The Franchise Trap
Yet another company is falling into what I call the franchise trap, as Krispy Kreme's woes continue, including closure of its Arizona stores. Just about 5 years ago, I remember when they first showed up here in Phoenix - there were long lines and police directing traffic around the stores. Now, they're dead. And the corporate parent is struggling.
If memory serves, Boston Chicken (now Boston Market) and Jiffy Lube both had their corporate parents go into bankruptcy at the back end of their wild growth phases. This is what I mean by the franchise trap: Franchises generally start out as a single location that does well. Wanting to grow quickly, and lacking the capital to build their own stores, they adopt a franchise model for growth. Soon, wild growth may ensue if their concept is good, and they discover that selling franchises is more profitable than selling whatever they sold in the store. Once the growth phase ends, though, they often hit an iceberg. Inevitably, they find that many of their franchisees either can't cut the mustard or chose poor locations and go bankrupt. In addition, they must make the transition back from growing by selling franchises to growing by incrementally improving the core business. Many can't make this transition back, corporate bankruptcy ensues, and someone who is an operator rather than a franchise promoter comes in and cleans up the house.
