Senior-Care Franchises Find Healthy Market

TIMES STAFF WRITER

Hoping to find green in the graying of America, hundreds of entrepreneurs are opening franchises aimed at helping the nation's seniors handle everything from household chores to their afternoon recreation.

Known as in-home, nonmedical senior care, companies such as Home Instead Senior Care and Comfort Keepers are among at least eight franchisers making inroads in a rapidly growing market long dominated by thousands of mom-and-pop providers.

Fueled by demographics and aggressive marketing, the number of franchised senior-care outlets has grown from fewer than 100 in 1996 to more than 900, with most of the growth coming in the last three years, experts said.

"The growth is clearly explosive, and we're seeing it nationwide," said Elisabeth Bryenton, president and chief executive of Ohio-based Child & Elder Care Insights, an employer-sponsored search service.

Martin McDermott, vice president of marketing for FranchiseAmerica.com, an online franchising marketplace, said nonmedical senior care "seems to be among the fastest-growing markets right now."

The International Franchise Assn. does not keep figures on growth rates for different industries, but Entrepreneur magazine listed Ohio-based Home Helpers in its top 10 list of new franchise companies for 2002.

Depending on the franchise, services offered by nonmedical-care providers can include housekeeping, meal preparation, transportation, or even watching movies and playing cards with a client.

Because of licensing requirements, most of the nonmedical services do not offer hands-on care such as bathing. And although caregivers can remind a client to take medications, they are not allowed to administer drugs.

Client fees range from $12 to $20 an hour, depending on the company, market and services rendered.

Though food-related franchises are the most popular in the United States, franchising and elder-care experts say in-home care rapidly is gaining favor among entrepreneurs because of the growing numbers of elderly Americans and the relatively low cost of starting a senior-care business.

Entrepreneurs often can launch a franchised nonmedical service to aid seniors for less than $50,000, operators said. And--unlike child care--no license is required in most states.

"You wouldn't require nearly as much capital to get started as you would for any franchise with a huge brand name or that is equipment intensive," said Robert O'Toole, president of Informed Elder Care Consulting, a Massachusetts-based service.

Josie Aguilera opened the Covina office of Home Instead in early 1998. It's one of 340 offices in the company, which is one of the largest franchisers in the field.

With her background in human resources, Aguilera believed that a business involving managing people played to her strengths, and she found opening a senior-care franchise "more affordable than trying to purchase a McDonalds."

Increasing Revenue

Aguilera, whose east Los Angeles County territory includes about 54,000 residents older than 65, said her business had revenue of $300,000 in her first full year of operation with about 30 clients.

Last year, with about 40 clients, including several seeking live-in care, and 40 to 60 caregivers (mostly women, some of whom worked as little as three hours a day), revenue rose to about $500,000, about half of which goes to payroll.

Other major costs for Aguilera include workers' compensation and liability insurance for the caregivers, who are treated as employees.

Franchisees with some firms--including Griswold Special Care in Erdenheim, Pa., and Visiting Angels in Havertown, Pa.--reduce costs by treating some caregivers as independent contractors rather than employees. Those franchisees don't have to pay workers' compensation or unemployment insurance and can thereby offer clients lower prices.

But Kent Griswold, president of Griswold Special Care, said that in some cases, the state or the Internal Revenue Service could determine that a caregiver is an employee, making the franchisee potentially liable for back taxes.

Franchising fees for senior care usually are $12,000 to $24,000. For auto, lodging or retail-related franchises, the average franchise fee can easily exceed $40,000, according to the International Franchise Assn.

Royalties--the yearly rebates paid to the corporate office for a franchise--range from 2.5% to 5%. That's comparable to the royalties charged for hotel and motel franchises, but substantially less than the typical fees for an auto repair franchise, which is 6.5% to 7.5%.

In return, senior-care franchise operators get rights to an exclusive territory or population group, support services such as payroll and scheduling, training and marketing materials.

Aguilera believes the guidance, training and support services she gets from Home Instead is well worth the franchise costs she pays.

But entrepreneurs who already have a foothold in their community and the expertise in running a business might just as easily operate as an independent, said Kay Marie Ainsley, managing director of Michael H. Seid & Associates, a Connecticut-based consulting service

"Given the fee structure [of franchising], you may be able to make more money on your own," she said.

But she and others added that as consumers begin choosing among the growing number of service providers, brand recognition could become an important factor.

With an estimated 6,000 companies nationwide providing in-home nonmedical senior care, franchised outlets remain a small part of the business--numerically. But franchisers, who grossed more than $250 million in sales last year, said they are gaining the upper hand because most of the independents are very small.

Independents See Effects

"When we go into a market and talk with the referral sources, it's rare that the names of the independents are mentioned," said Jerry Clum, who founded Comfort Keepers with his wife, Kristina, in 1999.

Some independents said the arrival of the franchisers has hurt their bottom line.

Laurie Reid, manager of Riverside's independent Home Care & Home Helpers, has seen a dramatic drop in the number of referrals from hospitals since the franchisees moved into town.

"About three years ago, I started to notice it," said Reid, who employs about 30 caregivers. "The hospitals used to refer to us patients being released. They no longer do. We used to get at least five referrals monthly. Now we don't get any.

"The only way we get referrals now is by word of mouth," she said.

Because referrals have slacked off, Reid said, franchisers increasingly have pressed her to join a chain. But she likes the control inherent in being independent.

Maintaining control and not wanting to pay the franchise fees were listed as main reasons by many for remaining independent.

To help independents compete, Steve Everhart launched Senior's Choice, a Capistrano Beach-based network of independent operators. For a one-time fee of $10,000 and annual membership dues of $3,000, operators can gain access to training and cut-rate insurance without the restrictions of being a franchise.

"There's no way you should go it alone in this industry," Everhart said. "You don't have to reinvent the wheel."

Still, growing numbers of entrepreneurs are seeking the name recognition that franchises offer.

Andrew LaBrada, owner of a 2-year-old Comfort Keepers franchise in La Mirada, thought about "just hanging out a shingle" rather than launching a franchise. The offer of corporate support changed his mind.

Although LaBrada has seen increased competition from rival franchises and independents, he's not concerned.

"Even as we speak, there's plenty of work for everyone," said LaBrada, who employs about 35 caregivers. "And in the next few years, there's going to be exponential growth."

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