Recommendation:
In my opinion Mike Bellobuono should not choose to franchise. If Mike accepts Fred Deluca’s offer and franchises there are some risks that Mike must consider. One of the risks is that Bagelz could end up being an extension of Fred Deluca’s empire and in the worst case scenario Mike could lose control of the whole operation. All employees in Bagelz should have the same guidance and they should be aware of the company’s goals and values. It requires a huge control of the business! If Mike loses control of the business and something goes wrong, it will still be Mike’s responsibility. One bad story could damage the Bagelz reputation like it did with the company Jack-in-the-box. Legal challenges could arise if the relationship between Frank Deluca and Mike results in conflict. Irv, Bagelz’s chief bagel-maker, has two important qualities. He has 20 years experience in the business and he is an innovative person. To have an employee with such knowledge and skills is a huge benefit for the company and it will strength their competitiveness.
Mike appreciates the flexibility of Bagelz’s management. Furthermore Bagelz is quick to spot and react to new market trends and direction and maybe that is one of the reason that Bagelz has got so popular and established seven retail locations in only three years in Connecticut. If Bagelz decides to franchise, the flexibility will be more restricted. To get a new idea through and furthermore to have it accepted will be a longer process under franchising. Mike took over interest in the business in 1991 in the form of a limited partnership. He has already proven that he has the knowledge and skills to run a business. Within a year Mike became full partner in the company. After negotiating for six months they have still not decided whether they should franchise or not. That indicates, that this is not a good idea.
Situation analysis:
In 1992 became Mike Bellobuono a full partner in the Connecticut-based bagel chain named Bagelz. The business team consists of four members in which Mike Bellobuono serves as the director of Bagelz’s operations. Two of the members, Wes Becher and Joe Amodio, are former owners of Bagelz and the last member is Mike’s college friend, Jamie Whalen. They received a partnership offer from Fred Deluca – one of the most successful franchisors in the world. Fred Deluca’s most significant start-up is Subway – a large sandwich franchise. During the negotiating time Subway received a lot of negative publicity regarding the franchisees dissatisfaction and that makes it even harder for Mike to pursue the right decision. The case implies benefits and risks of using franchising.
Problem identification:
Mike and his team must decide whether to continue operating as a company-owned chain or to grow through franchising. If Bagelz continues to operate as a chain store it will constrain the company’s growth rate but franchising will still not be a solution free of difficulties.
Analysis of the problem and alternative courses of action::
Building up a quality brand is very difficult, and by franchising, Bagelz could loose their identity and core values. Franchising could lead to a less quality-oriented product and could end up harming the brand. A Franchise requires strict rules and procedures of the employees, which would lead to less flexibility, less action on market trends and difficulties in maintaining a high standard of operations. There are a lot of rules and legislations Bagelz need to take into consideration before they franchise, and must fill out the Uniform Franchise Offering Circular (UFOC) format to comply with the US Federal Trade Commission (FTC) regulations. It will take a lot of time and resources to make sure that the company complies with those rules. If the franchisee doesn’t comply to the company rules and procedures, that could really harm the company as well as the brand of the company. On the other hand – if franchising was the last option for Bagelz to survive then Fred Deluca is a really good franchisee with lots of qualities. He has large amounts of capital, resources and experience. Through franchising the business will grow more quickly and Bagelz will become competitive in geographical areas it is not currently present.
According to exhibit B, there is a lot of growing potential within the Food-service industry, and according to Exhibit C the average Bagelz store makes a profit of $83,616.00. These important statistics support my theory that Bagelz can survive through an owned chain. If they don’t franchise Mike Bellobuono and his team risk being locked out by the competition but as mentioned in the case Mike decided to invest in Bagelz because he felt that Bagelz had several distinct competitive advantages. An external threat in the future could be the franchise company Bruegger’s Bagel Bakery. The company has units all over New-England and it is one of the 50 fastest growing U.S. restaurants (ranked number 22 on the list). According to exhibit A Bruegger’s Bagels has during 1992 and 1993 established 20 stores and the company has increased the average sales per unit by $75,000. Since Fred Deluca is interested in investing in Bagelz, the franchisor Mike must have proved that the layout and location of the store, the pricing policy, the quality of the goods or service and the overall management system are successful. According to Bagelz’s statistic (exhibit C) the company is doing well financially. An opportunity to get the growth rate increased, Bagelz can extend the stores in Connecticut – e.i. build stores with higher capacity and reach. I recommend Bagelz to be more original and differentiate themselves from Manhattan Bagel and Bruegger’s Bagels to increase the costumer awareness and recognition of the brand. Bagels are still a popular type of bread and it is a good alternative to other menu items like doughnuts and muffins. There is an increasing awareness toward consumer-health – it is becoming a trend and that it is why bagels, a natural, low-fat, high-carbohydrate alternative will stay on the market.
