The Development The Development PipelinePipeline

““from A to Zfrom A to Z””

Geoff HillGeoff HillVice PresidentVice President

Roark Capital GroupRoark Capital Group

Explosion of new conceptsExplosion of new concepts

Roughly 2,400 brands starting franchising since 2000Roughly 2,400 brands starting franchising since 2000

Franchise Unit GrowthFranchise Unit Growth

Franchise unit count grew 24% from 2004 to 2008Franchise unit count grew 24% from 2004 to 2008

The expectation of growthThe expectation of growth

Factors Affecting GrowthFactors Affecting Growth•• Concept PerformanceConcept Performance

–– ULEULE–– Comp SalesComp Sales–– Breakeven timeframeBreakeven timeframe

•• Size of investmentSize of investment•• Sales to investment ratioSales to investment ratio•• Complexity of buildComplexity of build--outout

–– Real estateReal estate–– Type of venueType of venue

Why is Growth so important?Why is Growth so important?

Growth Scenario AGrowth Scenario A

•• 300 Unit Chain300 Unit Chain–– $500,000 AUV$500,000 AUV–– 5% royalty5% royalty–– Annual comp sales increase Annual comp sales increase –– 5%5%–– Annual unit Growth Annual unit Growth –– 5%5%

•• Year one increase in royalty Year one increase in royalty -- $750,000$750,000

Growth Scenario BGrowth Scenario B

•• 300 Unit Chain300 Unit Chain–– $500,000 AUV$500,000 AUV–– 5% royalty5% royalty–– Annual comp sales increase Annual comp sales increase –– 5%5%–– Annual unit Growth Annual unit Growth –– 10%10%

•• Year one increase in royalty Year one increase in royalty -- $1,125,000 $1,125,000 ($375K greater than scenario A)($375K greater than scenario A)

•• Year five increase in royalty diff Year five increase in royalty diff -- $2,600,000$2,600,000

The Development PipelineThe Development Pipeline

Sell Sell FranchiseFranchise

Identify the Identify the SiteSite

Build out Build out the spacethe space

Open the Open the storestore

Eric LittleEric LittleSVP of Franchise Development SVP of Franchise Development

Right at Home, Inc.Right at Home, Inc.

Sell Sell FranchiseFranchise

Managing candidates from the Managing candidates from the point of initial contact through point of initial contact through

signingsigning

Sales Process PhasesSales Process Phases

1.1. Initial InquiryInitial Inquiry2.2. Education and Information SharingEducation and Information Sharing3.3. Approval and ClosingApproval and Closing4.4. TransitionTransition

Initial Inquiry Best PracticesInitial Inquiry Best Practices

•• Response timeResponse time•• TechnologyTechnology•• Prequalifying CallPrequalifying Call

Initial Inquiry Initial Inquiry -- Prequalifying CallPrequalifying Call

•• You are the steward of your timeYou are the steward of your time•• Establish controlEstablish control•• Lead the wayLead the way•• Let the process do its jobLet the process do its job•• Scheduled calls from here forwardScheduled calls from here forward

Education and Information SharingEducation and Information Sharing

•• Program ReviewProgram Review•• FDD ReviewFDD Review•• ValidationValidation

Education and Information SharingEducation and Information Sharing

•• Introduce the elephant!Introduce the elephant!•• DonDon’’t fear feart fear fear•• Embrace your tenureEmbrace your tenure

Approval and ClosingApproval and Closing

•• Executive phone interviewExecutive phone interview•• Territory verificationTerritory verification•• Discovery DayDiscovery Day•• Scheduled signing callScheduled signing call

Sample Sales ProcessSample Sales Process

•• PrequalifyPrequalify•• Program ReviewProgram Review•• FDD ReviewFDD Review•• ValidationValidation•• Executive Phone InterviewExecutive Phone Interview•• Discovery DayDiscovery Day•• Approval and SigningApproval and Signing

TransitionTransition

•• Signing callSigning call•• Make it a big deal!Make it a big deal!•• Definitive transitionDefinitive transition

Measure Results in Each PhaseMeasure Results in Each Phase

•• Initial Inquiry Initial Inquiry •• Education and Information Sharing Education and Information Sharing •• Approval and ClosingApproval and Closing•• TransitionTransition

Take AwaysTake Aways

1.1. Let the process do its jobLet the process do its job2.2. No surprisesNo surprises3.3. Work by appointmentWork by appointment4.4. Establish control early and keep itEstablish control early and keep it

Holland B. BurtonHolland B. BurtonSr. Director of Real EstateSr. Director of Real Estate

BrueggerBruegger’’s Enterprises, Inc.s Enterprises, Inc.

Sell Sell FranchiseFranchise

Identify the Identify the SiteSite

BrueggerBruegger’’s Enterprises, Inc.s Enterprises, Inc.

•• BrueggerBruegger’’s Baked Fresh Bagels s Baked Fresh Bagels –– 292 Bakery 292 Bakery Cafes in 24 states and D.C.Cafes in 24 states and D.C.

•• Acquired TimothyAcquired Timothy’’s World Coffee, mmmuffins, s World Coffee, mmmuffins, and Micheland Michel’’s Baguettes in November 2009, s Baguettes in November 2009, operated as Three Caf Brandsoperated as Three Caf Brands

•• Three Caf Three Caf –– 140 units, all in Canada at present140 units, all in Canada at present

A Universal TruthA Universal Truth

•• Real Estate Development is a process Real Estate Development is a process –– no no matter what your company or your brand matter what your company or your brand may bemay be

•• It is logical and systematic It is logical and systematic –– taking you from taking you from a Macro Analysis to a Micro Analysisa Macro Analysis to a Micro Analysis

•• Variances are determined by your brand Variances are determined by your brand and/or concept as well as by your and/or concept as well as by your management teammanagement team

From Macro to MicroFrom Macro to Micro

•• Typically begin with a franchise territory (defined Typically begin with a franchise territory (defined geographic area)geographic area)

•• Identify and prioritize trade areas within that Identify and prioritize trade areas within that territoryterritory

•• Identify specific locations within the primary trade Identify specific locations within the primary trade areas that are feasible from 3 key perspectives: areas that are feasible from 3 key perspectives: location, economics, and contractlocation, economics, and contract

•• Work as a team if necessary to obtain the Work as a team if necessary to obtain the information you need information you need –– utilize local brokers, utilize local brokers, Franchisor vendors (demographics), GCFranchisor vendors (demographics), GC’’s, etc.s, etc.

Location, Location, Location, Location, LocationLocation

Keys to SuccessKeys to Success

•• Not Just Not Just ““Location, Location, LocationLocation, Location, Location…”…”AnymoreAnymore

•• Location ConsiderationsLocation Considerations•• Economic ConsiderationsEconomic Considerations•• Lease/Contract ConsiderationsLease/Contract Considerations

Location ConsiderationsLocation Considerations

•• DemographicsDemographics•• Positioning within the Trade AreaPositioning within the Trade Area•• Access/Visibility/Site ConfigurationAccess/Visibility/Site Configuration•• CompetitionCompetition

DemographicsDemographics•• Know your customerKnow your customer

–– Impact of Residential Population DensityImpact of Residential Population Density–– Employment PopulationEmployment Population–– Income LevelsIncome Levels–– AgeAge–– Education LevelsEducation Levels–– White Collar/Blue CollarWhite Collar/Blue Collar–– EthnicityEthnicity–– Psychographics Psychographics -- HabitsHabits

Trade Area PositioningTrade Area Positioning

•• Know your productKnow your product–– Destination vs. Impulse ProductDestination vs. Impulse Product–– Impact of Traffic PatternsImpact of Traffic Patterns

•• Going to Work Side of the Road vs. Going Home SideGoing to Work Side of the Road vs. Going Home Side–– Complimentary retail and/or servicesComplimentary retail and/or services

•• On/in a Shopping Center or just nearbyOn/in a Shopping Center or just nearby–– Residential vs. Employment PatternsResidential vs. Employment Patterns

•• Weekend vs. Weekday TrafficWeekend vs. Weekday Traffic

•• Remember that you are a consumerRemember that you are a consumer

Site CharacteristicsSite Characteristics•• AccessAccess

–– Can your customer easily get into and out of your Can your customer easily get into and out of your proposed location?proposed location?

•• VisibilityVisibility–– Can your customer see you?Can your customer see you?–– Can you see your customer?Can you see your customer?

•• Capacity IssuesCapacity Issues–– Seating (Interior and Exterior)Seating (Interior and Exterior)–– Parking (Dedicated or Shared)Parking (Dedicated or Shared)

CompetitionCompetition

•• ““Birds of a feather flock togetherBirds of a feather flock together””•• Competition may be both Direct and IndirectCompetition may be both Direct and Indirect•• Know the effects of competition on your Know the effects of competition on your

successsuccess–– Will your location out position existing and/or Will your location out position existing and/or

future competition?future competition?

EconomicsEconomics•• Consider all of your costs:Consider all of your costs:

–– Rental Rates for leased propertiesRental Rates for leased properties•• Include CAM, RET, Insurance, Mall Charges, etc.Include CAM, RET, Insurance, Mall Charges, etc.

–– Purchase price for fee simple propertiesPurchase price for fee simple properties–– Typical Construction CostsTypical Construction Costs

•• DonDon’’t forget Soft Costs, Permitting, Site Development t forget Soft Costs, Permitting, Site Development Costs, Impact Fees, etc.Costs, Impact Fees, etc.

•• Deduct Tenant Improvement AllowancesDeduct Tenant Improvement Allowances

•• Run a Pro Forma!Run a Pro Forma!–– Know your BreakKnow your Break--Even Point also!Even Point also!

Contract ConsiderationsContract Considerations

•• Begin with a Letter of Intent (LOI)Begin with a Letter of Intent (LOI)–– An outline of standard business termsAn outline of standard business terms–– Used to be focused only on term length, rents, Used to be focused only on term length, rents,

schedules, and Landlordschedules, and Landlord’’s rightss rights–– Typically now include business terms that also relate Typically now include business terms that also relate

to Tenantto Tenant’’s builds build--out and operationsout and operations•• Use Clause and Exclusive ClauseUse Clause and Exclusive Clause•• Permitting ContingenciesPermitting Contingencies•• Assignment/Sublet RightsAssignment/Sublet Rights•• Franchisor RequirementsFranchisor Requirements

Contract ConsiderationsContract Considerations

•• Boiler Plate LegalBoiler Plate Legal–– Length and complexity of leases vary Length and complexity of leases vary

considerably from Landlord to Landlordconsiderably from Landlord to Landlord–– Utilize your Form Lease whenever possible Utilize your Form Lease whenever possible

(more Tenant friendly) rather than the Landlord(more Tenant friendly) rather than the Landlord’’s s Form LeaseForm Lease

•• Ensure that Franchisees obtain the services Ensure that Franchisees obtain the services of a of a Real EstateReal Estate AttorneyAttorney

Another Universal TruthAnother Universal Truth•• Landlords are in the business of generating Landlords are in the business of generating

profits from Real Estateprofits from Real Estate•• Franchisors and Franchisees are generally in Franchisors and Franchisees are generally in

the process of generating profits from their the process of generating profits from their operationsoperations

•• As a result, Landlords spend more time As a result, Landlords spend more time perfecting their negotiation strategiesperfecting their negotiation strategies–– Be prepared Be prepared –– you will be better equipped to you will be better equipped to

negotiate if you have followed this processnegotiate if you have followed this process

Process TrackingProcess Tracking•• Certain Elements are Universal:Certain Elements are Universal:

–– Site IdentificationSite Identification–– LOI Submittal/ExecutionLOI Submittal/Execution–– Lease Submittal/ExecutionLease Submittal/Execution

•• Variances Relate to your concept/brand and Variances Relate to your concept/brand and Management Team:Management Team:–– Franchise DatesFranchise Dates–– Coordination with Architecture, Construction Coordination with Architecture, Construction

Departments (early involvement is better)Departments (early involvement is better)–– Coordination with Operations DepartmentCoordination with Operations Department

SummarySummary•• Development is a processDevelopment is a process

–– Be logical and use your common senseBe logical and use your common sense

•• Be patientBe patient–– There is no There is no ““silver bulletsilver bullet”” or or ““magic formulamagic formula””–– Due diligence and preparation are the keys to Due diligence and preparation are the keys to

successsuccess

•• Final StepFinal Step–– Upon execution of a lease or contract, hand off to Upon execution of a lease or contract, hand off to

Design & ConstructionDesign & Construction

Jocelyn T. BlainJocelyn T. BlainSVP, DevelopmentSVP, Development

FOCUS Brands, Inc.FOCUS Brands, Inc.

Sell Sell FranchiseFranchise

Identify the Identify the SiteSite

Build out Build out the spacethe space

•• Approximately 2,200 shoppes, bakeries and Approximately 2,200 shoppes, bakeries and restaurants restaurants

•• Predominantly a franchise system with some Predominantly a franchise system with some company operated S/B/Rscompany operated S/B/Rs

•• Domestic and International business unitsDomestic and International business units

Development SnapshotDevelopment Snapshot

•• Open 200 Open 200 –– 220 new S/B/Rs annually220 new S/B/Rs annually–– 45% international; 55% domestic45% international; 55% domestic

•• New openings are predominantly by new New openings are predominantly by new franchise partnersfranchise partners

•• Traditional and NonTraditional and Non--Traditional VenuesTraditional Venues•• Prototypical and NonPrototypical and Non--Standard FormatsStandard Formats•• Lean corporate teamLean corporate team

From theseFrom these……..

Schlotzsky’s

Moe’s Southwest Grill

… to these …

Cinnabon

Carvel Ice Cream

Support of Domestic GrowthSupport of Domestic Growth

•• PrePre--Opening ProcessOpening Process•• PartnershipsPartnerships•• ToolsTools

PrePre--Opening ProcessOpening Process

•• Enable our franchise partners to spend less Enable our franchise partners to spend less time building their building, and more time time building their building, and more time building their businessbuilding their business

•• MultiMulti--functional support with a primary owner functional support with a primary owner for each phase of developmentfor each phase of development

•• Systematic approach Systematic approach

PrePre--Opening ProcessOpening Process

•• New Franchise Orientation ProgramNew Franchise Orientation Program•• Development Welcome Call Development Welcome Call •• Concept Designs prepared inConcept Designs prepared in--house free of house free of

charge; Site adapts by franchise partnercharge; Site adapts by franchise partner’’s s ArchitectArchitect

•• Review and approve final drawingsReview and approve final drawings•• Site visitsSite visits•• Project CloseProject Close--OutOut

Concept DesignConcept Design

PartnershipsPartnerships

•• Extensions of the Corporate TeamExtensions of the Corporate Team•• Consultants and General ContractorsConsultants and General Contractors

–– Source regionally and provide regular trainingSource regionally and provide regular training–– Pricing remain in check Pricing remain in check

•• Equipment ConsolidatorsEquipment Consolidators–– Leverage buying power of ConsolidatorsLeverage buying power of Consolidators–– Approve two sources per brand to avoid Approve two sources per brand to avoid

semblance of collusionsemblance of collusion

ToolsTools

•• Brand Infrastructure Documents Brand Infrastructure Documents –– Countdown to OpeningCountdown to Opening–– Development TimelineDevelopment Timeline–– Program Guides Program Guides –– Site Survey ChecklistSite Survey Checklist–– Budget GuidesBudget Guides

•• Prototype Plan Set and Design GuidelinesPrototype Plan Set and Design Guidelines

Development WebsiteDevelopment Website

• Brand Introduction• Photos• Layouts• Prototype Drawings• Equipment• Signage• Furniture & Fixtures• Materials & Finishes• Lighting• Graphics• References

Common Communications PlatformCommon Communications Platform

DocumentsDocuments

Project SchedulesProject Schedules

Support Franchise Partner Growth• Enable the Franchise Partners to spend less

time building their buildings and more time building their business

• Develop systems– Process with clear owners of each phase– Roles in Franchise Partner-Franchisor-

Vendor/Consultant Partnerships– Develop tools

• Information Flow

QuestionsQuestions