Franchises That Fit

Boeing 737s aren’t the only things flying high at the Los Angeles International Airport these days. So are the sales at Cinnabon. That’s good news for Clarence Daniels, president and CEO of Concession Management Services Inc., a food and beverage business that operates outlets in five airports across the country.

Using a $200,000 bank loan plus earnings from his existing concession company, Daniels purchased a Cinnabon franchise at LAX in 1999 for nearly $280,000. The first year in business, the store earned $850,000 in revenues. Although the company suffered financially after Sept. 11, 2001, Daniels’ franchise is still riding high with $600,000 in sales, almost double the amount generated by the average Cinnabon found in shopping malls. And that’s just at one of two sweet and sticky shops that he owns at the airport. Daniels also has a second Cinnabon shop he acquired in 2002 for $75,000, not including the franchise fee. Sales at this store are about $400,000 a year. Between the two franchises, he has 12 employees.

When Daniels, 54, decided to become a franchisee, he already operated three food-related businesses at LAX. But the opportunity to be linked with a proven business concept known to millions of people in the nation was too sweet to pass up. “When we first opened our facilities at the Los Angeles International Airport, we had developed all of our concepts on our own so they were nonbranded and were not a part of a franchise system,” says Daniels, who worked for food companies such as Aramark and the catering unit of Marriott Corp. before starting his own business in 1992. “But what became clear to me fairly early on was that if I wanted to grow [my business] the way I intended to grow, I’d be better off being a part of a national brand that was familiar to people, that had an enforced operational standard and that had marketing materials that would help me drive sales.”

For Daniels, purchasing a franchise meant gaining a competitive advantage in business. And he’s not the only one looking to get ahead using this type of opportunity as leverage.

According to the International Franchise Association (IFA), a trade organization in Washington, D.C., there are more than 320,000 franchised businesses in the nation, generating more than $1 trillion annually. People wanting a piece of the entrepreneurial pie are buying into restaurants, personnel management firms, copy centers, and various other product and service-oriented businesses.

Currently, more than 75 industries operate within the franchising format, a system based on a contractual agreement between a franchisor like McDonald’s or Coverall Cleaning Concepts and a franchisee, an entrepreneur to whom the franchisor licenses its trade name and operating model. In return for the right to operate under the franchisor’s name, the franchisee agrees to pay an initial fee known as a franchise fee — a cost that varies depending on the type of franchise selected — and an ongoing royalty payment to the franchisor. Royalty fees, which are a percentage of the franchise’s gross sales,