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
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Refranchising Gets Hot Again in the Restaurant Industry

As of July, the company had sold or entered into agreements for all of the 510 domestic Applebees restaurants, leaving just 23 units as test markets for the parent company.

Refranchising is becoming increasingly attractive for both sides of the transaction.

"Independents have been struggling. As a result, chains continue to dominate in the restaurant industry," Tristano says. "It's a good opportunity to be refranchising."

Company-owned stores tend to be in markets close to headquarters so they're easier to manage. Depending on the strategy, if stores are updated, parent companies could maximize the sale price, but more than likely they want to offload underperforming units as fast as possible. Franchisees can acquire locations for cheap and get an immediate return on their investment once they update the stores, he says.

But the strategy isn't something that individual franchisees are likely to get in on. In many cases, companies will approach existing franchisees with the offer, then ideally take it to a franchise group that is managing other non-competitive brands. Beyond that, perhaps they will turn to individual franchisees in the market, Tristano says.

"Restaurant organizations, in general, like to work with fewer franchisees" and those who have better infrastructure because "the individual franchisee is going to be very needy," Tristano says. "The multi-unit franchisee is going to have an infrastructure in place to deal with issues that come up."

Tom Kelley, principal of AccessPoint Media Group, and a brand consultant for restaurants, suppliers, retail and hospitality, offers a less rosy picture of the process of refranchising.

"A lot of times unfortunately it's not part of a strategic plan; it's a knee-jerk reaction of having to raise cash or wanting to focus on a new concept," he says.

Many times the locations that chains are looking to get rid of are undesirable or those that have not been updated. While franchisees are likely to get a good deal on the purchase of locations, they also take a big risk, Kelley says.

"Those really don't attract the best franchisees so if the company can't save them it's somewhat unlikely that the franchisee can" without resources to update them, he says.

2 of 3

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

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
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

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

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, 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
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

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

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,039.49 +60.36 0.36%
S&P 500 1,992.37 +5.86 0.30%
NASDAQ 4,532.1040 +5.6220 0.12%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs