Winnipeg Free Press

Winnipeg Free Press (Newspaper) - June 26, 1973, Winnipeg, Manitoba Winnipeg free press tuesday june 26, 1973 17 1 franchise firms pull in horns after big collapse by Jane Becker whatever happened t o the franchise stocks considered one of the sizzling Market buys in the Middle and late 1900s? the answer is simple and definite most of them have tumbled some in line with the general Stock Market decline which began in late 1969, others outrunning the Market 10 fold in declining value. Some franchising Compa Nies whose Stock sold for a share during the Market Boom in 1968 dropped the next year to half that and now sell for about a share. Others have had spectacular drops from a share before the Market collapsed in 19c9 to 57 cents the next year and Are still stuck around the 41.50 level. Yet most of the Compa n i e s Are continuing in operation although Many have drawn in their horns substantially. What s the reason Market analysts in Winnipeg say franchise operations Are like Many fads that grew up in the 60s the first one col Saunders Kentucky Fried Chicken in the looked like a Brand new idea and was notably successful. In came the imitators mostly in the fast food business. The Only trouble was thai Many of the imitators did t know their business very Well. Peculiar accounting practices allowed them to record Large initial fees to franchisees As in come although no Cash May actually have been received. David Dvorchik an Ana Lyst in Toronto with Dupont Glore Forgan of Canada describes the Gen eral Stock Market perform Ance of most True Franchis i n g companies both in Canada and uie ., As the Basic trouble was that they weren t Worth the Money they were capitalized he says. One difficulty is that it is hard to put a real value on a franchise. You Aren t re ally buying a hamburger stand although some Mcdonald s franchises were sold for apiece. This vagueness As to net Worth contributed to a wrongly valued Stock which was then Quick to take a Tumble when the going got rough. The franchise companies habit of crediting franchise fees As income in the year they were received was probably More responsible than anything for the Sharp reverse in earnings and consequently Stock prices. On Oie up Side the fran Chise fees looked impressive As earnings. Har Veys another hamburger franchising firm sold franchises for each at one stage. One Hundred of these would mean an in come of but when the trend was re versed the franchising rate fell off or the com Pany was forced to fore close on franchises and write Down the investment the income statement looked that much poorer investors lost Confidence and the stocks plunged downward. Other franchisers simply got Over extended or sold franchises in markets they knew nothing about went into different lines which made things difficult for their franchisees or Sim ply faded from too much Competition in the same Field. At the height of the fran Chise Boom in the Canada really just got the overflow except for a few Long established franchising firms which Are still doing Well some companies did t really operate at All except to sell franchises. The e punctures in the franchise balloon hat led to new government regulations regarding franchising in both Canada and the It has also changed the direction of franchising in general from such Fly b y n i g h t items As fast foods and health spas to longer lasting operations recreation and entertain ment and the hotel and department store businesses. Not Many Canadian in vestment houses do de tailed analyses of franchise firms As a Stock Market group. One that does How Ever is Richardson Securi ties of Canada in Winnipeg. Llic Hardson s says Public Confidence has been lost in the fast food business partly because of the disastrous records of firms like Minny Pearl i the ., which never did get started i n Canada and Pickin. Chicken another Com Pany which got started in Eastern Canada but not very far. The firms that Are left look sound according to Richardson s. Franchising is an established Way of doing business on the Prairies. The method was suited to a Prairie Economy where distances were too great for one management to oversee an operation and the Market to be served was spread out. This is How Ashdown s hardware now part of Ackland s Marshall Wells Ltd. And Macleod Snow both owned by Gam ble s of the ., built up their business. Robinson Little Ltd., a Winnipeg based Chain of retail stores throughout Western Canada has had an up and Down Stock mar Ket history. Its Stock sold at from to a share in the mid 60s, dropped to a share in 1968, but the same year boomed up again to unlike some other stocks it kept climbing until it reached a share in 1971. Then the Stock was split 10 for one. On the new basis it Rose to about a share last year. Then staff and inventory problems rocked the company the Stock veered to Low of a share and is currently trading at about the crowning non Success Story of a fran Chise Stock however is Harvey s foods an Eastern Canadian hamburger Chain which got into difficulties mainly because it owned some of its properties and found itself reluctantly i the real estate business. Harvey s also suffered from Competition i the hamburger Field from my d o n a 1 d s and a i w among tried diversifying into Chicken and ran into difficulties with its franchised operators who in Many cases were not geared to offer alternative products. Harvey s came onto the Market at a share in 1967. It Rose to a share the next year but then the drop began. By 1970 it had plummeted to 57 cents a share sold As Low As 82 cents a share last year and is currently trading at about controlled foods the Vancouver based holding company which franchises wholesale restaurant food and equipment had had an interesting Stock Market history. It reached a High of a share when it went Public in 1969, tumbled to a share the next year and is currently trading at about perhaps reflecting the spiral of the Market itself rather than i t s own difficulties Al though one of its subsidiaries Chappy s enterprises inc., was an unsuccessful fish and chips Chain. But where the business is sound franchising stocks have flourished even reversing the general Stock Market trends. A Good example is Scott s foods of Toronto who hold the Eastern Cana d i a n franchise for col. Saumders Fried Chicken Scott s Stock started out at a share in 1909, fell to the next year but later recovered to in 1972 and is currently Selling at about Canadian tire Ltd., which in t always recognized As a franchising firm a number its dealers own their operations had been one of the More spectacularly successful Stock stories of the last five years. In 1969 the Stock reached a High of a share on t h e Toronto Slock Exchange. The next year the Stock was split three for one. Even with this de by 1972 Canadian tire shares were Selling for on the split basis equal to before the split. This year even taking a c c o u n t of the general Slock Market decline they Are still Worth More than twice As much As they were in the Boom of 19g9. But by and Large according to some analysts franchising stocks May suf Fer for years from not justifying their peaks of the 1960s. As or. Dvorchik puts it once a Slock has. Been that High and has dropped people who were burned by it won t touch he predicts that until franchise accounting be comes More conservative and the euphoria sur rounding the operations Dies off their stocks won t be a popular item on the. Market. I this could be Philip greek new York special tons in All the fund shares which were then put up As collateral for Loans to pay the 1 Opportunity g e of equity funding corp., there May turn premiums. A t the end of ten years a i been looking for -1 a business of your be a Silver lining. Equity funding is the los Angeles based insurance Mutual fund company that was hit in to the theory the funds would have appreciated enough for the Holder to Cash in some shares pay off the accumulated reports of and be left with both according to the life insurance policy and i la company remaining fund shares. 1 1 j i fake life Many maybe it 3 fit s 1 if which they sold of the policies ii u i fake however the Latler a Normal Industry practice and Mutual funds operated by equity funding were. A proven retail franchise program in kept the they had combined 1 soft lines furniture and appliances offering the sales and of about million 1 Over 55 years retail experience the company s financial with the Parent com 1 bind buy no Power of 265 stores in turmoil they need advertising program professional once in a somebody to watch Over assistance training program modern would kill a for one fund it 1 House facilities exclusive merchandise distribution system consumer credit program 1 your investment As Low As additional capital financing available to and use the proceeds to pay premiums on the phony policies still in Force. According to Somo former employees the the second time around. Fund of America used to be operated by a company owned by Bernard c o f e 1 d which of the scheme that those holders act now investigate owning a t which had a kind of wild own business. Join a successful policies were made 1 Gressie franchise group fool the auditors. 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