• 28
  • October
    2011

Earlier this week we began discussing some of the challenges franchises face, looking specifically at how these are playing out for the Atlanta Bread Company. Rapid expansion, combined with franchise litigation and a souring economic environment, led to a significant contraction in the number of locations in last six years.

In the earlier post, we examined a lawsuit between the franchisors and one of their franchisees. The Franchisors claimed that the franchisee had violated the competition clause of the franchise agreement by opening a competing business. The Georgia Supreme Court ruled that the competition clause in the agreement was overbroad and refused to enforce it. Even after a matter like this is resolved, it can pose challenges for a franchise. Investors may worry that it is a systemic problem, and potential franchisees may be less eager to open a new location after seeing this type of complication.

When the current owners of the Atlanta Bread Company took over the business in 1999 they decided to begin a forceful franchising effort to double the number of franchises within a year.

Such ambitious expansion requires a great deal of care and planning. It would be easy to become too focused on the quantity rather than the quality of the growth. Without proper planning new locations may not be sited in the most advantageous location. Rapid expansion can also take the franchisor's focus off of product and service development. Franchises can be victims of their own success.

The Atlanta Bread Franchisors admit that they may have made some missteps. But they feel well positioned for the future. They have greatly increased the number of company owned stores and have added additional staff at the headquarters. They have also worked to remodel and improve their now smaller pool of locations so that each will be more profitable.

Source: The Atlanta Journal Constitution "ATL restaurant franchises cost taxpayers millions," Russell Grantham, Oct. 24, 2011