This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Refranchising Gets Hot Again in the Restaurant Industry

NEW YORK ( TheStreet) -- Once-struggling restaurant chains like Arby's and Sizzler are building a new face for customers and pitching a new opportunity to successful franchisees through a process called refranchising.

As franchisors look to expand while slashing expenses and paying off debt, several brands in the restaurant industry are resorting to selling off corporate-owned stores to franchisees with the capital to give the neglected stores a boost.

"Refranchising is not a trend or fad. It's been happening for a long time," says Steve Caldeira, CEO of the International Franchise Association. "It's an excellent way to free up working capital for franchisors to focus on growth markets or new products and deliver value back to shareholders. Generally these stores perform better because franchisees tend to [focus on operations] full time as opposed to corporate owned stores."

While the trend may not be new, industry observers say it is picking up as a strategy in the restaurant sector, another byproduct of the recession.

Dine Equity's (DIN - Get Report) Applebee's Neighborhood Grill & Bar and IHOP Restaurants, Roark Capital's Arby's, Sizzler, Yum! Brands (YUM - Get Report) -- owner of Taco Bell, KFC and Pizza Hut, Jamba Juice (JMBA - Get Report) and Burger King (BKW) are just a few of the names that are selling off company-owned stores and becoming primarily franchise models.

"I think a lot of brands are looking to bring capital in because they've been hurt by the recession. It's an asset that they can convert to liquid," says Darren Tristano, executive vice president of Technomic, a food and restaurant research and consulting firm.

Restaurants have struggled for years -- and particularly in recent times -- to build profitability.

"They've taken on debt and increased capital expenditures because of remodeling restaurants, enhancing risk efficiencies, adding equipment," to be able to create new and more appealing items, Tristano says. Refranchising takes the burden of running the restaurant off the company. "They're basically running the brand and not the restaurants," Tristano adds.

When DineEquity announced in July the sale of 65 company-owned Applebee's in Michigan to TSFR Apple Venture LLC, the company noted that its "increasingly franchised business model is less capital intensive and experiences less volatility in cash flow performance compared to the operation of company-operated restaurants."
1 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG
BKW $35.50 0.00%
DIN $93.72 0.11%
JACK $77.09 0.10%
JMBA $14.13 1.70%
MCD $95.09 1.70%

Markets

Chart of I:DJI
DOW 16,216.62 +158.27 0.99%
S&P 500 1,924.43 +10.58 0.55%
NASDAQ 4,672.8630 +36.7580 0.79%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs