Owners that cut ties with franchises face risks

By CHRISTIE SMYTHE
Wednesday, March 21, 2007

Nearly four decades after his father opened the first Martinizing Dry Cleaning location in Tucson, Ariz., William "Bake" Shaffer is taking his family's Martinizing franchise independent. Over the next several weeks, the Martinizing signs at his nine locations will be replaced with signs that say Shaffer Dry Cleaning & Laundry.

Shaffer said he didn't want to expand at the pace the Cincinnati-based chain was demanding - eight new stores over the next 15 years. Also, he said, after spending most of his working life in dry cleaning, "I don't need my hand held."

Shaffer isn't the only former franchise owner trying to go on his own after being part of a larger brand. Also making the switch is the former Clarion Randolph Park Hotel in Tucson, now operating as the Randolph Park Hotel and Suites. Omar Mireles, executive vice president of HSL Properties, which owns the hotel, said the company wasn't happy with the midlevel Clarion brand and is going independent while searching for a new brand.

"It wasn't quite meeting the expectation that we had at the end of the day," he said.

Experts say turning a franchise into an independent business is fraught with perils - including the expense of changing logos, signs, phone numbers and proprietary equipment; possible lawsuits by the parent company; and all the usual challenges faced by small businesses, such as trying to develop a customer base.

Nonetheless, Shaffer and other former franchisees said they were willing to take the risks.

"I've been much happier being independent," said Roberta Shapiro, who changed her Tucson restaurant to The Pizzeria On Ina after her franchiser, Peter Picurro, was charged in 2005 with luring a minor for sexual exploitation. Shapiro said she enjoys the freedom of being able to choose her restaurant's hours and experiment with the menu, which she couldn't do as a franchisee. That helps her keep up with her customers' changing tastes, she said.

"I think we're a lot more efficient," she said.

Under franchise contracts, which typically last eight to 10 years, franchisees are usually obligated to uphold the franchise company's operating standards - which may cover everything from supplier choices to decor - as well as pay fees for advertising and a percentage of their revenue to the franchiser, according to the International Franchise Association, based in Washington, D.C. In exchange, franchisees receive permission to use the franchiser's trademark and receive support and training from the franchiser.

There are about 2,500 franchisers and 800,000 franchisee businesses nationwide, according to the association.

Prospective small business owners are generally attracted to franchises for the security of having a well-known brand name, a thoroughly tested operating system and the support of a corporate parent and fellow franchisees, said Terry Hill, spokesman for the International Franchise Association. But a franchise might not be best for "strongly entrepreneurial" people, Hill said.

There are also situations in which a franchise might not seem worth the fees, said Robert Purvin, CEO of the San Diego-based American Association of Franchisees & Dealers. For instance, the company's name might not be well recognized or the system might not work as well as intended. Also, the business could be based on a passing fad.

For those reasons, prospective franchisees need to carefully investigate potential franchise deals. The agreements can be "an indentured servitude from which there is no escape," Purvin said.

Former franchisees who took their businesses independent say the going has not been easy. Shapiro, of Pizzeria On Ina, said she had to change her sign and come up with new recipes within a matter of weeks. Jo Jensen, owner of Santa Barbara Ice Creamery, said she has successfully fought two lawsuits filed against her by Baskin-Robbins, which chose to end its agreement with her in 2000.

"It's been a hard road. All I wanted to do is sell ice cream," said Jensen, who said she opened her shop as a Baskin-Robbins in 1985. But Jensen managed to keep most of her former customers.

As for Shaffer, although he is free to do what he wants with his locations, he will inevitably face more competition from Martinizing, said Jerry Laesser, vice president for marketing and franchise development for that company. Martinizing is searching for a new franchisee to open 10 new locations in Tucson, Laesser said.

"We actually wish that Mr. Shaffer was going to stay with us and grow his stores in number, but he has decided to take a different tack," Laesser said.

Shaffer estimates that he will spend about $100,000 just on new signs, and even more to make other changes necessary for going independent. But by no longer paying royalties, he expects to make up for the expense in about four years.

That's nothing compared with the peace of mind that comes from being completely in control of his business, he said.

"I can do better on my own."