Cici's Launches Franchise Fee Incentive

(Monday, November 10, 2008) - CiCi's Pizza is waiving its normal franchise fee for existing franchisees or managers willing to take on sagging stores that would otherwise shut down.

Over the next year, up to 25 restaurants of the company's 640 locations may fall into that closed or about-to-close category, Craig Moore, president and chief executive of Coppell-based CiCi Enterprises LP, said Monday. The policy will be in force at least through 2009, the company said.

The fee for existing franchisees and managers averages about $25,000, Mr. Moore said. Franchisors charge upfront fees, in part to cover administrative costs.

Given the lost royalty payments if a restaurant shuts down and the cost of opening new ones, the company decided it was better to keep restaurants open if they have potential, Mr. Moore said.

The move comes as banks tighten up on credit, forcing many restaurant chains to pare back growth plans.

"With the economy the way it is, we're trying to work with our existing guys," said Mr. Moore, who launched the program a few weeks ago.

"We feel that the stores are viable, but for whatever reason ... the operator couldn't make enough profit to make it worthwhile."

Franchisors nationwide are hurting for recruits and have tried a number of options to keep stores opening, such as offering "associate" franchises for a lower fee, said David Omholt, chief executive of the Entrepreneur Authority LLC, a Plano franchise consulting firm.

He said he had not heard of any other companies waiving franchisee fees and added that the policy could have unintended consequences.

For one, recent franchisees not offered the deal might grouse, he said.

"Your worst nightmare is having your franchisees at the annual convention comparing notes," he said.

He also questions whether the company is delaying the inevitable by propping up restaurants that are unprofitable because of location or changing demographics.

"Putting in an 'A' operator still isn't going to turn a 'C' location into an 'A' location," he said.

Mr. Moore said even though sales at CiCi's troubled restaurants are "substantially below" the chain's per store average of about $940,000 a year, he is convinced that they can be turned around.

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