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Franchises: The Secret to Navigating the Debt Crisis

The franchise world is a game of give and take between the major brands and their underlying companies. It's a game that Focus Brands, which operates the Cinnabon, Auntie Annie’s, and Schlotsky’s franchisees, knows well.

Fork and knife, place setting on money, cutlery on napkin with plate, expensive food
CNBC.com
Fork and knife, place setting on money, cutlery on napkin with plate, expensive food

To navigate today’s debt crisis, it seems that a company must be either small and nimble or big and private.Focus Brands is a combination of the two: a large company made up of many smaller companies.

“All of our franchisees are going through this period where they're not sure, so there's uncertainty in our whole world in terms of the debt crisis, in terms of lending ability,” Focus Brands CEO Russ Umphenour said, in an interview on CNBC.

“Franchisees depend on lenders — some small, some large — so it's an ongoing issue,” he added.

As the operator of more than 3,000 ice cream stores, bakeries, restaurants and cafes in the U.S. and 50 other countries, Focus Brands and its franchisees have the best of both worlds.

But large companies are weary of the increased scrutiny on their smaller components — a concern at the forefront of such public listings as Dunkin’ Brands.

Dunkin', which is made up of nearly 10,000 Dunkin’ Donuts stores worldwide, is set to list publicly next week. While going public will undoubtedly help the company to raise funds, it could also make it more difficult for individual franchisees to secure credit lines.

The climate for credit has not hampered Focus Brands from entering a “major growth mode,” according to Umphenour. The company is currently hiring to support its growth. They're adding staff in real estate, training and development, and construction and design. As the business grows, he hopes to add more field operations jobs as well.

“There's less competition because no one else is growing,” he said. “We can find great candidates for the positions that are available right now.”

Focus Brands has built much of its success on loyalty, according to Umphenour. Its smaller businesses haven’t lost many customers, he said. But, he has seen more of a bifurcated consumer, where the high-end hasn’t gone away, but the low-end continues to struggle.

Although he is selling those sandwiches at between $3.99 to $6.99, which seems relatively affordable, many of casual, fast-food customers have traded down to an even lower price point.

But keeping the company's core customers has translated into positive same-store sales for for six years in a row.

“At the end of the day, our economy is built around how people are feeling, and whether that is the consumer or whether it's a lender or whether it's our individual franchise partner, they're all being cautious right now,” he said.

Still, Umphenour said that the concern for his company is mainly stateside. Instability in the Euro zone hasn’t had as much of an impact on development as one might think.

This year, Focus Brands expects to do about 500 franchise deals internationally, in addition to another 500 or so domestically.

“That's right on track with our goals and what we've planned for,” he said. “So unless there's a major meltdown, we don't anticipate it severely impacting our business.”

Focus Brands has had success expanding in Asia as well, with its Cinnabon brand doing particularly well in Japan.

Still, Umphenour said the company is careful not to “put the cart before the horse” in order to promote sustainable growth, which can be a difficult process in excited new markets.

“Local owners obviously want to get their restaurants open as quickly as possible, so it's an ongoing process with us to teach, train, and develop them so that they have everything in place before they actually open their restaurants,” Umphenour said.

He added, his company has taken advantage of lower real estate and construction costs to revamp its brands’ image and spur growth.

“It's typical of our culture to zig when everybody else zags,” he said.

(Correction: An earlier version of this story incorrectly attributed a quote to CEO Focus Brands CEO Russ Umphenour regarding Focus' same-store sales. That comment was made by Kelly Roddy, brand president of Schlotzsky's. Also, another quote regarding consumer patterns also was incorrectly attributed.)

Questions? Comments? Email us at consumernation@cnbc.com. Follow Nicole Lapin on Twitter @NicoleLapin.

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