates only outside the US. ICED’s North American sales were $336,270,000; mirroring its overall 1.9 percent growth.

Minuteman Press International, franchisor for Minuteman Press and International Minuteman Press, posted 2012 system-wide sales of $430,000,000. That 2.38 percent increase was the largest reported in this year’s survey. North American sales held steady on the year at $350,000,000.

AlphaGraphics’ system-wide sales were $289,297,603; growing by 1.04 percent on the year. The brand’s North American sales were up by a relatively healthy 3.39 percent to total $239,164,977; the strongest domestic sales growth in the survey.

The Allegra Network is home to Allegra Marketing • Print • Mail, American Speedy Printing, Insty-Prints, and in Canada, Speedy Printing and Zippy Print. Its 2012 system-wide sales dipped by 0.49 percent to $225,000,000. Since the franchise is only in the US and Canada, its North American sales are the same as its system-wide sales.

ICED experienced the toughest year of any system. The franchise family of Kwik Kopy Printing, Kwik Kopy Business Centers, The Ink Well, Franklin’s Printing, and American Wholesale Thermographers suffered a 24.32 percent loss on the year, system-wide, with sales of $100,820,740. North American sales were down to $76,973,249; an 18.17 percent drop.

CPrint International, a non-traditional franchisor that essentially provides business management services to existing printing companies that want to boost their profitability, is another group that is found only in North America. It’s total sales slipped by 1.61 percent to $85,349,109 on the year.

 

SPS Shows Progress

The one bright spot in this year’s Franchise Review is average sales per shop (SPS), particularly in North America. Even here, there are a few instances of averages falling. Average system-wide sales per shop, across the board, were down by one percent at $624,864. The average North American SPS, however, was $667,730; a gain of 2.7 percent.

CPrint International boasted the highest average SPS of any system at $1,090,184. Even though that was down 3.22 percent on the year, it is still the only system topping $1 million in average SPS in this year’s survey.

Allegra Network reported average SPS of $970,707; reflecting a slight dip of 0.26 percent on the year. It should be noted that the company indicates this average SPS is only for the Allegra Marketing • Print • Mail brand. Working from gross sales figures, the full system-wide average SPS is probably closer to $765,306. If we extrapolate to adjust the system’s 2011 sales figures, the average SPS for 2011 would have been $746,221; a gain of a little more than 0.2 percent.

AlphaGraphics’ average SPS fell by 4.72 percent to $955,989. This is the first time in several years, including the recessionary years, that the system’s SPS has fallen below $1 million. Its North American average SPS, however was up by 1.72 percent to $964,375.

The FSI brands saw 2012 average system-wide SPS grow by 1.92 percent to $765,700. FSI’s North American average SPS experienced strong growth of 7.26 percent to $804,474; an encouraging high point in an otherwise dreary report.

Minuteman’s average SPS was reported at an even $500,000; showing a 3.4 percent increase. At $455,729, its North American average SPS was up by 0.52 percent on the year.

The high note for the ICED brands in 2012 was a 0.17 percent increase in system-wide average SPS, which totaled $464,612. Unfortunately, that good news did not carry over to the system’s North American franchisees, who saw average SPS fall by 7.62 percent to $472,229.

 

Shop Numbers Lose More Ground

The number of franchised quick/small commercial print shops in our franchise systems fell by 2.3 percent in 2012. The total of 2,512 locations reflects a loss of 60 shops. Some of those shops left their franchisors to go independent. Some others fell to consolidation, and a few simply went out of business. Shops located in North America numbered 1,966, or 78 percent of the total.

The vast majority of these printing facilities are franchisee owned, but five belong to the franchisors themselves. Allegra, AlphaGraphics, and ICED each operate one company-owned location and FSI has two.

AlphaGraphics was the only system that did not decline in shop numbers during 2012. It added one new location for a total of 285. It has 248 shops in North America; four fewer than in 2011.

Minuteman has the most locations, with a total of 912, and 768 of those are in North America. It lost five shops (0.55 percent) in 2012.

FSI reported a total of 554 locations, 418 of which conduct business in North America. It lost a total of 20 locations (3.61 percent) last year.

ICED saw 17 shops (4.34 percent) leave its system in 2012. It still has 392 shops, with 163 on this continent.

CPrint saw its shop count drop by 10 (13.33 percent) for a total of 75, all in North America. As previously noted, CPrint is a non-traditional franchise and its business model is such that franchisees sign only a two-year agreement, so its membership is constantly in a state of flux.

 

Breaking a Sweat

Even in a slow year, it takes a lot of effort to produce sales of nearly $1.57 billion. For the first time, we asked the franchises to break out Web-based services as a separate category. The move toward adding marketing services, including cross-media campaigns, gets a lot of ink and a lot of talk, so it makes sense to begin measuring this crucial element of that mix. In its debut appearance, the category accounted for 1.1 percent of sales, which is equivalent to $17,266,232. That number will certainly grow as the category becomes better defined.

Following is a complete breakout of sales percentages and dollar values by job type.

Category Percentage Dollar Value

Prepress 7.4% $116,154,649

1C Offset 3.2% $50,229,037

Multi-Color Offset 10% $156,965,742

4C Offset 8.4% $131,851,223

B/W Digital 8.8% $138,129,853

Color Digital 27.9% $437,934,419

Wide-Format 5.3% $83,191,843

Finishing 8.5% $133,420,880

Mailing Services 5.7% $89,470,473

Web Services 1.1% $17,266,232

Brokered/Other 13.8% $216,612,723

 

There was also some slight shifting in the balance of the job mix for the first time in quite a while. Although slight, the change was noticeable, so warrants a breakout of its own. You will notice a couple of places where there is an exact percentage shift between two job categories. For example, the 3.8 percent trade off between the multi-color offset and four-color offset categories. While some of this may be attributed to categorizing certain types of work differently, any time such symmetry appears in a survey of this type, it catches one’s attention.

 

Category 2012 2011 Change

Prepress 7.4% 7.1% +0.3%

1C Offset 3.2% 3% +0.2%

Multi-Color Offset 10% 13.8% -3.8%

4C Offset 8.4% 4.6% +3.8%

B/W Digital 8.8% 10.7% -1.9%

Color Digital 27.9% 26.7% +1.2%

Wide-Format 5.3% 5.1% +0.2%

Finishing 8.5% 8.2% +0.3%

Mailing Services 5.7% 6% -0.3%

Web Services 1.1% 0%* +1.1%

Brokered/Other 13.8% 14.9% -1.1%

*Not reported in 2011.

 

It will be particularly interesting to see if any of these patterns of gain/loss between categories is repeated in the future or if they are mirrored by the Top 100, which will be published in the June issue of QP.

Speaking of the Top 100, I have been looking over the preliminary numbers that are coming in as the Franchise Review is being completed. It is encouraging to note that the stagnant sales reported by the franchise segment is not the case for most of the Top 100 companies.

 

Entry Fees

The cost of starting up a franchise printing company hasn’t changed very much in recent years. A couple of the systems have lowered some of their fees in order to make it easier for prospective franchisees to join their systems, but they are the exceptions to the rule.

CPrint lowered its required minimum start-up capital fairly significantly, from $5,000 to $3,500. FSI dropped its initial investment from $150,000 to $140,000. Remember that CPrint newbies already have their premises and equipment. Prospects for traditional franchises must fund those big ticket items in order to get started. All of the other franchises kept their start-up capital requirements the same, but AlphaGraphics lowered its total investment to a maximum of $377,400.

Here is a breakout of what it costs to join each of the major franchises:

Franchise Start-up Capital Total Investment

Allegra $200,000 $162,464-$516,949

AlphaGraphics $150,000 $233,950-$377,400

CPrint $3,500 $3,500-12,579

FSI $140,000 $288,000

ICED $65,000 $219,579-$248,626

Minuteman $50,000 $145,000

 

Of course, those numbers reflect the cost of starting a new franchise agreement. All of the systems now have conversion programs that allow prospective franchisees to buy existing businesses. This provides a more flexible cost of entry to the newcomers and an exit strategy to the existing owners. While there are guidelines in place, exact terms and conditions tend to vary because each conversion is based upon the status of the individual business that is being transferred.

 

Finish Line

There are a number of issues that will continue to shape the overall structure of the quick and small commercial printing franchise segment. The continuing interest in acquiring sign companies will have an effect on their general health and ability to grow sales and locations. New players are edging into the market. PostNet, originally a packing and shipping franchise, is becoming more and more print-centered. So much so that it may soon become part of QP’s Annual Franchise Review. (Look for an Executive Q&A interview with CEO Steve Greenbaum this summer.) Even Proforma, a franchise for print brokers, is selling into existing printing companies that have a more comparable business model. I don’t anticipate adding it to this survey any time soon, but if there is one thing we’ve learned in the past few years it is that everything changes.

Is the printing franchise model still viable? In my opinion, yes. I am fortunate to be invited to most of the franchise conventions. This gives me an opportunity to talk with the franchisees, some of whom I’ve known for many years now. They share their concerns and frustrations, but also their stories about times when being part of their franchise has made a difference to the welfare of their companies.

The franchisees who truly take advantage of the support and guidance that they pay for with their royalties are the ones who reap the greatest success. The ones who pony up the money and never use the tools generally gripe and complain and eventually go away—one way or another.

As with any business model, being part of a franchise is not right for everyone. But for those who want a strong and supportive partner for their business, it can be an unbeatable choice.

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