Franchising Hope : Chain Outlets Offer Promise as Seeds for Inner-City Development
When Kentucky Fried Chicken approached Lois Foust, a former waitress and Sizzler restaurant manager, in 1982 about becoming the company’s first minority franchisee, she jumped at the chance.
Foust, an African-American, put down $35,000 for her first store on Long Beach’s Atlantic Avenue. In 1988, she purchased a second KFC franchise in Long Beach.
The type of success Foust has enjoyed will be very much on the minds of industry and community leaders meeting at the Los Angeles Airport Hilton today for the International Franchise Assn.’s regional conference. The conference will focus on minority ownership of franchises as a means toward developing the inner city.
Franchising can be an effective tool, community and industry leaders say, because franchises come with training programs, established products and brand names that increase the chances of small-business success. And thriving operations owned by minorities, they say, will create more jobs for minorities.
“A franchise operator has certain kinds of resources that he brings to the table,” said John W. Mack, president of the Urban League of Los Angeles. “No matter which franchise you go into, there is a standardized, well-conceived program in place.”
Much of today’s discussion will center on the largely untapped markets in the inner city that could be filled swiftly by franchise companies, conference organizers say.
“With the exception of liquor stores and funeral homes, every other retail establishment is looking at a potential gold mine in the neglected areas,” said Bernard Kinsey, co-chair of Rebuild L.A., the task force created by Mayor Tom Bradley to spearhead economic development in the predominantly minority, inner-city neighborhoods torn apart by last spring’s riots. Rebuild L.A. is a co-sponsor of the conference.
For many minorities, buying a franchise is a challenge because they lack capital, business experience and information on how to get started with a franchise.
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Kentucky Fried Chicken, a unit of Pepsico Inc., has designed a minority franchising program to solve some of these problems, particularly financing.
Minorities in the program receive financing of up to 95% of the total cost of buying a franchise. And, for minority applicants, KFC waives the requirement that applicants have a minimum of $150,000 in cash and a net worth of at least $400,000. Minority applicants need only show that they have in cash 10% of the total investment cost for a franchise. That means that a minority applicant today would need between $65,000 and $75,000 to get started toward acquiring a franchise.
Since the program began, about half of the 300 new KFC franchises have been bought by minorities. Walter Simon, KFC’s vice president of business development, said the program has created 25 new millionaires and that 92% of KFC’s minority-owned franchises are still thriving 10 years after start-up.
Organizers of today’s conference say this kind of commitment is exactly what minority communities need most.
“There needs to be the commitment on the part of the franchise owners that they are going to go all out,” Mack said.
Few franchisers have put programs as extensive as KFC’s in place. But some have made dramatic strides in increasing minority ownership, although only 9.5% of franchisees in the 708-company IFA are held by minorities.
Many large companies--including McDonald’s, which has increased minority and female ownership 105% since 1986--offer minorities easier financing through their relationships with commercial banks. And the Small Business Administration loan program gives priority to franchise applicants over people starting independent businesses.
Yet the problem, in many cases, isn’t money as much as information. A good number of minorities have the capital to become franchisees, said Harry Goldman, president of the Self-Employment Advisory Foundation. “But they are saying, ‘Hey, I’m willing to pay if you show me how to do it.’ ”
In addition to information, conference organizers acknowledge that potential applicants need assurances that investing in the inner city is safe and profitable.
Kinsey and Urban League officials say they will stress that new businesses in areas hit hard by the riots have been successful. He cited the Lucky’s grocery store near the Crenshaw-Baldwin Hills Plaza and the Smart & Final store at 29th Street and Crenshaw Boulevard.
Some franchise owners say that the cost of doing business in the inner city is prohibitively high because of insurance and security costs.
Harold Patrick, who owns a McDonald’s in South-Central Los Angeles, acknowledged that he bears “tens of thousands of dollars” in additional costs to operate his restaurant at 1800 S. Western Ave.
In many cases, the extra costs have led successful minority owners to leave inner-city neighborhoods.
Those who have stayed say minority ownership is the best way to bolster community pride.
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Patrick, who has owned his South-Central franchise for seven years, said that while several buildings around him burned during the riots, his restaurant suffered little damage. “It is inspirational for the community to look at a successful business that is owned and operated by a minority,” Patrick said. “People do not tear up what they feel is theirs.”
Foust remembers thinking the same thing during the riots when her restaurant escaped the looting in the Long Beach neighborhood.
“I find the community is aware that you are there,” Foust said. “After all, you are hiring their kids.”
