Downturn gives franchise owners new opportunities

The franchisees building Sonic drive-in restaurants in the Pittsburgh region liked one potential site but there was a drawback. The owners wanted only to sell, and with lenders tightening up on credit, the franchisees weren't ready to buy.
"We called back and said, 'We don't want to go out for (new) financing. Can you lease a few years?'" said Chris Whalen, a partner in White Oak, Penn.-based NCH Hospitality.
The landowners -- recognizing the economic realities -- were willing to talk. "There has been a little bit of loosening," Whalen said. "You can feel it change."
It may take a willingness to adapt to keep movement going in what has been one of the region's -- and the nation's -- more active development markets for years: restaurant franchise growth.
As consumers eat at home more and lenders pull back on credit, a number of chains have indicated they now won't be cooking up new stores as fast as fries in a hot cooker. Restaurant operators, such as the parent of Olive Garden, Red Lobster and The Capital Grille, as well as those opening Chipotle and Wendy's, have said they will move at a slower pace.
Yet the slowdown also has opened up opportunities, according to some in the businesses who see less competition for prime locations and more willingness by land owners to work with potential tenants.
And for those who've always sold themselves as a value, this may be a good time to reinforce and improve that image.
"I think we're a solution right now," said Albert Seecharan, vice president and general manager of the almost 450 McDonald's restaurants in a seven-state region operated out of the Pittsburgh market.
McDonald's this week reported U.S. sales in established stores rose 2.8 percent last month, a number that would have been higher except that February 2008 had an extra day. That's down from 8.3 percent in the same month last year, but still stronger than many other chains.
"We are taking market share, nationally and in the region," said Seecharan, who said the customers were more value conscious of late and the dollar menu continued to be popular.
Certainly, consumers of all sorts are focused on spending less when they do eat out.
Restaurant industry traffic overall dipped 2 percent in the last quarter of 2008, according to market research firm NPD Group, with quick-service restaurants doing better than full-service restaurants. Lunch visits -- especially those spurred on by discounts -- grew while supper business slipped.
Many other restaurant operators are pushing value to increase sales. Sonic recently added a lower-priced, value menu, as did Dairy Queen and KFC.
Still, for many franchisees, access to money is what could make a difference in how many new sites start serving up food or how various operators weather the downturn.
A recent study by research firm FranData predicted that borrowing by all franchises would fall about 27 percent this year compared with last year, limiting the expansion of existing franchises as well as new stores. An economic outlook from PricewaterhouseCoopers forecasted jobs in franchise businesses could fall 2.1 percent, for a loss of 207,000 positions.
Restaurants are still seen as one of the stronger franchise sectors. The forecasters predicted a 1.5 percent increase in the number of quick-service restaurants this year and a 1.3 percent bump in full-service restaurants.
"You're getting a lot of lesser known brands starting to pick off these prime spots," said Dan Rowe, founder and chief executive officer of Fransmart, an Alexandria, Va., firm that sells franchises and works with franchisees to develop restaurants.

(E-mail Teresa F. Lindeman at tlindeman(at)post-gazette.com)

(Distributed by Scripps Howard News Service, www.scrippsnews.com.)
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