• Financial Post

Derek Sankey, Financial Post Published: Friday, March 27, 2009

Todd Korol/National PostStefani Williamson of Edible Arrangements at her store in Calgary Call it resilient franchising: While some large franchise chains have been busy closing stores, cutting staff and otherwise suffering the effects of a drop in sales, there are others who are quietly doubling sales and expanding franchise locations by 15% or more.

So what makes a franchise resilient in this economic environment? According to Tariq Farid, it’s a unique combination of things that sets his U.S.-based business apart as it embarks on an aggressive expansion in Canada and around the world.

Defying the odds is familiar territory for Mr. Farid, founder and chief executive of Edible Arrangements International Inc.
At the age of 17, he borrowed $5,000 from his parents to buy a flower shop in East Haven, Conn. Within two years, he had branched out into software development and retail management systems to help him manage his floral company.
Then in 1999, just before the dot-com market crash, he launched a company that blended two seemingly disparate concepts: fresh fruit and flowers. Edible Arrangements sells hand-sculpted bouquets of fresh fruit. He began franchising the concept in 2001.
“I remember, when we started, people telling me this maybe wasn’t the right time and I should wait for the economy to turn,” says Mr. Farid, who now has 870 locations in six countries, including the United States, Puerto Rico, the United Arab Emirates, Saudi Arabia, Britain and Canada, where there are 40 scattered across the country.
“Last year was the first year we started to see the economy melt, but it was our strongest [year of] growth ever,” he says. Sales at Edible Arrangements last year were $300-million, up from $160-million in 2007. He plans to continue to expand about 15% a year to 1,000 franchise outlets by 2010.
“People are choosing us because of some kind of passionate decision – it’s a birthday, things that you celebrate – be it when the economy is slow or hot,” Mr. Farid says.
Another secret to the company’s success is that it’s healthy and edible. There is a strict policy in place to ensure freshness year round and the product range is flexible on the wallet, with arrangements priced from $15 to $300.
Aroon Sequeira, a senior vice-president at Ernst and Young in Toronto, says smart franchisors realize customers are more willing to part with smaller amounts of cash in an economic downturn than they are to make large purchases, especially if it’s tied to passion or emotion. “If it’s a higher-end franchise selling luxury goods or a high-end restaurant, it might not be so resilient,” he says.
Mr. Sequeira also says franchisors need to place a greater emphasis on operational efficiency, which means buying smarter, controlling costs and aiming for a lower price point.
“If you can see your way through the downturn, you should come out stronger at the other end with a leaner, more efficient business, and some of your weaker competitors will probably be gone by the time the recession ends.”
Another trend Mr. Sequeira is noticing, is that “proactive” franchisors are putting more requirements into franchise agreements requiring a certain level of equity to be put in by the franchisee before awarding the rights. An even 50-50 equity split from the franchisee and the bank is not uncommon, he says.
Stefani Williamson, a former controller for a small oilfield company in Calgary, saw enough potential in Mr. Farid’s concept to quit her job to set up a franchise in Calgary more than a year ago that is one of two.
“It was one of those best-kept secrets,” she says. “It has shown that staying power. We’re in an economic downturn, but there are still people buying for birthdays and having babies.”
She likes that head office has been supportive in developing new products to cater to customers looking to spend less in this economy. If she has to sell a few more items in the day at a lower price point, it all adds up to the same amount at the end of the day.
Mr. Sequeira acknowledges that the availability of credit has become a concern for many franchisors and franchisees alike, but he says most well-established companies often have loan programs in place with reliable banks and financial institutions.
Conversely, many costs have decreased in the past few months including real estate and operational costs, so it could be an ideal time to buy into a franchise if you’ve got the financing in place and you find a resilient franchise concept, he notes.
His one caveat: Do detailed cash flow forecasts and plan for every scenario, keeping the lines of communication open with your lender at all times – even when things don’t look rosy.
“At the end of the day, a strong relationship [with your banker] will help you over some of the speed bumps you will encounter,” Mr. Sequeira says.

Derek Sankey, Financial Post Published: Friday, March 27, 2009

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