Franchising boom hits Springfield

by Eric Olson

SBJ Reporter

eolson@sbj.net

A plethora of Springfield-based businesses are jumping on the franchise bandwagon, hoping to capitalize on a national trend.

Since December, three Springfield companies have begun offering franchises, including competing frozen custard businesses Andy's Frozen Custard and Nutty Munkey.

Andy Kuntz, owner of the eponymous Andy's Frozen Custard, expects to finalize his company's franchising legal document known as the Unified Franchise Offering Circular this week. Nutty Munkey officials announced their intent to franchise Dec. 11.

These plans are on the heels of Incredible Pizza Company's lucrative franchise deal with Houston businessman and investor Robin French, reported in the Dec. 15 Springfield Business Journal. The contract details a $130 million build-out of 30 restaurants over 15 years.

Interest in franchises is a nationwide phenomenon. According to the 2003 Franchise Business Forecast and Trends Analysis, the franchise sector grew 8 percent last year, double its projections.

Springfield-based business franchise coach Randy Ehrlich, of The Entrepreneur's Source, said the downsizing of corporate America is triggering the franchise boom.

"There's no security in corporate America anymore and people are realizing that," he said.

When tenured corporate employees sometimes top executives become displaced, they seek self-employment, Ehrlich said. "It allows them to replace their income and build something with their control for the future."

Investors also are getting in the franchise game, with returns from successful franchises often outperforming traditional investment vehicles, said Ehrlich, who has found sizable work in St. Louis recently, coaching several former TWA employees about franchise opportunities.

The Entrepreneur's Source is itself a franchise business.

The custard case

Andy's Frozen Custard and Nutty Munkey have taken different routes to the franchise world.

Nutty Munkey opened its first stand on South Campbell Avenue in June, just six months before franchising. Its philosophy, according to Vice President Steve Gurney, is that franchising is the best way to grow the brand rapidly.

"We think we have a very new and exciting brand," Gurney said of the Nutty Munkey concept, which spent five years in development. "The frozen custard industry is a rapidly growing segment" that Nutty Munkey officials did not want to miss.

On the flip side, Andy's Frozen Custard owners spent eight years in business before selecting franchising as its future growth mode. Andy's Frozen Custard was started by Kuntz's parents, John and Carol, 18 years ago at Lake of the Ozarks; they moved it to Springfield one year later. There are three stores.

"We've had inquiries since almost day one," Kuntz said, adding that they've grown tired of turning down franchise requests. Since May, when attorneys and consultants from Chicago began the franchising procedure, Kuntz has been taking names and numbers of interested entrepreneurs.

Though different, the custard companies' routes are neither right nor wrong, Ehrlich said. What matters most is that the product and the people behind the product are ready.

"That's the million dollar question: Do I want to go open another store, or do I want to look at franchising?" Ehrlich said.

First, decide if the product can be duplicated, Ehrlich said. "You've got to be able to provide them with the tools to do exactly what you're doing."

Next, consider profitability in the existing market. "Once you've maximized the dollar revenue in your own market is the time when you want to look at franchising."

At press time, it was too soon for the companies to legally sign franchisees. However, both are actively recruiting.

Kuntz said there is a waiting list of three to five franchisees for Andy's franchises, though in the last 18 months he estimates he's received about 100 franchisee inquiries. Corporate goals are for three to five store openings this year and 50 to 60 stores in five years. Kuntz said the strategy is to go national, beginning in Missouri, Arkansas, Oklahoma, Illinois and Kansas.

Kuntz said the company would have begun franchising sooner, but for the uncertainty factor regarding franchisees.

"Our fear and big concern in franchising is the franchisee," he said. "We're on the line for this guy and we want to take care of him. If the franchisee does not make money, the franchiser does not make money."

Therein lies the risk with franchising. Kuntz knows frozen custard; he doesn't know franchising. "It's like starting a new business," he said. "There is a lot of risk involved. We've got a lot of money invested in this."

Kuntz declined to say how much he's invested.

Nutty Munkey spent more than $200,000 in company and franchise development, Gurney said, and franchise sales are expected to recoup those expenses.

Gurney said franchisees are viewed as "strategic business partners. They are actually partners in our growth and our strategy to become one of the leading custard brands in the nation."

Targeting the southern half of the United States, Gurney said the company hopes to sell six franchises in the first year.

He would not disclose sales figures of the Springfield store, but said they are 7 percent above projections.

Other Springfield franchisers

Franchising is nothing new to two other Springfield-area companies: Aire Master of America Inc. and Scramblers Inc.

Nixa-based Aire Master, a seller and manufacturer of odor-control systems, has been franchising since 1976, when its offices were in Springfield. There are 58 franchises in 39 states, according to Jim Roudenis, franchise director for the company that started in Columbia in 1958.

"It's been very successful," Roudenis said. "We grow slowly so that we're able to support our franchises."

The company shoots for 10 franchises per year; last year seven came on board.

It has been a slower-moving venture for Scramblers Inc., the Springfield breakfast restaurant chain. Since the company began offering franchises in 2002, only one has come on board: Vaughn Restaurant Group, which operates Scramblers in Nixa.

Finding it more challenging than expected, Scramblers President Bill Cox is taking it one deal at a time.

"Everybody has the dream of having the multiunit concept 50 to 100 units," Cox said. "But just like football, you don't worry about the Super Bowl until you win your next game. It is one restaurant at a time."

Scramblers may see a growth spurt in 2004. Cox said agreements with two franchisees are in the works. Meanwhile a corporate-ownedrestaurant in Republic is under construction and set to open in September.

Wood Brite Inc. in Springfield has had a franchise system, under the name Wood Re New, in place for two years. Founder Stan Krempges said the deck and fence restoration business has 11 franchisees in six states.

Area of opportunity

Outsiders are viewing the southwest Missouri market as opportune when it comes to franchising.

Mike Evans was in the tech industry in Colorado Springs before moving to Branson in August to return the Maggie Moo's Ice Cream franchise to southwest Missouri. Evans opened Maggie Moo's Ice Cream & Treatery Dec. 4 on Highway 76, hoping to capitalize on the tourist activity. It was a $300,000 investment.

"I'm into this thing for the next 15 years, until I retire," Evans said.

Evans owns the rights in Taney and Greene counties, and if successful, he'd like to open another Maggie Moo's in Springfield. The Springfield location closed in 1996, Evans said.

Ehrlich said the benefits of buying into a franchise come in the structure of a business plan."You're buying into a proven system," he said. "You've got security and name brand recognition."