Why Corporate Stores Are Becoming Refranchised
In an interview with Matt Lipson, an associate director at Stan Johnson Co., we learn that many brands want to see franchisees control up to 95% of their stores to free up operational capital and improve their balance sheet
Business are continuously looking for ways to strengthen their business, save costs, and return more cash to their shareholders. One way to do this, according to Matt Lipson, an associate director at Stan Johnson Co., is for corporate stores to become refranchised. We chat more with Lipson on the subject in the exclusive Q&A below.
GlobeSt.com: Are there any interesting trends currently impacting the single-tenant net lease QSR sector?
Matt Lipson: Yes, we’re beginning to see corporate stores become refranchised. Some brands want to see franchisees control up to 95% of their stores. McDonald’s, for example, revealed a plan to refranchise 4,000 stores, and in March, they were on track to complete this process by year-end 2017. The result will bring the company’s franchised percentage to 93% globally.
GlobeSt.com: Why would a corporate brand choose to franchise? And what are the benefits to the franchisees and potential investors?
Lipson: For McDonald’s, the intent was to free up operational capital and improve their balance sheet. This strategy allows the company to strengthen their business, save costs, and return more cash to their shareholders. For the franchisees, it creates opportunities for them to acquire existing units in prime locations. It should lead to the expansion of top fast-food brands, which will ultimately create opportunities for investors.
GlobeSt.com: What do landlords of QSR-leased properties need to know?
Lipson: Not much changes when a property becomes refranchised. The corporate guarantees typically stay in place, but a franchisee has different checks and balances from a corporate operator. When the lease expires, the decision to renew, renegotiate, or vacate will be on the franchisee. These decisions will be based on several factors: they’ll look at rent, food, advertising, employment costs, and renovation needs, along with any development agreements that require the franchisee to add a certain number of new locations. As an investor, you’ll look at the strength of the franchisee – their net worth, how long they’ve been in business, and how many units they control. The upside is that the franchisee usually has a single point of contact – not the many departments and contacts within a large corporation – often making communication easier and more efficient for the investor. They also have feet on the ground, and a more focused perspective on operating the asset than some corporate owners, whose attention might be more divided.