Polsinelli

The South Dallas Initiative and the Role of Social Franchising

Prepared by Alex Mazero

64510448.17

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TABLE OF CONTENTS Section 1. Business Case for Development of Low-Income/Low-Wealth Communities ........1

Section 2. The Business Format Franchise Business Model ....................................................3

Business Format Franchise Model Structures ...............................................4

Direct Franchise Relationship /Agreement: ..................................................4

Area Development Relationship /Agreement: ..............................................4

Master Franchise Relationship /Agreement and Subfranchise Relationship/Agreement:...............................................................................5

Area Representative Relationship/Agreement: .............................................6

Key Elements Of Successful Franchise Relationship ...................................7

Section 3. Examining the Business Case for Using the Franchise Model in Low-Income Communities..........................................................................................................15

A. Government and Related Non-Profit Social Franchise Case Studies ....................15

1. The Hollowell Parkway Corridor – Georgia Institute of Technology .........15

Hollowell Case Study No. 1: Save-A-Lot ...................................................17

Hollowell Case Study No. 2: Pearle Vision Optical Wear..........................18

Hollowell Case Study No. 3: Freshii...........................................................19

Hollowell Case Study No. 4: PostNet .........................................................20

Hollowell Case Study No. 5: Habitat For Humanity - Restore ...................21

Hollowell Case Study No. 6: Club Entrepreneur ........................................22

2. Metropolitan Government: City of Boston Neighborhood Restaurant Initiative.......................................................................................................23

B. Various Franchisor – Implemented Social Franchise Case Studies......................24

Case Study No 1: The Chick-Fil-A Model..................................................24

Case Study No. 2: B. Good, a Boston-Based Burger and Sandwich Regional Franchise Network .......................................................................25

Case Study No. 3: Stevi B’s Pizza .............................................................26

Case Study No. 4: Domino’s “Deliver the Dream Program”.....................26

Case Study No. 5: Goin Postal: Shipping and Receiving/Business Services27

Section 4. Using a Franchise Strategy to Support Local Economic Development – Required Investigation and Analysis ..................................................................27

A Checklist for Evaluating the Market for Franchised Services:................30

Evaluating Location and Sites:....................................................................30

Evaluating a Franchise: ...............................................................................31

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Section 5. Business Case for Using the Franchise Model to Address Needed Economic Development/Proposed Franchise Models for the South Dallas Initiative............32

Section 6. Engagement of the Impact Investor .......................................................................36

Section 7. Conclusion .............................................................................................................37

Overview and Purpose Thriving small businesses are indispensable ingredients for thriving local business communities – creating jobs for residents and importantly, fostering business equity and intergenerational wealth for the successful business owner, resulting in enhanced positive externalities for the local community such as civic engagement, financial literacy, and control over neighborhood development1.

There are several ways to foster development of small businesses. Independent businesspeople of diverse backgrounds and educational and financial abilities start businesses using their own resources and those available through government, educational and financial agencies and institutions. Some of these businesses are started fresh and some are products of converted existing businesses. Typically such businesses are created one at a time, without scaling, and without reaching additional markets and consumers.

The franchise model, on the other hand, provides independent businesspeople the opportunity to operate their own businesses under an established brand and operating system with high scaling ability.

This paper will evaluate how the franchise model may be best adapted for use in bringing economic benefits to low-income communities by examining the following topics:

1. Business Case for Development of Low-Income/Low-Wealth Communities

2. Business Format Franchise Business Model

3. Business Case for Using the Franchise Model in Low-Income/Low-Wealth Communities

4. Investigating Use of a Franchise Strategy to Support Local Economic Development –

Required Investigation and Analysis 5. Business Case for Using the Franchise Model to Address Needed Economic Development/

Proposed Franchise Models for the South Dallas Initiative Section 1. Business Case for Development of Low-Income/Low-Wealth Communities

The positive dynamics of such a thriving local business community is missing from

inner-city low-income communities in which a declining economy escalates the lack of reliable health, education, food and transportation services. While community service centers, libraries, and educational groups compensate by offering various services, even the most basic business services such as high quality printing and high-speed internet are rarely available on consistent basis2. While the national unemployment rate continues to remain under four percent there are

1 Dr. Nancey Green Leigh, et. al, Nine Franchises for the Hollowell Parkway Corridor (2016). 2 Michael H. Seid & Joyce Mazero, Franchise Management for Dummies 14 (2017).

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still staggering challenges particularly those “pockets of persistently high unemployment” that plague lower income and minority communities3.

Foundational to the economic development of low-income communities is the creation,

promotion, and sustainability of small businesses and small business capital4. Small businesses present a significant driver for the building of assets leading to the alleviation of poverty, increasing household income, and the reduction of government assistance5. The majority of low- income communities are within close proximity to central business districts, offering the emerging economic opportunities that lower income residents seek. Although geographically proximate, existing and aspiring business operators in low- income communities often lack sufficient access to business development assistance services and capital even though they may have the skills and business knowledge to develop a successful business6. Moreover, minority groups such as African Americans and Hispanics lack the access to bank loans, inheritances, and large gifts that their Caucasian counterparts may have7.

Across the United States, low-income communities possess significant buying power.

However, the majority of that buying power is spent in locations outside those low-income communities. For example, in 2003, eight million households in inner-city markets held $85 billion in annual buying power, or seven percent of total national annual retail spending8. Further, it was estimated that 25% of low-income communities’ demand was not being satisfied, driving residents outside the local community to spend their money on businesses that met that demand.

A franchise development strategy could be used to address a substantial amount of

a calculated $28 billion in unmet retail consumption in low-income communities. Adjusted for inflation, this number would be equivalent to nearly $40 billion today9. To evaluate the potential of such a strategy, the next section of this paper describes the franchise model in a for–profit product distribution environment and in a for–profit services environment, otherwise known as business format franchising.

According to the 2018 Franchise Business Outlook report, franchise industry expansion is

set to grow for the eighth consecutive year. The number of franchised establishments will rise 1.9 percent to 759,000 locations after increasing 1.6 percent in 2017, while employment through franchised businesses will increase 3.7 percent to 8.1 million workers after growing 3.1 percent

3 Federal Reserve Chief Janet Yellen: “While the job market for the United States as a whole has improved markedly since the depths of the financial crisis, the persistently higher unemployment rates in low-income and minority communities show why workforce development is so essential.” 4 Signe-Mary McKernan, et. al., Less Than Equal: Racial Disparities in Wealth Accumulation (2013). 5 Clark, P., Kays, A., Zandniapour, L., Soto, E., & Doyle, K. (n.d.), Microenterprise and the Poor: Findings from the Self-Employment Learning Project Five Year Study of Microentrepreneurs Economic Opportunities Program: The Aspen Institute (2011). 6 Id. 7 Signe-Mary McKernan, et. al., Less Than Equal: Racial Disparities in Wealth Accumulation (2013) 8 Brian E. Thomas, Utilizing the Franchise Business Model as a Tool for Sustainable Local Economic Development (SLED) in Low-Wealth Urban Business Districts: Recommendations for the Local Economic Developer’s Toolbox (Spring, 2015). 9Id.

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in 2017. Overall, franchised business output is also forecasted to increase 6.2 percent to $757 billion10.

Section 2. The Business Format Franchise Business Model

A. Terms of the Franchise Relationship

A franchise typically involves the granting by one party (a franchisor) to another party (a

franchisee) the right to utilize a particular name or trademark to operate a business pursuant to a system at a location or within a specific geographic territory for an agreed upon time period. As part of the rights granted, the franchisee typically will have the right to use the franchisor’s trademark, software, operating systems, marketing materials, and other proprietary tools and business systems in accordance with the franchisor’s standards and specifications prescribed in the franchise agreement between the parties, the franchisor’s operations manual, and in on-going training provided by the franchisor. Sometimes known as business format franchising, the system typically includes site selection assistance, design and construction specifications, pricing recommendations, grand opening advertising plans, on-going training, point of sale computer systems, and financial, bookkeeping, and accounting systems. In exchange, a franchisee typically pays the franchisor an upfront franchise fee, ongoing royalties, and related fees11. The terms and conditions supporting the foregoing are set forth in the franchise agreement that each party must agree upon12.

The terms and conditions of most franchise relationships are based upon the elements

described above and made part of a written franchise agreement. There is no standardized format for a franchise agreement because the terms and conditions will vary depending on the type of business being franchised; however, in general, franchise agreements include the following key elements13:

· License to use the brand name, trademarks and other logos and identifying symbols for a period of years

· Access to approved signage, equipment, supplies, software and business tools · Access to approved design, architectural, construction plans, and marketing and

advertising plans · Access to initial and refresher training · Standards of operation including for all products and services offered · An assigned geographical area or territory in which the franchisor agrees not to

develop another unit · Payment of a franchise fee, royalties, and other fees · Renewal rights for an additional term of years · Default events and remedies for default including termination rights · Transfer restrictions on the sale of the franchised business

10 Lisa J. Servon, Microenterprise Development in the United States: Current Challenges and New Directions (2006). 11 Michael H. Seid & Joyce Mazero, Franchise Management for Dummies (2017). 12 Franchise Rule, 16 C.F.R § 436.1 (g) (2007). The Federal Trade Commission defines a franchise agreement by referencing three specific elements -- the “trademark element,” the “significant control or assistance element,” and the “required payment element. 13 Michael H. Seid & Joyce Mazero, Franchise Management for Dummies (2017).

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B. Franchise Model Structures

A franchise agreement is one of the pivotal agreements operative in the franchise model. The franchise model can be reflected in several different types of arrangements. The following are key elements of the various structures utilized to implement the franchise model.

Business Format Franchise Model Structures14

Direct Franchise Relationship /Agreement:

The direct franchise agreement involves:

1. Grant by the franchisor of rights to the franchisee to operate a franchised business under the franchisor’s brand and operating system.

2. Payment of a franchise fee and ongoing royalties in consideration of franchisor’s grant of franchise rights.

Area Development Relationship /Agreement:

An area development agreement involves:

3. Grant by the franchisor to developer of rights to develop multiple franchised businesses in a specific geographic territory pursuant to an agreed upon development schedule.

4. Franchisee’s ( as Developer) commitment to develop franchised businesses pursuant to a franchise agreement for each such unit.

5. Payment of a development fee by franchisee to franchisor in consideration of the franchisor‘s deferral of its exercise of its rights to operate the franchised businesses in the territory; in this case, all or some part of the development fee may be credited to any franchise fee due under the franchise agreements applicable to the franchised businesses.

Franchisor

Development Agreement

Single-Unit Franchises

Franchisee Franchisee

14 Michael H. Seid & Joyce Mazero, Franchise Management for Dummies (2017).

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Master Franchise Relationship /Agreement and Subfranchise Relationship/Agreement: A master franchise agreement involves:

1. Grant by the franchisor to a master franchisee of rights to develop franchised businesses and to grant sub-franchisees the right to operate franchised businesses in a specific geographic territory pursuant to an agreed upon development schedule.

2. Master Franchisee and each sub-franchisee commits to develop franchised businesses pursuant to a franchise/sub-franchise agreement for each such unit.

3. Payment of a master franchise fee by the master franchisee to franchisor which may be paid solely for the franchisor’s deferral of the exercise of its rights to operate the franchised businesses in the territory; in this case, all or some part of the master franchise fee may be credited to any franchise or sub-franchise fee due under the franchise agreements applicable to the franchised businesses. This arrangement contemplates that the master franchisee pays a percentage of the franchise fee and royalties accruing under each sub-franchise agreement entered into between the master franchisee and sub-franchisee and if applicable, the franchisor (as a direct party or third party beneficiary).

Franchisor

Master Franchisee

Single-Unit Franchises

Subfranchisees

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Area Representative Relationship/Agreement: An area representative agreement involves:

1. Grant by the franchisor of rights to the area representative to find and recruit prospective franchisees to operate multiple franchised businesses and to provide services to such franchisees in a specific geographic territory pursuant to an agreed upon schedule.

2. Area representative’s commitment to find, recruit and service franchisees operating a franchised business pursuant to a franchise agreement entered into with the franchisor for each such unit.

3. Payment of a franchise fee for each franchised business operated by the area representative; and payment by franchisor to the area representative of a percentage of each franchise fee and a percentage of the royalties accruing under each franchise agreement executed by each franchisee that the area representative finds, recruits and services.

Franchisor

Area Representative

Agreement

Area Representative

Single- or Multi-Unit Agreement

Solicitation And Support

Single-Unit or Multi-Unit Franchisees

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Moving from the traditional business format franchise model, the following chart identifies key elements of a successful business format franchise relationship, noting with an * points that will need some additional specific consideration in a social franchise context.

C. Key Elements Of Successful Franchise Relationship

ELEMENT COMMENTS

A proven prototype site/ location A system that has undergone testing to ensure replication for the incoming franchise. Site selection assistance will vary across franchisors, with some having in-house or outsourced mandatory/optional services at costs.*

An experienced management team Individuals with relevant and impactful experience and knowledge of the industry, which is key to addressing the gaps in training and education of local operators.*

Sufficient capitalization and funding Funds to create and maintain the franchise system, including initial and on-going support to the franchisee; capitalization and funding of unit operations will not likely come from franchisors.*

Distinctive and valuable brand identity Representation, identity and image of the brand. Franchisors normally have grand opening and national/regional/local marketing campaigns to promote the brand that generally benefit units across the system. Local franchisees do expend significant time/dollars on local ads, marketing and PR. Some services will need to be outsourced at an additional cost.*

Propriety and proven developmental, and operational methods, techniques and systems

Comprehensive initial, refresher and ongoing training programs franchisees

Franchisor’s standards, specifications, and guidelines for development and operation of franchised businesses. These standards and applicable implementation training are key drivers for the successful operation of unit. Local operators will likely need intensified training and field assistance.* Sessions that educate franchisees about development, management, and operations business. Such training may result in additional costs to the local operator.*

Field support staff Assist franchisees at the unit, online, and in training sessions. Overseeing/inspecting unit operations. Such assistance could result in additional costs to the local operator.*

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Set of comprehensive legal documents Binding documents that detail the terms and conditions of the franchisor-franchisee relationship.

Established impact and market demand for products and services

Site selection criteria and design, architecture, and construction standards

The franchise system’s role in the market, including established minimum performance standards across all franchised units to preserve and enhance market demand. Standards that make the process of site selection and procurement efficient and affordable. See comments above. These are additional costs for the local operator, but franchisors normally have prototypical plans, designs and drawing that can be modified.*

A genuine understanding of the competition Being aware of needed and available improvements and changes in products and services and their impact on the franchise system. Maintaining a culture of innovation is a key driver for a successful franchise model.

Relationships with involved parties Understanding and balancing the role of liaison to resources made available to franchisees by outsourced vendors or internal departments.

Franchisee candidate profile and screening methodology

Effective and efficient system of reporting and record keeping Research and development capabilities including point of sale system and related technology.

Selection criteria for selecting/awarding a franchise to a franchisee possessing required skills specific to the franchised business. Documentation of the monetary exchanges. Scaling customer reach of products and services. Local operator will typically obtain required technology and there will be initial and on-going costs to maintain.*

Communication systems Understanding of franchise system standards,

specifications, and methods, and mechanisms to obtain franchisees’ feedback and monitor compliance.

National, regional and local advertising, marketing and public relations programs

Promoting the brand and related products and services to the market to attract prospective franchisees and/or consumers. The local operator will bear the costs for advertising/marketing.*

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D. Selected Initial and Ongoing Investment The following are examples of the initial investment and categories of expenses for operating under the franchise model found in Item 7 of the FTC Rule-prescribed franchise disclosure document and a description of the franchisor’s advertising, marketing, training and technology requirements in Item 11 of the franchise disclosure document15.

The following sample chart of initial investment costs ( excluding footnotes ) in a typical franchise (here, a quick service food franchise) and the description of training, advertising and technology elements of such a typical franchise are illustrative of the costs the local operator will incur apart from initial franchise fees or ongoing royalty payments. Capitalization and ongoing funding to satisfy the required expenditures are pivotal to the successful implementation of the franchise model in the social franchise context. Again an * has been inserted wherever a need exists for adjusting how the local operator in a social franchise model deals with the costs and/or additional liabilities.

(SAMPLE)ITEM7

ESTIMATEDINITIALINVESTMENT

YOURESTIMATEDINITIALINVESTMENT

TypeofExpenditure

Amount(LowRange)

Amount(HighRange)

MethodOfPaymentWhenDue

Upon

ToWhomPaymentistobeMade

InitialFranchiseFee*$$Lumpsum signingFranchiseUsAgreement

RealEstateLeasingDeposits$$

Construction,SpecializedLabor,

Monthly,asIncurredAsarranged

Progress

Landlordorlandowner General

Signage&TenantImprovement

Reimbursement*Project

$$Asincurred paymentsduring

construction

Payment

contractorsandsuppliers

Managementfee$$Asincurred

Fixtures,Furniture,Equipment,Smallwares,Electronics,

termswithsuppliers

Payment

Suppliers

Computer/OfficeEquipment&Shipping*

$$Lumpsum termswithsuppliers

Suppliers

ProfessionalFees$$AsIncurredAsIncurred

ServiceProviders;

ArchitectsorEngineers;GovernmentAgencies

15 Franchise Rule, 16 C.F.R § 436 (2007).

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OpeningInventory

GrandOpening

$$AsIncurred

Paymenttermswithsuppliers

Suppliers

MarketingandPromotion*

$$AsincurredAsincurredUsandSuppliers

Insurance$$AsincurredAsincurredInsuranceproviders

InitialTraining

Expenses$$Asincurred

BusinessLicensesand

Paymenttermswithsuppliers

andemployees

Us,Suppliersandemployees

Government

Permits*$$AsincurredAsIncurredUtilityandSecurity

Agencies

Deposits*$$AsArranged

AdditionalFunds

AsArrangedAsNegotiated

Us,suppliers,

(threemonths)$$AsincurredAsincurred

TOTALESTIMATEDINITIALINVESTMENT$$

employeesandothercreditors

(SAMPLE)ITEM11FRANCHISOR’SASSISTANCE,ADVERTISING,COMPUTERSYSTEMS,ANDTRAINING

Exceptaslistedbelow,[franchisor]isnotrequiredtoprovideyouwithanyassistance.

Pre-openingObligations

Beforeyouopenyourfranchisedbusiness:

(2)Wewillprovide,atnochargetoyou,apreliminaryfloorplanoftheinteriorofthespaceshowing

fixtures,equipmentandfurnishings.Wewillalsoprovideyouwithcertainsiteselectionandleasereviewassistance.

(3)WewillprovidetoyouandyourTrainedPersonnel(definedbelow),ourstandardmanagementcertificationtrainingprogramatalocationthatwedesignate,whichmaybeatyourFranchisedBusinesslocation.Periodicallywewillprovideongoingtraining.(TrainingisalsodiscussedbelowinthisItem11underthesubheading“Training.”).

(4)Wewillprovidearepresentativetobepresentattheopeningofyourfranchisedbusiness.

(5)Wewilllendyou,forthedurationoftheFranchiseAgreement,onecopyoftheManual(whichis

morefullydescribedinItem14below).TheTableofContentsoftheManualisattachedasanExhibit.The[date]versionofourManualhas[#]pages.

(6)WewillassistyouindevelopingtheGrandOpeningMarketingProgram(whichismorefully

describedbelowinthisItem11underthesubheading“Marketing”);youwillberesponsibleforthecostofthisprogram.

(7)Wehavetherighttoinspectandapproveyourfranchisedbusinessforopeningbeforetheinitialopening.YoumaynotstartoperationofyourFranchisedBusinessuntilyoureceiveourapprovaltodoso.

ContinuingObligations

Duringtheoperationofyourfranchisedbusiness:

(1)WewilladministertheBrandFundand/orMarketCo-opFundasstatedintheFranchise

AgreementandasbelowinthisItem11underthesubheading“Marketing”.

(2)WewillgiveyouperiodicandcontinuingadvisoryassistanceastotheoperationandpromotionofyourFranchisedBusiness,aswedeemadvisable.

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(3)WemayconductongoingtrainingprogramsifwethinkyourFranchisedBusinesswillbenefitfromsuchtraining.

SiteSelection

IfwehavenotacceptedasiteforyourFranchisedBusinesswhenyousigntheFranchiseAgreement,youmust

obtainouracceptanceofasiteandacquireapossessoryorleaseholdinterestinthesitewithin[#][days][months]aftertheEffectiveDateoftheFranchiseAgreement(“SiteAcceptanceDeadline”).YoumustdevelopyourFranchisedBusinessandhaveitopenandinoperationwithin[#][days][months]afterthelateroftheEffectiveDateoftheFranchiseAgreementorthedatethatweacceptthePremisesfortheFranchisedBusiness(“OpeningDeadline”).WemayterminatetheFranchiseAgreementandretainyourinitialfranchisefeeifyoufailtomeettheSiteAcceptanceDeadlineortheOpeningDeadline.

Youmustsubmitatleastonesitetousforourreviewwithinthefirst[#][days][months]aftersigningthe

FranchiseAgreement.Wewillprovideyouwithoursiteselectionguidelines,includingourminimumstandardsforasiteforaFranchisedBusiness,andsuchsiteselectioncounselingandassistanceaswemaydeemadvisable.Wewillperformsuchonsiteevaluationsaswemaydeemadvisableinresponsetoyourrequestsforsiteapproval;provided,however,thatwewillnotprovideon site evaluation forany proposedsite before wehave receivedfromyoua completedsiteacceptanceformforthesite.

Youmustsubmittous,intheformwespecify,acopyofthesiteplanandsuchothermaterialsorinformation

thatwemayrequire,togetherwithanoptioncontract,letterofintent,orotherevidencesatisfactorytous,whichconfirmsyourfavorableprospectsforobtainingthesite.Wewillhave[#]daysfollowingreceiptofthisinformationandmaterialsfromyoutoacceptorrejecttheproposedsite.Ifwedonotacceptaproposedsitebywrittennoticetoyouwithinthis[#]dayperiod,thenwewillbedeemedtohaverejectedthesite.

WhenconsideringasiteforaFranchisedBusiness,weconsiderfactorssuchasgenerallocationand

neighborhood;pedestriantrafficvolumeandpatterns;demographics,includingdaytimepopulation;psychographics;automobiletrafficpatterns,volume,andspeed;sizeandeaseofaccesstotheproposedsite;locationofthesiteinrelationtoothercomplimentaryretailbusinesses;availabilityofutilities;theproposedleaseorsublease;ingressandegress;utilities;andzoningissues.Wewillmakeoursite-selectioncriteriaavailabletoyouuponrequest.

IfyouproposetopurchasethesitefortheFranchisedBusiness,youmustprovideuswithacopyofthedeedor

otherevidenceofownershipwithin[#]daysafterweapprovethesite(the“SiteAcquisitionPeriod”).Ifyouproposetoleaseorsubleasethesite,youmustprovideuswithacopyofthefully-executedleaseorsubleaseforthesite(“Lease”)withintheSiteAcquisitionPeriod.WehavetherighttoreviewthetermsoftheLeaseforthePremises.TheLeasemust:(1)informandsubstance,besatisfactorytous;(2)includealloftheprovisionssetforthintheformofLeaseAddendumattachedtotheFranchiseAgreementasExhibit[#];(3)beforanaggregatetermof(atleast)[#]yearsinacombinationofinitialandrenewalterms;(4)containtermsandconditionsandpaymentsthatarecommerciallyreasonableinouropinion;and (5) include any other provisions aswemay require from time to time. Afterwe have accepted the site for yourFranchisedBusiness and you have secured an ownership or leasehold interest in the site, the site shall constitute thePremisesandwewillinsertitsaddressintoExhibit[#]oftheFranchiseAgreement.WealsowilldesignatetheTerritory,asdescribedinItem12below,inExhibit[#]oftheFranchiseAgreement.

WeestimatethatthetimeperiodbetweensigningtheFranchiseAgreementandthestartofoperationsatthe

FranchisedBusinesswillbeapproximately[#]to[#]months.Factorswhichmayaffectthistimeperiodincludeyourabilitytolocateasite,negotiatealease,securefinancing,obtainnecessarypermitsandlicenses,constructorbuild-outfacilitiesfortheFranchisedBusiness,weatherconditions,constructiondelays,andavailabilityoffixtures,equipmentandsupplies.

Training

Ifyouareabusinessentity,youmustdesignateoneofyourprincipalswithanownershipinterestandwhowe

havepreviouslyapprovedtoserveasyour“Representative”.TheRepresentativemusthaveatleasta[%]equityinterestinthefranchiseeentity.BeforeopeningtheFranchisedBusiness,yourRepresentativemustattendandsuccessfullycomplete,tooursatisfaction,ourtwo-dayownerorientationprogram.Wewillholdtheownerorientationprogramonanasneededbasisin[location]atourhomeofficesorcompanyownedFranchisedBusiness.Wewillbearthecostoftheownerorientationprogram(instructionandrequiredmaterials)fortrainingyourRepresentative.Youwillbearallotherexpensesincurred in having the Representative attend the owner orientation program, such as the costs oftransportation,lodging,meals,wages,andworker’scompensationinsurance.

BeforeyouopentheFranchisedBusiness,yourRepresentative,yourfull-timegeneralmanager(the

“FranchisedBusinessManager”),andyourfull-timeKitchenManagermustattendandsuccessfullycomplete,tooursatisfaction,our[#]weekmanagementcertificationtrainingprogram.YourRepresentativemayalsoserveasyourFranchisedBusinessManagersolongastheywillbephysicallyon-siteandactivelymanagingyourFranchisedBusinessonafull-timebasis.YourFranchisedBusinessmustatalltimesbeundertheactivefull-timemanagementofeitheryourSpokesperson,yourFranchisedBusinessManageroryourKitchenManager,allofwhomhavesuccessfullycompletedthemanagementtrainingprogramtooursatisfaction.YoumustmeetalltrainingandcertificationrequirementsbeforeyourFranchisedBusinessopens.

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IfeitheryourRepresentative,FranchisedBusinessManagerorKitchenManager(collectively,the“TrainedPersonnel”)ceaseactivemanagementoremploymentatyourFranchisedBusiness,youarerequiredtohireaqualified,full-timemanagementreplacement(whomustbereasonablyacceptabletous)within[#]daysaftertheendoftheformerperson’sfull-timeemploymentormanagementresponsibilities.Thereplacementmanagermustsuccessfullycomplete,tooursatisfaction,ourmanagementcertificationtrainingprogramwithin[#]daysoftheirhiredateordatetheyactivelybeginservinginamanagementcapacity.

Wemayrequirethatany,orall,oftheTrainedPersonnelattendorcompleterefreshercourses,seminars,and

otheradditionaltrainingprogramsaswedeemappropriate.

Wewillholdthemanagementcertificationtrainingprogrameitheratour[location]homeofficelocationorataFranchisedBusinessofourchoosing,frequentlyaswedetermineitappropriate.Wewillbearthecostofthemanagementtrainingprogram(instructionandrequiredmaterials)fortrainingyourTrainedPersonnel;howeveryouwillbearallotherexpensesincurredsuchasthecostsoftransportation,lodging,meals,wages,andworker’scompensationinsurance.

Ifyourequestthatweprovideadditionalfieldsupporttraining,orifwedeemthatadditionalfieldsupport

trainingisnecessary,youwillpayusourthen-currentfieldsupportperdiemchargesaswellasanyout-of-pockettrainingexpenses.Ourcurrentfieldsupportperdiemchargesare[$]perdayandaresubjecttoa[#]dayminimum.

Additionaltrainingmaterialswillbeprovidedtoyouperiodicallybyelectronicmeans,atwhichtimeyouwill

bearthecostofprintingandlamination.

BeforeyouopenyourFranchisedBusiness,youarerequiredtohaveasufficientnumberofadequatelytrainedstaff.Wemayrequireyouremployeestoenrollinweb-basedtrainingprogramsforwhichtheremaybeafeeperemployee.Ifrequired,youmustpaythefeesforsuchtrainingassetforthintheManual.

Thesubjectscoveredinthemanagementtrainingprogramaredescribedbelow.

Theinstructionalmaterialsusedinourtrainingprogramsincludethe[descriptionofmanualsandmaterials]

andseveralsupportingdocumentsandreferencematerialsonallsubjectscovered.

WewillprovideatleastonerepresentativetobepresentattheopeningoftheFranchisedBusinessforaperiodof[#]days.Wewillprovidesuchadditionalon-sitepre-openingandopeningsupervisionandassistanceaswedeemadvisable.

Marketing

Youmustcontribute[%]ofyourGrossSalestotheBrandFundevery[week][month].Youalsomustsetaside

[%]ofyourweeklyGrossSalesandspendthatamountonanannualbasisforlocalmarketingandpromotion.Followingwrittennoticetoyou,wemayincreaseyourmarketingobligationandreallocatethemarketingobligationamongtheBrandFund,aMarketCo-opFundand/oryourlocalmarketingandpromotionalexpenditures,eachofwhichisdescribedbelow.Yourmarketingobligationwillnotexceed[%]oftheGrossSales.

TheBrandFund

WehaveestablishedtheBrandFundfortheSystem.TheBrandFund,allcontributionstoandearningsfromthe

Brand Fund,will be used only (except as otherwise provided below) tomeet the costs ofmaintaining, administering,directing,creating,conducting,andpreparingmarketing,marketing,publicrelationsandpromotionalprogramsandmaterials,engagingmediaplacementagencies,andconductinganyotheractivitiesthatwebelievewillenhancetheimageoftheSystem.Thisincludes,amongotherthings,thecostsofpreparingandconductingmediamarketingcampaigns;directmailmarketing;marketingresearch;publicrelationsactivities;developingandmaintainingourwebsite(except for theportion, ifany, specifically forsoliciting franchisees);employingmarketingorpublic relationsagencies;purchasingpromotionalitems,conductingandadministeringvisualmerchandising,pointofsale,andothermerchandisingprograms;andprovidingpromotionalandothermarketingmaterialsandservicestotheFranchisedBusinessoperatedundertheSystem.WemayalsousetheBrandFundtoproviderebatesorreimbursementstofranchiseesfor localexpendituresonproducts,services,or improvements,thatwehaveapproved inadvance(wewillhavetherighttodeterminewhichexpenditureswillappropriatelypromotegeneralpublicawarenessandfavorablesupportfortheSystem).WewillhavetherighttodecidehowtheBrandFundcreates,places,andpaysformarketing.TheBrandFundmaybeusedtoadvertiseinvariousmediaandvenues(includingprint,radio,email,digitalwebandtelevision)atthelocal,regionalornationallevel.We(orourdesignee,whichmightbeacorporatesubsidiaryoranadvertisingagency)willmaintainandadministertheBrandFund,asfollows:

(1)We(orourdesignee)willdirectallmarketingprograms,withthesolerighttodecidetheconcepts,materials,

andmediausedintheseprogramsandtheplacementandallocationoftheprograms.Thesource(s)formarketingmaterialsusedbytheBrandFundwillbebothin-houseandregionalornationaladvertisingagencies.TheBrandFundisintendedtomaximizegeneralpublicrecognition,acceptance,anduseoftheSystem.Neitherwenorourdesigneewillbeobligatedtomakeexpendituresforyouthatareequivalentorproportionatetoyourcontribution,ortoensurethatanyparticularfranchiseebenefitsdirectlyorproratafromexpendituresbytheBrandFund.

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(2)TheBrandFund,andallcontributionstoandearningsfromtheBrandFund,willbeusedexclusivelytomeetthecostsofmarketingandanyotheractivitiesthatwebelievewillenhancetheSystem’s imageand, inoursolediscretion,promotegeneralpublicawarenessofandfavorablesupportfortheSystem.

(3)YoumustcontributetotheBrandFundbyEFT(electronicfundtransfer)inthesamemannerasyou

payroyaltyfees.AllsumsyoupaytotheBrandFundwillbemaintainedinanaccountseparatefromourothermonies.Thecontributionsmaybedeemedanassetofours,subjecttoourobligationtospendthecontributionsasrequiredbytheFranchiseAgreement.

(4)WewillhavetherighttochargetheBrandFundforthereasonableadministrativecostsandoverheadthatwe

incurinactivitiesreasonablyrelatedtothedirectionandimplementationoftheBrandFundandmarketingprogramsforyouandtheSystem(forexample,costsofpersonnelforcreatingandimplementing,associatedoverhead,marketing,merchandising,promotionalandmarketingprograms).TheBrandFundanditsearningswillnototherwiseinuretoourbenefitorbeusedtosolicitthesaleoffranchises.WeorourdesigneewillmaintainseparatebookkeepingaccountsfortheBrandFund.WedonotcurrentlyprepareanannualauditedfinancialstatementfortheBrandFund,butwemaydosointhefuture.

(5)AlthoughtheBrandFundisintendedtobeofperpetualduration,wemaintaintherighttoterminate

theBrandFund.TheBrandFundwillnotbeterminated,however,untilallmoniesintheBrandFundhavebeenspentformarketingorpromotionalpurposes,oruntiltherearenolongeranyfranchiseesintheSystem.TheunitsoperatedbyusandouraffiliateswillcontributetotheBrandFundtotheextenttherearecorrespondingfranchisedbusinessesthatcontributetotheBrandFund.Thosecompany-ownedunitsthatcontributetotheBrandFundwilldosoonanequalbasis.

AstatementoftheBrandFund’soperations,asshownonourbooks,willbepreparedannually,and

thatstatementwillbemadeavailabletoyouuponwrittenrequesttoourChiefFinancialOfficer.Wehavenotformedamarketingcouncilorotheradvisorybodycomposedoffranchiseestoassistusonmarketingpolicies,butwereservetherighttodosointhefuture.Wearenotrequiredtospendanyparticularamountonmarketingintheareawhereyourfranchisedbusinessislocated.Asalsodescribedbelow,ifamountsareunspentintheBrandFundatfiscalyearend,thoseamountswillbecarriedoverbytheFundforexpenditureinthefollowingyear(s).Inourfiscalyear[year],wespentBrandFundcontributionsasfollows:

Advertising,MarketingandPRfees:[%]

AdvertisingandMarketingMaterials:[%]

CorporateLaborReimbursement:[%]

MembershipandDomainDues:[%]

Shipping&MailingCost:[%]

MarketCo-opFund

Wewillhavetheright,asweseefit,toestablishaMarketCo-opFundforyourregion.ThepurposeofaMarketCo-opFundistoconductadvertisingcampaignsforthefranchisedunitslocatedinthatregion.IfaMarketCo-opFundforthegeographicareainwhichyourfranchisedbusinessislocatedhasbeenestablishedatthetimeyoustarttooperateundertheFranchiseAgreement,youwillimmediatelybecomeamemberofthatMarketCo-opFund.IfaMarketCoopFundforthegeographicareainwhichyourfranchisedbusinessislocatedisestablishedduringthetermoftheFranchiseAgreement,youwillbecomeamemberofthatMarketCo-opFundwithin[#]daysafterthedateonwhichtheMarketCo-opFundbeginsoperation.YouwillnotberequiredtocontributetomorethanoneMarketCo-opFund.

ThefollowingprovisionswillapplytoeachMarketCo-opFund(ifandwhenorganized):

(1)MarketCo-opFundswillbeestablishedintheformandmannerthatwehaveapprovedinadvance.

(2)MarketCo-opFundswillbefortheexclusivepurposeofexecutingregionalandmarket-wideadvertising

programsanddeveloping(subjecttoourapproval)standardizedpromotionalmaterialsforusebythemembersinlocaladvertisingandpromotion.

(3)MarketCo-opFundsmaynotuseadvertising,promotionalplans,ormaterialswithoutourpriorwritten

approval,asdescribedbelow.

(4)YoumustmakeanyrequiredcontributionstoaMarketCo-opFundaccordingtotheallocationoftheWeeklyMarketingObligation,asdescribedabove.

(5)AlthougheachMarketCo-opFundisintendedtobeofperpetualduration,wemaintaintherighttoterminate

anyMarketCo-opFund.AMarketCo-opFundwillnotbeterminated,however,untilallmoniesinthatMarketCo-opFundhavebeenexpendedforadvertisingorpromotionalpurposes.IfallFranchisedBusinesscontributingtoaMarketCo-opFundareclosed,anybalanceremaininginthatMarketCo-opFundwillbetransferredtotheBrandFund.

(6)WehavetherighttochangeormergeanyMarketCo-opFunds.

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LocalMarketing

Youmustsetaside[%]oftheweeklyGrossSales ofthe FranchisedBusinessandspendthatamountonanannualbasisforlocalmarketingandpromotion.Youmustreportyourlocalmarketingexpenditurestousonaquarterlybasis.Ifyoudonotmaketherequiredexpendituresonanannualbasis,wemaycollectthefundsfromyouandcontribute the funds to theBrandFundorspendsuch fundsonyourbehalf for localmarketingandpromotion inyourTerritory.

Certaincriteriawillapplytoanylocalstoremarketingthatyouconduct.Allofyourlocalstoremarketingmust

bedignified,mustconformtoourstandardsandrequirements,andmustbeconductedinthemedia,type,andformatthatwehaveapproved.Youmaynotuseanymarketingorpromotionalplansthatwehavenotapprovedinwriting.Youmustsubmittoussamplesofallproposedplansandmaterials(unless,withintheprevioussixmonths,wepreparedoralreadyapprovedtheplansormaterials).Wewillordinarilyprovideyouwithourresponse(whetherapprovalordisapproval)totheproposedplansormaterialswithinsevendays;butifwedonotgiveourapprovalwithinfourteendays,wewillhavebeendeemedtodisapprovetheplansormaterials.

Youmustspendat least[$]onlocalstoremarketingconductedforyour FranchisedBusinessgrandopening

marketingprogram(the“GrandOpeningMarketingProgram”),accordingtoourspecificationsforthatprogram.YoumustcompletetheGrandOpeningMarketingProgramnolaterthan[#]daysafteryourFranchisedBusinessfirstopensforbusiness.AllmaterialsusedintheGrandOpeningMarketingProgramwillbesubjecttoourpriorwrittenapproval,asdescribedabove.TheGrandOpeningMarketingProgramisconsidered“localmarketing”andisthereforesubjecttotherestrictionsdescribedbelow.WewillworkwithyoutotailoryourGrandOpeningMarketingProgramtoyourmarket.WereservetherighttorequireyoutodepositwithusthefundsfortheGrandOpeningMarketingProgramsothatwemaydistributethefundsfortheGrandOpeningMarketingProgram,andifso,andfundsnotspentwithin[#]daysafteryourFranchisedBusinessopeningwillbedepositedintheBrandFund.

InadditiontotheplansandpromotionsthatweotherwiseprovidetoyouundertheFranchiseAgreement,we

willperiodicallymakeavailabletoyou,forpurchase,certainmarketingplansandpromotionalmaterialsforyouruseinlocalstoremarketing.

Theterm“localmarketing”referstoonlythedirectcostsofpurchasingandproducingmarketingmaterials

(suchascamera-readymarketingandpointofsalematerials),media(spaceortime),promotion,andyourdirectout-of-pocketexpensesrelatedtocostsofmarketingandsalespromotioninyourlocalmarketorarea.Localmarketingalsoincludesassociatedadvertisingagencyfeesandexpenses,postage,shipping,telephone,andphotocopyingcosts.“Marketingandsalespromotion”doesnot,however,includeanyofthefollowing:

(1)Salaries,incentivesordiscountsofferedtoyouremployees,andyouremployeesexpenses;

(2)Charitable,political,orothercontributionsordonations;

(3)Thevalueofdiscountsgiventoconsumers;and

(4)Thecostoffood,beverageandmerchandiseitems.

OnlineSites (asdefinedbelow)areconsidered“marketing”under theFranchiseAgreement,andaresubject(amongotherthings)toourreviewandpriorwrittenapprovalbeforetheymaybeused(asdescribedabove).AsusedintheFranchiseAgreement,theterm“OnlineSite”meansoneormorerelateddocuments,designs,pages,orothercommunicationsthatcanbeaccessedthroughelectronicmeans,including,forexample,theInternet,WorldWideWeb,webpages,microsites, socialnetworkingsites (e.g.,Facebook,Twitter,LinkedIn,YouTube,GooglePlus,Pinterest,etc.),blogs,vlogs,applicationstobeinstalledonmobiledevices(e.g.,iPadorDroidapps),andotherapplications,etc.,andthatreferstotheFranchisedBusiness,Marks,us,ortheSystem.InconnectionwithanyOnlineSite,theFranchiseAgreementprovidesthatyoumaynotestablishanOnlineSite,normayyouoffer,promote,orsellanyproductsorservices,ormakeanyuseoftheMarks,throughtheInternetwithoutourpriorwrittenapproval.Asaconditiontograntingconsent,wewillhavetherighttoestablishanyrequirementthatwedeemappropriate,includingforexamplearequirementthatyouronlypresenceontheInternetwillbethroughoneormorewebpagesthatweestablishonourwebsite.

ElectronicPoint-Of-SaleandComputerSystems

Werequireourfranchiseestobuyanapprovedcomputerhardwareandsoftwarepointofsale(POS)systemand

creditcardprocessingsystem.ThePOSsystemmustuseourapprovedinterface(highspeedtelecommunicationconnection)tocommunicateelectronicallywithourownsystem.Youalsomustpurchaseapersonalcomputerandaprinter.ThecostofpurchasingcomputerhardwareandsoftwareforaFranchisedBusinesswillvaryforeachlocationdependinguponthe location’ssize,styleandconfiguration.EstimatedcostsforthepurchaseofthePOSandcomputersystemsrangefrom[$]to[$].

Wealsorequireyoutopurchase,installandmaintainadigitalmenudisplaysystem,whichdemonstratesthe

offeringsattheFranchisedBusinessandmayincluderequirementsconcerningorganization,graphics,productdescriptions,illustrationsandothermattersrelatedtothemenu.Werecommend,butdonotrequire,thatyoupurchaseandinstallaninventorycontrolsystemandQuickBooksonlinebackofficeaccountsystem.Weestimatethemonthlysubscription fees for thedigitalmenusystem,QuickBooksOnlinebackofficeaccounting system, thePOSSystem,andrelatedsoftwaresystemstorangefrom[$]to[$].Someofthehardwareandsoftwarethatyouwilluseistheproprietary

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propertyofthirdparties.Wehavenotapprovedanyhardwareorsoftwareinplaceofthesesystemsandprograms,althoughwereservetherighttodosointhefuture.Wehavetherighttospecifythebrands,types,makes,andmodelsofspecificcomputingequipment.Youwillhavetoabidebyourrequirementsconcerningthecomputersystem,including:(a)backofficeandpointofsalesystems;(b)systemstostoredata,includingaudioandvideo,aswellassystemstoretrieveandtransmitthatdatabetweenyourFranchisedBusinessandus;(c)securitysystems(physical,electronic,andother);(d)printersandotherperipheraldevices;(e)archive(back-up)systems;(f)internetaccessmode(forexample,yourtelecommunicationsconnection,suchasbroadband)andspeed;and(g)front-of-the-houseWiFiandotherinternetserviceforcustomers.

Wereservetherighttohaveindependentaccesstoyourcomputerandassociatedhardware,digitaldatabases

andsoftwareforthepurposeofdownloadingsalesandotherdata.Thereisnocontractuallimitationonourrighttoreceivethisinformation.Wereservetherighttorequireyoutobringanycomputerhardwareandsoftware,relatedperipheralequipment,communicationssystems,aswellasthePOSsystem,intoconformitywithourthen-currentstandardsfornewFranchisedBusiness.Wehavenoobligationtoassistyou inobtaininghardware,softwareorrelatedservicesandtherearenocontractuallimitsonthefrequencyorcostofyourobligationstoobtaintheseupgrades.(SeeSection[#]oftheFranchiseAgreement.)Wecurrentlyestimatetheannualcostofmaintaining,updating,upgradingyourcomputersystem,andobtainingsupport,tobeapproximately[$]peryear.

Section 3. Examining the Business Case for Using the Franchise Model in Low-Income

Communities

According to the U.S. Small Business Association, in the first year of a newly-established business, approximately half fail, and only one in five businesses make it past their fifth year, which is mostly due to two critical issues: (1) lack of adequate capital and (2) lack of business skills16. Using the franchise model could likely reduce the negative impact of these two issues.

Before agreeing to franchise to a potential franchisee, franchisors need to determine their

target market. In doing so, they take into consideration demographic statistics for the site proposed by the franchisee including population density and relative proximity of that population density to the proposed site, ethnic and cultural disparities (determining what percentage of minorities reside in an area, as well disparities regarding average household income and per capita income) the amount of buying power they should expect, median age of the residents, and importantly, the unemployment rate.

There are numerous examples of case studies ( including the franchise model) in which

the impact of the foregoing indices have been analyzed in connection with the goals of reducing poverty, unemployment, and lack of training and education in a market. However, there is neither credible recorded evidence on how the franchise model has been implemented nor on the economic impact of the model on communities in a market.

The following are the relevant case studies and examples.

A. Government and Related Non-Profit Social Franchise Case Studies

1. The Hollowell Parkway Corridor – Georgia Institute of Technology

In 2016, the Georgia Institute of Technology conducted multiple case studies evaluating

nine potential franchises for the Hollowell Parkway Corridor in Atlanta Georgia. Primary factors for each case study are demographics, service/need gaps, site selection and design, traffic, and transportation.

16 Anderson, R. L., Condon, C., & Dunkelberg, J., Are franchisees “real” entrepreneurs? (1992).

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The Institute took into consideration the state and quality of the surroundings of potential site locations for the forthcoming franchises. The surrounding areas of each potential location had similar characteristics including a poor state of repair and buildings housing independent businesses that primarily sold packaged foods, alcohol, cigarettes, or auto part shops. Identification of local retail and service gaps was a critical factor in determining a suitable franchise to support a local economic development strategy. Restaurants were nearly non- existent with the exception of a few fast food restaurants and ‘mom and pop’ shops. There were also very few chain stores to choose from and multiple sites that held remains of past grocery stores, which were nearly all abandoned and boarded up. They ultimately determined that the Hollowell Parkway Corridor was a ‘food desert’ evidenced by a simple Google Maps search.

The Hollowell study utilized a market survey strategy to determine the needs and local

issues of the community. Specifically, the Hollowell study used a 2010 LCI Study, which held public outreach meetings within a two-year time frame for the purpose of gaining insights from the community and local stakeholders on their views of the needs and local issues of the community. The study included a public design workshop, which included a “Character Preference Survey,” as well as an informal discussion of potential initiatives to revitalize the Hollowell corridor. The study results indicated the community’s desire for a “quality grocery store, restaurants, a farmer’s market, storefront development, and community gathering spaces, among several additional provisions17.” The community’s vision resulted in the incorporation of a town green, retail, restaurants, a grocery store, mixed-income housing, a farmer’s market, public safety office, and post office into plans18.

The Hollowell study designed a checklist for a targeted franchised business to fulfill:

· Something not available or underserved in the community · Something that allows an inexperienced local entrepreneur a chance to succeed · Something that could serve as a catalyst and anchor for more businesses in the

community’s area · Something that could enable a potential healthier lifestyle · Something that provides as many jobs as possible · Something that provides workers the ability to increase their social skills · Something that provides workers the ability to increase their work responsibility

skills · Something accessible by limited means of transportation · Something that can improve access to healthier foods, both geographically

and economically · Something resistant to an economic downturn · Something that can source its inputs locally · Something that can capture buying power passing through the community to

somewhere else

The Institute also believed the size of the site must permit a sizeable parking lot, predicting that using such a site would allow a multitude of new franchises to create a new

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17 LCI Study, 2010, 62-63 18LCI Study, 2010, 66

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economic center for the community Based on these considerations they created a franchise strategy to enable opportunities for further local economic development19.

In reviewing traffic and transportation considerations, the Institute used the Georgia

Department of Transportation’s traffic counts for Hollowell Parkway concluding that vehicle and people counts created “an opportunity for encouraging the picking up of spur-of-the moment items on the way home,” which the Institute referred to as the “go home side of the street20.”

The site design involved various factors included micro-businesses such as a food

cart court, as well as, a “pop-up shop square” making a farmer’s market an unofficial community square for the purpose of improving the local community’s social development and interaction. Further considerations included parking, shipping and loading configurations, visual lines of sight regarding signage and the store itself and, most importantly, the incorporation of co-located discount retailers, allowing a large grocery store to act as an anchor tenant at the site.

To address the findings and desired business compilation, various franchises were

evaluated in the Hollowell study as follows: Hollowell Case Study No. 1: Save-A-Lot

Save-A-Lot utilizes a licensing model in which “the individual store owner signs a

license agreement with the licensor to purchase a certain percentage of the licensor’s products under the licensor’s label21”. The licensee’s business must be focused on the purchasing and selling of the franchisor’s goods22. Save-A-Lot does not collect any royalties nor does it charge upfront fees. Rather, Save-A-Lot emphasizes its private label goods by procuring, distributing, and marketing particular collections of high quality household goods and food and making them available to licensees at very low prices23. Based on the target market and geographical location, the licensee may sell products at suitable prices for that market and location24. Importantly, this creates a situation where local customers pay up to 40% less than supermarkets outside their neighborhoods thereby effectively increasing buying power that can be spent on businesses within their community, which reduces leakage25. Save-A-Lot’s licensing model allows the licensee to customize and make a variety of changes depending on demographic preferences of that particular licensee26.

Normally for a prospective licensee to be eligible to become a Save-A-Lot licensee, the

licensee must have a $1 million net worth and have available capital equivalent to $300,000.To address the likely case that a prospective licensee in a low-income community will not have the required net worth and capital required to become a licensee, Save-A-Lot uses its community

19Dr. Nancey Green Leigh, et. al., Using Franchises to Revitalize an Urban Corridor, Improve Neighborhood Access to Retail and Services, and Promote Sustainable Local Economic Development (2016) 20Id. 21 Save-A-lot, Become an Owner, (2018) http://save-a-lot.com/own/become-an-owner/. 22 Hidalgo, The Franchise as a Development tool: Social Franchise Enterprise (2012) 23 Dr. Nancey Green Leigh, et. al., Using Franchises to Revitalize an Urban Corridor, Improve Neighborhood Access to Retail and Services, and Promote Sustainable Local Economic Development, (2016). 24 Id. 25 Id. 26 Id.

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connections familiar to minority owners in low-income communities. To this end, Save-A-Lot works closely with a financial consultant to construct strategies for grants, government incentives, SBA loans, and other locally available assistance. Save –A-Lot does not provide any direct financing; except that Save-A-Lot will provide a $200,000 incentive or more to licensees to “support a positive cash flow for the first two years27.”

Save-A-Lot offers licensees a support system having at its core, Information Technology

(IT) support provided at either no or a reduced cost in the first year, and as noted above, an incentive package for the purpose of assisting new licensees in maintaining a positive cash flow for at least the first two years. In consideration, new licensees are required to comply with the Save-A- Lot licensing agreement and purchase goods at a minimum Purchase Concentration Rate (PCR) from the Save-A-Lot distribution system as well as real estate services, and work with a store design and planning team28. However, the most important aspect of Save-A-Lot’s support system is a training program which features an initial 12-day course for new licensees that includes classroom and in-store training about store operations. Additionally, Save-A-Lot provides advertising services, new store support, accounting services, and risk planning, as well as access to retail district managers to advise new licensees on store operations, business practices, and public relations29.

Hollowell Case Study No. 2: Pearle Vision Optical Wear

Pearle Vision Optical Wear utilizes “agglomeration,” which is beneficial to franchises in

general. Because security is a concern along Hollowell Parkway and most low-income areas, “collocating in one center enables the businesses to pool their resources towards shared security services and achieve economies of scale, rather than each having to pay for it on their own30.” Agglomeration essentially allows: improved security, separation from nearby blighted or vacant structures, creates a sense of destination and retail synergies, improved visibility and access from the parkway, establishes a critical mass of activity, from which new developments can expand and provides access to funds for large-scale projects (e.g., Tax Allocation District Funding & New Market Tax Credit allocation). Because Hollowell Parkway is a high-speed four-lane highway, driver’s awareness is diminished dramatically with respect to their surroundings and critically, their willingness to interact with those surroundings. Agglomeration provides a solution to this issue as a higher-profile development will make it more likely that those drivers will notice the various businesses that are highlighted by their synergetic relationship31. Because there are more businesses within close proximity of each other, larger signage is required, which has the effect of grabbing drivers’ attention32. The crucial and overall effect of agglomeration is that it ultimately captures the buying power that those potential customers possess, which is

27 Save-A-Lot, Ownership Has Its Privileges, (2018), http://save-a-lot.com/own/. 28 Dr. Nancey Green Leigh, et. al., Using Franchises to Revitalize an Urban Corridor, Improve Neighborhood Access to Retail and Services, and Promote Sustainable Local Economic Development (2016) 29 Id. 30 Id. at 61 31 Id. 32 Id.

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required for a franchise to succeed while having a social impact by providing those customers with more options to satisfy their needs33.

Hollowell Case Study No. 3: Freshii

This case study focuses heavily on transportation including pedestrian traffic, bike lanes,

transit services such as buses, and automobile traffic34. This particular project area offers a major advantage in the form of access to mass transit. Both MARTA and CCT buses serve this specific study area and the study area is located next to one of the biggest bus stations in the area35. The presence of major public transit services “provides local residents with the ability to travel through the project area with relative ease,” which is crucial to attracting business and buying power that local residents possess36. A major issue in this particular area is a lack of retail opportunity and fresh food, hence the consideration of a Freshii franchise37. The goal of this case study to capitalize on the significant potential of the area and this franchise to form a virtuous retail cycle through attracting “stable, high-growth businesses and brands,” which will simultaneously employ unemployed residents while increasing its local market appeal38.

Freshii is a perfect match to meet the goals for this particular area as its greatest benefit is

its production and availability of quality, affordable “healthy fast food39.” Further, Freshii provides great potential for local employment and encourages franchisees to pay their employees above the national minimum wage, benefits, and bonuses as well as flexibility to either work full-time or part-time40.

Freshii’s training program implements a crucial array of skills needed for a successful

franchise operation sponsored by its own Freshii University™ including the “basics of food safety and preparation, customer service, operation standards and methodology, and the Freshii philosophy, all while providing them with the necessary skills for a career path in food service, catering, and management41.” The program is facilitated by classroom and on-the-job training as well42.

Freshii is also unique in facilitating community interaction as it provides community

meeting spaces, which are comparable to larger coffee shop chains such as Starbucks and Einstein Brothers43. This attracts workers, students, and business professionals, which has the

33 Dr. Nancey Green Leigh, et. al., Using Franchises to Revitalize an Urban Corridor, Improve Neighborhood Access to Retail and Services, and Promote Sustainable Local Economic Development (2016) 34 Id. at 74 35 Id. 36 Id. 37 Id. at 81 38 Id. 39 Id. at 86 40 Id. 41 FDD, (2016) at 25 42 Id. 43 Id.

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effect of capturing buying power from local residents and the inherent, indirect effect of providing convenience to those residents44.

Overall, establishing a Freshii in this project area will provide the provision of fresh,

nutrient dense food, improvement in business and employment opportunities, and an improvement in area-wide market appeal through the inclusion of a well-known marketable brand, which would improve community perceptions and attract customers from outside of the project area45.

Hollowell Case Study No. 4: PostNet

This study advocates for alternative transportation options through increased coordination

with MARTA and improved trails and sidewalks, redevelopment through public and private sector investment, more community-focused urban design, and higher densities with four “mixed-use pedestrian friendly nodes46.”

Similar to the other case studies, the area is riddled with gaps in retail and service

industries47. As noted above, a prevalent issue in this area along with other comparable surrounding low-income areas is the lack of large grocery stores that sell fresh food as the only options include convenience stores which sell pre-packaged, processed food lacking basic nutritional value48. But this gap is also extended to business services such as shipping and printing businesses49. This study capitalizes on the potential opportunities to capture the much needed services for this market by filling in these gaps with a shipping and printing service that could be invaluable to commuters, residents, and businesses in the corridor50.

PostNet offers shipping and printing services to businesses and consumers alike with

more than 700 locations in the United States and abroad51. The anchor business model is the focus for this study and is the basis for PostNet’s proposed expansion52. The anchor business model’s purpose is to aid in supporting small businesses using agglomeration co-locating those smaller businesses with a larger chain that attracts a substantial number of people on a regular basis53. Its primary focus is on marketing, which, through marketing protocols, attract traffic to the shopping center where the small businesses essentially “feed off the increased exposure54.” However, these smaller business do pay higher rent, but their rent is used to as the gross leasable

44 Dr. Nancey Green Leigh, et. al., Using Franchises to Revitalize an Urban Corridor, Improve Neighborhood Access to Retail and Services, and Promote Sustainable Local Economic Development (2016) at 86. 45 Dr. Nancey Green Leigh, et. al., Using Franchises to Revitalize an Urban Corridor, Improve Neighborhood Access to Retail and Services, and Promote Sustainable Local Economic Development (2016) at 90. 46Cobb County & CoA, 2010). 47U.S. HUD, 1999; Helling & Sawicki, 2001. 48 Dr. Nancey Green Leigh, et. al., Using Franchises to Revitalize an Urban Corridor, Improve Neighborhood Access to Retail and Services, and Promote Sustainable Local Economic Development (2016) at 93. 49Id. 50Id. 51Id. at 94. 52Id. at 96. 53Id. 54Id. at 96-97.

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rent of the shopping center as a whole, which “produces a symbiotic relationship between the anchor and the smaller businesses55.”

However, although this leads to great success for smaller businesses in the shopping

center, the relationship is rather fragile56. If the anchor’s business fails or decides to move locations, the attraction and marketing has great potential for failure with respect to the small businesses that once relied on the anchor’s ability for a greater exposure57.

Hollowell Case Study No. 5: Habitat For Humanity - Restore

The area in this case study consists of three major sections including in-town, industrial,

and the suburban areas58. This particular area is relatively unique compared to the other case studies conducted by the Institute as although it is close to I-285, which provides for a popular transit corridor, it is more accessible and closer to the surrounding neighborhoods59. Because Hollowell Parkway is considered to be an arterial road, “this proximity to households allows for the potential creation of collector streets to facilitate mobility development60.”

ReStore is a subsidiary of Habitat for Humanity driven by the principle: “to help

homeowners build their homes and create a world where everyone has a decent place to live61.” The store primarily sells new and refurbished furniture, home accessories, appliances, and building materials to the public at a significantly lower price than retail62.

ReStore has a unique business model in that it deviates away from conventional

retail through preferences in receiving and distributing funds63. In conventional retail, a developer would look to attract other businesses with a larger proximity to higher income neighborhoods and higher profit margins. However, ReStore prefers to focus on areas that have diverse ranges of socio-economic classes and does not rely on higher profit margins64. Instead, it attracts a large pool of donors and sells at lower cost higher quality products to consumers65. Because ReStore’s main focus is on providing accessible services for all members of the community including a wide range of consumers, Hollowell would benefit from having ReStore’s philanthropic characteristics as it would act as “an attractive selling point for potential businesses wanting to target various types of consumer groups66.”

Another unique characteristic of ReStore’s business plan is that it acts as a destination for

members of a higher socio-economic status, who make up most of ReStore’s donor pool, while

55Id. at 97. 56Id. 57Id. 58Id. at 104 59Id. 60 Id. 61 Id. 62 Id. 63 Dr. Nancey Green Leigh, et. al., Using Franchises to Revitalize an Urban Corridor, Improve Neighborhood Access to Retail and Services, and Promote Sustainable Local Economic Development (2016) at 114. 64 Id. 65 Id. 66 Id.

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further acting as a destination point for members of a lesser socio-economic income class, who are their target consumers67. This attracts businesses seeking such a mix of consumers similar to urban regions’ presence of diverse members from different economic backgrounds68. It allows for more experimentation and eliminates limitations caused by a narrow range of consumers, which could “potentially lead to an innovative development scheme and provide a competitive edge to Hollowell Parkway69.”

The greatest effect that ReStore could have on Hollowell Parkway, aside from providing

monetary gain, is providing intangible community impacts such as a greater sense of ownership to the community and a safer image, which ultimately has the effect of attracting more consumers and importantly, more businesses70.

Hollowell Case Study No. 6: Club Entrepreneur

This case study addresses the issue of the lack of financial institutions in the Hollowell

Parkway71. A potential franchisee in a low-income area needs access to financial assistance in the form of a loan whether it is from a loan program or directly from a bank72. To do so, the business would have to find a financial institution locally and, at the time of this study, none existed on the Hollowell Parkway and, therefore, the business would have find a financial institution outside of Hollowell Parkway in order to obtain a loan, which hurts the project area’s economic base model in addition to contributing to more economic leakage that plagues the majority of low-income areas73.

Hollowell Parkway needs to grow in a sustainable manner to support its economy and

therefore it is necessary to tailor a franchise strategy to slow economic leakage, and serve as a catalyst for business development and investment while fostering economic multiplication74.

Club Entrepreneuer, also known as “Club E,” is a “global and online network that

connects entrepreneurs to financial and supportive resources that they need to start, develop and grow their business” and “seeks to help build a strong local economy through providing opportunities for education, collaboration, and implementation among its members75.”

Club E has a myriad of programs such as the Young Entrepreneur Society (Y.E.S.) and the

Copy Center program, which offer youth in a low-income area individual and co-working space for $25 to $400 per month. Recognizing that individuals and the youth may not be able to afford such fees, Club E has created the EpiCenter Endowment Fund to aid in payment76.

67 Id. at 115. 68 Id. 69 Id. 70 Id. at 116. 71 Id. at 117. 72 Id. 73 Id. 74 Id. 75 Id. at 118 76 Dr. Nancey Green Leigh, et. al., Using Franchises to Revitalize an Urban Corridor, Improve Neighborhood Access to Retail and Services, and Promote Sustainable Local Economic Development (2016) at 118.

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The majority of youth in low-income areas “tend to become followers instead of leaders and perpetuate the cycle of poverty and victimization that already plagues the Corridor77.” Club E provides training and experience to young residents by putting them into professional positions such as a Chief Executive Officer (CEO), Chief Operating Officer (COO), Chief Technology Officer (CTO), or Chief Financial Officer (CFO) 78. Through various interactive programs, Copy Center gives the youth opportunities to learn the ins and outs of entrepreneurship firsthand79. They are able to do so efficiently because they do not share a traditional franchise strategy like most franchises; rather, they “mold themselves to fit the need of the community80.”

Operation of a business, like any other, requires capital and the required capital can be

especially difficult to come by if there are no financial institutions in close proximity, such as in Hollowell Parkway81. Club E makes the majority of revenue for itself, investors and franchisees, through intermediaries, which include programs such as The Bridge Academy, which has its own facility to find alternative business finance strategies82. The Bridge Academy is used by Club E to secure capital for businesses that otherwise would have difficulty securing their own capital83. Such companies have the effect of helping to start and sustain a business in the community, while keeping dollars in the community to improve economic leakage and unemployment84.

There are several other franchises evaluated as part of the Holloway case study including

Dunkin Donuts, Maytag Laundromat, and Anytime Fitness , each of which contain substantially similar analyses as noted for the franchises described above.

2. Metropolitan Government: City of Boston Neighborhood Restaurant Initiative

In an effort to revitalize Boston’s historic commercial districts, the City’s Office of

Business Development launched the Neighborhood Restaurant Initiative in 2004. The restaurant initiative, which includes locally-owned franchised businesses, primarily focused on developing full service restaurants in neighborhoods lacking access to full service, sit down restaurants. The Office of Business Development emphasized full service restaurants, as opposed to fast food restaurants, as a way to revitalize underserved communities while simultaneously preserving the character of the historic business district. By helping to create new full service restaurants, the Neighborhood Restaurant Initiative ultimately sought to expand ownership and management opportunities among local neighborhood entrepreneurs, increase the number of jobs, and strengthen commercial districts85.

77 Id. 78 Id. 79 Id. 80 Id. 81 Id. at 119. 82 Id. 83 Id. 84 Id. at 119-120. 85 City of Boston, Neighborhood Restaurant Initiative, (2014), https://www.boston.gov/departments/neighborhood- development#page/neighborhood_restaurant_initiative.

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The Office of Business Development provides several resources and assistance for developing new and expanding existing full service restaurants. These resources include86:

· Technical assistance (e.g., creating business plans, choosing a location

space, marketing) · Permitting and licensing · Design assistance (e.g., signage, logos and storefronts) · Façade improvement grants · Liaison to other city departments · Financing (e.g., direct assistance and referrals) · Workshops for potential restaurant entrepreneurs

Access to financial assistance is one of the key barriers to entry for potential franchisees.

The Neighborhood Franchise Initiative provides additional funding as a junior loan of up to $100,000 for qualifying businesses. As a way to ensure increased access to jobs in underserved neighborhoods, each business receiving financial assistance is expected to sign an Employment Initiative Agreement with the City of Boston (City of Boston). The Employment Initiative Agreement requires that each restaurant meet both Housing and Urban Development (HUD) and Boston Resident’s Jobs Policy (BRJP) job creation requirements. HUD requires that at least one job is created per $35,000 of local government financial assistance, or one job per $50,000 for projects in federally designated empowerment zones. Additionally, the BRJP stipulates that to receive financial assistance, owners and franchisees must use their “best efforts” to hire at least 50% Boston residents, 10% minority, and 5% women. (City of Boston, 2014)

B. Various Franchisor – Implemented Social Franchise Case Studies

Case Study No 1: The Chick-Fil-A Model

Chick-Fil-A is an interesting case study because the franchise has flourished and

remained highly successful in a fast food industry that has seen many of its Atlanta-based company’s competitors face declining revenue and minimal growth. Despite remaining closed on Sundays and facing national public relation controversies for the past few years, Chick-Fil-A has continued to scale successfully, exhibiting tremendous market share growth in the national limited-service chicken segement. From 2004 to 2013, Chick-Fil-A experienced an annual compounded sales growth rate of 12.7% and over $5 billion in annual system-wide sales87. This achievement in growth is attributed to Chick-Fil-A’s unique approach to employee retention, coupled with the support and innovation at company-owned units and its nearly 1,000 franchised locations. In an era where many minimum wage jobs are considered short-term, high-turnover positions, Chick-Fil-A has managed to significantly beat the average hourly employee turnover rate, with a 60% turnover rate compared to 107% for the entire industry88.

86 Id. 87 Mark Kalinowski,, MCD: Chick-fil-A a Serious and Growing Competitive Threat, Janney Capital Markets (July 15, 2014). 88 Emily Schmall, The Cult of Chick-fil-A, Forbes, (July 6, 2007), https://www.forbes.com/forbes/2007/0723/080.html#36f3df80597.1

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What makes this achievement even more remarkable is that Chick-Fil-A’s hourly pay is not significantly higher than industry standards. Instead, Chick-Fil-A focuses on a long-term, holistic approach to supporting employees that includes core values, and team member training and development. For example, Chick- Fil-A’s Restaurant Team Member Scholarship Program directs a portion of the company’s proceeds to annual scholarships for employees to attend colleges and universities. Every employee that qualifies receives at least $1,000, with more scholarship money available for those employees chosen by an independent panel. Since the program’s inception in 1973, Chick-Fil-A has given more than $34 million in scholarship money to 34,000 employee team members. Moreover, the company offers the Chick-Fil-A Jumpstart Leadership Development program, an intensive job opportunity and personal development program that give existing and non-Chick-Fil-A employees a “jumpstart” on their careers in business. This program requires that a participant has graduated from a four year college and has exhibited at least two years of leadership experience in some capacity. Each participant will undergo a demanding, two-year program that includes hands-on experience in running all facets of a company restaurant, individual mentorship opportunities, and “life” planning assistance. Chick-Fil-A’s programs focus on assisting the restaurant team member from college through leadership and ownership experiences and serves as an example for how a franchisor can provide franchisees’ and their employees’ assistance with employee retention and long-term development.

Finally, locally sourced goods and services and charitable giving have traditionally been an

economic measurement that resulted in a significant disadvantage for both independent chain stores and franchises in local markets. Franchisees and chain stores typically focus their charitable giving and sourcing of goods and services at the regional, state, national and even global level. Local franchise and businesses stores usually have little control over how money is spent in the local community where they reside. Recent industry trends, however, indicate that regional and national franchises are starting to encourage locally-based charitable giving and offer greater autonomy to their local franchisees89.

Case Study No. 2: B. Good, a Boston-Based Burger and Sandwich Regional Franchise Network

B. Good is a regionally-positioned, all-natural burger and sandwich franchise restaurant

network operating in Massachusetts, Maine, New Hampshire, New Jersey, Rhode Island, North Carolina, and Connecticut. The founder produced a menu that features locally-sourced seasonal ingredients for all of its beef and produce at their 18 locations. The franchise’s costs do not appear to be significantly higher than regular, non-locally sourced fast food restaurants because the company uses whole food products, such as whole potatoes and carrots, and prepares the products themselves on-site. B. Good also focuses on building networks with a growing list of local farmers and plugging them directly into their supply chain. To maintain a unique list of ingredients and products in the face of obvious sourcing challenges, the founders concentrated on maintaining a limited menu, with a reduced number of offerings compared to other fast food restaurants. Finally, the founders pride themselves on offering customers a flexible menu that highlights ingredients that are unique to each franchise location’s local market (e.g., in-season

89 Beth Ewen, Charity Cases: In giving back to community, these brands are rockstars, Franchise Times, (January 31, 2014), http://www.franchisetimes.com/February-2014/Charity-Cases/.; Robert A. Funk, CFE, Building a Company Culture for Community Outreach, (October, 2013), https://www.franchise.org/building-a-company- culture-for-community-outreach-0.

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blueberries for their Boston-based smoothies)90. While B. Good does not have the presence of a Chick-Fil-A, their flexibility and commitment to all-natural, locally-sourced products provide a great example of how franchises, albeit in a smaller network, can offer the same local economic benefits as independently owned businesses and larger franchised chains.

C ase S tud y No. 3: S tevi B’s Pi z z a

Stevi B’s is a pizza buffet restaurant franchise with over 40 locations in more than eight

states. The franchise proudly touts its “culture of giving” as a fundamental component of the company’s core values on the official website and promotes this philosophy throughout its franchise network. The Atlanta-based franchisor realized early that the most effective and efficient way to direct its charitable giving campaign was to let its franchisees drive the campaign at the local level. The franchisor permits each franchised location to hire a local, part- time “marketing ambassador” from the community to implement the local giving plans. One of the franchisor’s full-time, charitable giving staffers trains and supports the local ambassadors91. The result is a bottom-up partnership strategy among the franchisor, franchisees and the local community.

Consistent with this approach, the International Franchise Association has made local

franchise charitable giving a key initiative for 2018, implementing the inaugural year-long “Franchising Giving Back” campaign at their 2015 annual conference. The IFA’s goal is to produce a charitable giving report that provides several metrics, including a registry that gathers local franchise charitable giving data, an annual report of key franchise charitable giving data, and best practices for making a local impact within the franchise location’s community92.

C ase S tud y No. 4: Domi no’s “Deli ver th e Dr eam P rogr am”

Domino’s “Deliver the Dream Program” is a unique program that aims to provide

corporate financial support and technical assistance to minority Domino’s team members who desire to become franchise owners. The program prides itself on a process that helps identify and develop high performing, elite minority team members regardless of where they began with the company (often highlighting owners who rose from taking calls and making pizzas to ownership). Domino’s partners with American Equipment Finance, LLC to grant financial assistance to selected members. This partnership, coupled with an approach that the company notes is a primarily internally-based franchise system focusing on internal team members as potential franchisees, has allowed for participants to start franchises with only a $5,000 franchise fee. Moreover, Domino’s offers several other programs that serve as feeders for this program, including optional training programs for employees interested in becoming managers and the

90 B. Good. (2015). About. Retrieved July, 29, 2018, http://www.bgood.com.; Jason Daley, How a Franchise Owner Made Fast Food Local, Entrepreneur, (October 30, 2013), https://www.entrepreneur.com/article/228392. 91 Beth Ewen, Charity Cases: In giving back to community, these brands are rockstars, Franchise Times, (January 31, 2014), http://www.franchisetimes.com/February-2014/Charity-Cases/.; Stevi B’s, Community. Retrieved July 29, 2018, http://stevibs.com/community.php.

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92 Steve Romaniello, Franchising Gives Back: Expanding Our Reach, Sharing Our Stories, https://www.franchise.org/franchising-gives-back-expanding-our-reach-sharing-our-stories. Retrieved July 29,

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Franchise Management School for those employees interested in becoming franchisees and operating managers93.

Case Study No. 5: Goin Postal: Shipping and Receiving/Business Services

Goin Postal is a Florida-based, postal shipping firm that provides customers with an array

of shipping and business services. Goin Postal advertises each location as a full service “neighborhood business shipping center.” As an authorized shipping center for both FedEx and DHL, customers are able to create accounts for shipping and receiving services and mail forwarding, as well as private mailbox rental services that allow receipt and housing of any size packages (as opposed to United States Post Office locations that have specific package size requirements). While each location can offer specialized services unique to each location, the company appears to give individual Goin Postal franchisees a certain amount of autonomy in the specific services offered at each location. Additional business assistance services include:

· Notary services · Access to a high speed internet services/computer terminals for customers · Bulk faxing, printing, and copying services · Web design assistance and hosting services · Business card and brochure design and production services · Resume consulting services · Local deliveries and pick up · Passport photo services

Established in 2002, all of the company’s 243 franchises are located within the United

States, and an estimated 10% of all franchisees own more than one store. Section 4. Using a Franchise Strategy to Support Local Economic Development – Required

Investigation and Analysis

The development of South Dallas would serve to create a traffic corridor, but also a social-economic development corridor from the downtown area to south of downtown. The development area would accelerate the trend of core development.

Based on the information assessed and as summarized in Sections 1-3 above, there are

multiple aspects of a franchise development strategy that should be considered to support sustainable outcomes for local economic development in low-income communities. Key points that should be addressed for the South Dallas strategy include:

1. Whether the market possesses considerable buying power94. A franchise strategy can seek to fill this gap, and retain more of the income spent by local citizens.

93 Domino’s Pizza, Domino’s ‘Delivering the Dream’ Program Opens Doors for Minority Franchisees [Press Release], (2015), https://www.prnewswire.com/news-releases/dominos-delivering-the-dream-program-opens-doors- for-minority-franchisees-57128362.html. 94 Dr. Nancey Green Leigh, et. al., Using Franchises to Revitalize an Urban Corridor, Improve Neighborhood Access to Retail and Services, and Promote Sustainable Local Economic Development (2016) at 121.

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2. What the demographic make-up in the community reflects (e.g., income level, race, ethnicity, sex, age, families with children, and unemployment). This would also include home ownership, rentals, and vacancy residency levels. A similar approach would apply to commercial leasing and vacancy levels.

3. What businesses providing products and services in the community exist in likely franchise segments such as restaurants, groceries, fitness, small business (e.g., printing, signs, mailing, and packaging), and healthcare (e.g., optical and emergency clinics).

4. Whether clusters of related businesses within an inner-city neighborhood can leverage geographic proximity to nearby existing regional clusters providing a community a diverse number of choices for consumers in the area and a concentrated delivery area for suppliers of raw materials for products and services to be offered in the cluster like fresh produce or other raw food items. A variety of commercial offerings brings more people to that place, making it feel safer. It can also create synergies through convenience. Sales in anchor tenants can drive sales for other tenants, or activity in a business services franchise can be complimentary to a restaurant. A fully-leased shopping center can also serve as a node from which other development can spread as new entrepreneurs attempt to benefit from these same consolidating effects.

5. Whether locations can often be found at a lower cost than more affluent areas; inner cities are also often located near highways and other well-developed transportation networks. Can a business, particularly those that provide a remote service or that travel to their customers, service a variety of markets from central locations in inner cities. Potential employees in inner-city neighborhoods often suffer from a jobs-housing imbalance, causing employees to travel out of the neighborhood to work; franchisees would likely find a strong pool of prospects competing for local jobs that do not cause outsized burdensome commutes.

6. Whether Department of Transportation traffic counts reflect a compelling average daily traffic count of vehicles, possibly representing an opportunity for encouraging the picking up of spur-of-the moment items on the way home or a location that can be located on the “go home side of the street,” to capture drivers on their way home from work. Other indicia of a prime transportation corridor such as safety, single-family housing, multi-family housing, medium and low-density commercial, and industrial properties, mixed -use space, trailer and delivery spaces, bus stops and shelters, bicycle paths and access points, customer/employee parking, and future zoning and development plans would need to be evaluated.

7. Whether local agencies and programs are available to provide guidance regarding tax advantages, grants, or training programs in the local community for the benefit of residents apart from the increased training and financial programs that would be expected to be made available through a franchise arrangement.

8. Whether a business operated by a franchisee from the community who is trained and qualified can result in “a higher percentage of growth and lower percentage of crime,” because the local community supports the franchisee as one of their own.

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9. Whether certain franchises in certain industry segments portend more favorably than others in the market such as:

a) Healt hca re

Entrepreneurs are seeking to profit by creating faster, more efficient,

and more affordable ways to deliver quality service. Recent estimates project that healthcare spending in the U.S. will reach $4.5 trillion, or almost 20% of GDP, by 2019. The ability to serve more patients more flexibly and with fewer overhead costs will become an important challenge for medical personnel. Franchising can relieve some of these pressures, increasing access to medical services, especially routine medical procedures that can be easily performed by nurses or physician’s assistants outside of a hospital setting. Medical professionals are in increasingly high demand despite already large workforces (U.S. Bureau of Labor Statistics, 2016). Other healthcare related franchise businesses include physical therapy, dental, chiropractic, home care, massage, and hearing services. Nonetheless, it can be difficult to attract talent to these businesses, particularly highly trained healthcare professionals who may associate franchising solely with fast food and have little opportunity learn about franchising. Businesses that accept Medicare and Medicaid are also more likely to be better received. Start-up costs can also vary greatly, from under $50,000 to more than $600,000, often depending on how much equipment is required and if the equipment is leased or purchased95. Potential franchises would include Pearl Vision (eyecare), Bright Star and Home Instead (home care), Comfort Dental (dental services), Elements Massage and Massage Envy (massage), and Miracle Ear (hearing services).

b) Alt ernati ve fran chise bus inesses : Many low-income markets are primarily

served by minimarts that supply a limited, low-quality inventory of unhealthy processed foods. Combining into a cluster or retail center, healthy food businesses could provide a kick-start to a healthy casual food cluster. For example, Freshii uses a sustainable business model that aims to provide affordable, organically grown food to a wide-ranging clientele. Their “Eat. Energize.” mission statement is divided into 3 distinct points: 1) scalability, 2) branding and marketability, and 3) sustainability96. Other potential franchises include City Greens, Sweet Greens, Fit Foods, Snap Foods, and Chopt. Other potential franchise brands offering healthy and quasi- healthy menu items conducive to a cluster include Subway, Jamba Juice, Pei Wei and Zoe’s. Positive economic development outcomes could result from a fresh food offering located in the project area. Advantages include: providing fresh, nutrient dense food (improving the area’s access to fresh food would have the simultaneous effect of improving the collective health of the residents, lowering long-term costs related to healthcare, increasing market appeal, and fostering a thriving food service cluster); improving business and employment opportunities (providing the area with much needed employment opportunities while injecting revenue into the local market; locally earned funds can also be recirculated through the community and at a much higher rate due to a

95 Anna Haines, Under Sustainability: Rebuilding the Local Economic Development Tool Box, University of Wisconson (January, 2003). 96 Freshii. About. Philanthropy (2018), https://www.freshii.com/ca/about.

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higher multiplier effect for franchises); and improving area-wide market appeal through the inclusion of a highly visible marketable brand .

c) Other fran chise possi bil iti es include busi nesses that address the retail

ga p. For example, low-income communities typically reveal little or no businesses which offer printing and shipping services to consumers or businesses. Each PostNet location has specialized, large-scale printing equipment which can outperform standard, at-home consumer printers. PostNet also offers on-line printing and can print specialty items such as business cards, letterheads, stationery, photo books, wedding invitations, calendars, and car magnets, as well as marketing materials such as fliers, posters, banners. PostNet also performs standard printing and can also handle orders with specific stapling and folding requirements97. A shipping and printing service could be valuable to commuters, as well as the residents and businesses located in the market. For example, a PostNet may fit this need if it is located close to other small to medium size companies (so it can serve consumers and businesses for the large orders)98. Other franchises in a cluster could presumably use PostNet for their shipping and printing needs. Other potential franchise brands offering similar services are FedEx Office and The UPS Store.

d) Another gap in servic es i s the comm unit y coffee s hop. Such a gathering

place can also be important for people traveling along corridor from home to work and serve as a gathering place where residents could meet. Coffee shops usually offer free Wi-Fi for customers, and such web accessibility is important to support the provision of advanced technology in the neighborhood. Such gathering spaces could also become “information centers” or “public innovation centers” for a local community. Low-price café businesses are often provided by franchises like Starbucks, CC’s Coffee, PJ’s Coffee, and Dunkin Donuts. If possible, the café space could be expanded to the sidewalks to become a feature of an open space.

In addition to the foregoing non-exclusive list of broad market criteria that can easily be surveyed for formulating a strategy, the checklist below will further assist a franchisor or community organization in further assessing important market considerations.

A Checklist for Evaluating the Market for Franchised Services:

1. Conducting a Gaps/Local Need Analysis for Supply and Demand 2. Conducting a Demand Survey

Evaluating Location and Sites:

1. Market and Site Requirements 2. Geography

97 Brian E. Thomas, Utilizing the Franchise Business Model as a Tool for Sustainable Local Economic Development (SLED) in Low-Wealth Urban Business Districts: Recommendations for the Local Economic Developer’s Toolbox (Spring, 2015). 98 Id.

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3. Demographics 4. Population 5. Employment and Income 6. Home Values 7. Major Obstacles

a) Crime and Safety Statistics b) Deterioration of Infrastructure c) Lack of Retail/Food Opportunities

Evaluating a Franchise:

1. Choosing a Franchise (including Trends and Unique Issues)

2. Franchise Candidates Considerations99:

a) A Provision of Product and Services Filling Community Need (e.g.

Quality, Nutrient Dense Food) b) Opportunities for Quality; Scalable Employment c) Pre-Established Brand Model and Guided Business Plan d) Low Market Entry Restrictions e) Community Meeting Spaces f) Philanthropy g) Drawbacks h) Cost Restraints/Cost of Opening/Start-Up Costs i) Restrictions on Sourcing j) Existence of Targeted Development Programs k) Proposed Site Location and Layout l) Potential Economic Development Outcomes m) Building Requirements n) Employees o) Current Proposal p) Technology q) Product Sourcing r) Initial Investment s) Site Requirements and Location t) Designing the Site u) Designing the Store v) Unit Operations w) Financing x) Support for New Owners y) Scalability z) Branding and Marketability aa) Sustainability

99 Michael H. Seid & Joyce Mazero, Franchise Management for Dummies (2017).

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Section 5. Business Case for Using the Franchise Model to Address Needed Economic Development/Proposed Franchise Models for the South Dallas Initiative

The elements of the franchise model for business format franchising described in Section

3 apply to the social franchise model as it may be applied to low- income communities including South Dallas.

Several assumptions underlying each of the franchise arrangements described in the charts and footnotes in Section 3. The footnotes also include action items facilitating the investigation and due diligence recommendations in Sections 4 and 5 of this paper.

Based on the analyses in Section1-4, certain assumptions about the potential implementation of the franchise model in a low income market can be identified as follows:

1. The key elements of the business format franchise model would equally apply to a social franchise model. This means the franchisor is the owner of the trademark identifying the brand and operating system and will grant the franchisee a license to use the trademark and operating system. The franchisee will operate its business under the franchisor’s trademark using the franchisor’s operating system.

2. The franchisee would pay to the franchisor royalty and ongoing fees for training, marketing, technology, and related assistance pursuant to the terms of franchise agreement.

3. The franchisor would provide enhanced training, field support, and access to/coordination of third party resources for services including financial, technology, and marketing.

4. A master developer would coordinate with the franchisor and act as a centralized coordinator of market/ site assessments and provider/facilitator of services to the market and local operators. It would function as the initial franchisee and operator of initial pilot units and provide a queue for trained and qualified local operator candidates. The master developer could be a community development organization or an investor group, including impact investors, or a combination thereof.

5. A master developer would provide/facilitate access to financial assistance, site analysis, technology, training, staffing, bookkeeping, accounting and marketing resources.

6. A master developer would operate a pilot unit for each brand which would primarily function as a training facility. All revenue goes to program costs and profit can be reinvested or paid to investors on a repayment of capital model.

7. A master developer will obtain fees for providing/facilitating loan and supplier negotiated arrangements for franchisees.

8. The South Dallas Initiative would provide a “brand ambassador group” for brands comprised of leaders in Dallas’ franchise community who will promote and present the Initiative to select franchisors for consideration.

The forgoing assumptions underlie the proposed social franchise model for the South

Dallas Initiative illustrated in the following charts:

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1. Action Point for Financial Resources Needed by Master Developer and Franchisee: Create database of local economic development–focused banks and financial institutions with access to the SBA loans with capital matrix to show which loans are most beneficial depending on the franchise being considered. This would include banks (under Community Reinvestment Act) having access to the SBA (including Section 7 (a) program/Community Advantage Loan Program/micro-loan program). Also consider franchisor-offered financing and preferred third–party lending (www.franchisehelp.com/blog/minority/frank-changing-the game-for-minorities– in-franchising/).

2. Action Point for Governmental Agencies/Resources Needed by Master Developer and Franchisee: Create database of government strategies comparable in Dallas. See Boston’s Neighborhood Restaurant Initiative (focused on full service restaurants) – technical assistance (business plans, site selection, marketing, permitting and licensing, design assistance, signage, storefronts, façade improvement grants, liaison to other city departments, financing directly and referrals, and training) plus a junior loan up to $100,000.

3. Action Point for Suppliers Needed by Master Developer and Franchisee: Create database of potential suppliers in various operational segments (e.g., site design, selection and construction, F&E, marketing, staffing, scheduling, accounting, bookkeeping) and structure a RFP/invitation only model for selection of exclusive suppliers for Initiative.

4. Action Point for Employee Resources Needed by Master Developer: Create database of potential sources of employees in military/veterans; community college/trade/university venues; and with religious institutions. Structure initial grouping of targeted resources to build a collaboration agreement for potential management and staff employees meeting criteria established through targeted resource group. As noted below, the management employee pool members meeting the candidate criteria accepted by participating franchisors would be sponsored by the South Dallas Initiative.

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1. Action Point for Negotiating a Pilot Franchise Agreement for Master Developer and Franchisor: Master Developer would pay an agreed upon royalty, training, and other fees in accordance with the franchise agreement for pilot unit. No initial franchise fee. Other fees will potentially include fees for training, technology, marketing, and similar services.

2. Action Point for Needed Collaboration with Employee Resources: Master Developer would continue to work with the Targeted Employee Resources Group to find, recruit, and train management and staff employee. The management employee pool will be focal point for selecting franchisee candidates to present to the franchisors for qualification as franchisees.

3. Action Point for Needed Business, Operational, Management and Leadership Training: Master Developer would collaborate with Ambassador Group and other industry leaders in Target Groups to provide access to basic and ongoing training in areas needed (and not otherwise included in franchisor’s training), such as how to prepare and read a financial statement, as well as basic accounting, bookkeeping, and scheduling skills.

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Master Developer could be a non-profit community development corporation, impact investors, or a combination of both. It is anticipated that the Master Developer will be able to attract, subsidize, assemble, and prepare information needed to attract investors, contract with outside resources, act as a bridge to banks and agencies, and navigate political landscape. About 4,000 nationally, serving an average of 20,000 people.

Without limiting the foregoing, the scope of the Master Developer obligations would include:

· Coordinator of South Dallas Franchise Initiative (general and administrative tasks and costs) assumed by

Master Developer; · Recruiting, assembling, and maintaining capital and operating loan programs with banks and financial

institutions under CRA and SBA; · Facilitating and arranging loans between it and banks/financial institutions for pilot unit with each brand;

and do same for loans between franchisee and banks/financial institutions. · Guaranty a portion of capital or loan not covered by SBA or other party. · Recruiting, assembling, and negotiating terms for supplying pilot and franchised units (rebate investment in

South Dallas Initiative); · Establishing criteria/qualifications for management and staff employees for franchises with franchisors; · Identifying sources of management and staff including veterans groups, community colleges, trade schools

and universities · Recruiting, training, and monitoring management and staff employees for each pilot unit · Obtaining franchises from participating franchisors to operate pilot units using recruited management and

staff employees from community (Master Developer is the franchisee for the pilot units) · Negotiating additional services or terms from each franchisor in the following areas:

· Franchise orientation · Management and operations training · Customization and/or additional sessions to be provided by franchisor · Additional in–market visits to units and field training, including customized marketing for the

customer profile of the market · Modified/reduced/deferred advertising fees for franchisor’s national advertising fund

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· Allowing the pilot unit to be sold to a qualifying multi-unit developer/franchisee once an employee of the pilot unit is approved by the franchisor for multi-unit development

· Providing special training in the following areas: · Financial statement · Bookkeeping · Accounting · Leadership training

· Obtaining potential revenue from various sources: · Operations of pilot unit · Service fees for foregoing financial services charged to loan amounts and/or paid from franchise

revenues over time with loan payments · Service fees for supplier support services from rebates based on purchases by franchises

Section 6. Engagement of the Impact Investor

Following on the discussion of the role of a CDC, impact investor or combination of both

in the aforementioned structures , it is helpful to acknowledge here the potential role overall of the impact investor in the social franchise model. Allocating particular assets towards companies, products, and services that will generate a positive social impact, referred to as “impact investing,” possesses the potential to manifest value for investors and society itself, specifically, low-income communities100. The Global Impact Investing Network (GIIN) defines impact investing as “investments made into companies, organizations, and funds with the intention to generate measurable social and environmental impact alongside a financial return101.” Impact investing primarily focuses on nonprofits with revenue and earned income streams and for-profit businesses that have an explicit intent to confer a social impact on society. Impact investments play an important role in constructing community wealth such as creating new jobs, boosting home ownership, and catalyzing small business development. Because impact investments normally earn a positive economic rate of return, funds used to make such investments may be re-invested and, therefore, aid in supporting social and economic change102.

Specifically, program-related investments (PRIs) are a strategy that historically plays a

critical role in building wealth in low-income communities with success. PRIs essentially leverage “limited foundation dollars – most often by providing long-term, low-interest loans – to promote community wealth building and other mission-related foundation goals103.” Further, PRIs are a “powerful tool for private foundations to strengthen social enterprises and support projects that are too risky, complex or small for conventional investors.” Similar to grants, PRIs are utilized to support projects, organizations, or commercial ventures that fulfill recognized charitable purposes, such as services for low-income families and communities. Unlike grants, PRIs have another purpose -- donors expect to be repaid with a specific amount of interest or some type of financial return. The donees must have the ability to generate revenue via fees,

100 The Case Foundation, A Short Guide to Impact Investing: A Primer on How Business Can Drive Social Change, (2015). 101 JP Morgan and Global Impact Investing Network, Spotlight on the Market: The Impact Investor Survey (2014) 102 US National Advisory Board on Impact Investing, Private Capital, Public Good (2014) 103 The Case Foundation, A Short Guide to Impact Investing: A Primer on How Business Can Drive Social Change, (2015).

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earned income, or public subsidies to repay PRIs. For example, “the owners of affordable rental housing can repay the investments with income from monthly rental payments.” Further, PRIs can be given in the form of bank deposits, guarantees, loans and equity investments. The Foundation may replenish their particular endowments or redistribute their funds once the PRI investments and loans are repaid. Also, the requirements increase and improve financial accountability and discipline, which ultimately results in stronger business practices of both non- profit and for-profit recipients and regarding a real or perceived risk, recipients can leverage that capital conferred by private and public investors by utilizing PRIs to absorb those risks104.

With respect to repayment of impact investors for advancing or contributing to capital

and ongoing services, the questions that need to be addressed include: (1) when do they need the money back; (2) what kind of interest and/or dividends are they expecting; and (3) do they anticipate being repaid, whether they want equity, or whether they expect some combination of the two. If investors want repayment with interest, the business could structure their loans as promissory notes with interest accruing over time that is subject to a balloon payment (a large, lump-sum payment made at the end of a long-term loan) at a particular point in the future. Quentin Fleming, a family business consultant and adjunct professor at the University of Southern California states that “you want to use good commercial practices, but modified to accommodate the flexibility and long-term strategy that’s in sync with small business.” Fleming further states that he has “a nine-year, interest-only loan with a balloon payment at the end. Writing in zero prepayment penalties gives the business the ability to start paying down principal if the business is doing well, but also gives the business several years before it has to principal if cash flow is slower than expected during the early years.” He recommends using the mid-term federal funds rate as an interest benchmark. However, caution must be had when giving up equity as it will consequently result in additional regulations and fiduciary duties on a business. A buy-sell agreement is recommended to limit an investor’s ability to sell their interest to a third party. It is critical to note that high-risk loans may require an “equity kicker.” In general, the use of an equity kicker means that a lender receives a small piece of ownership even if the business repays the loan and a big piece of ownership if the business defaults as lenders will understandably expect to receive a higher return for assuming higher risk105.

Section 7. Conclusion

Sufficient evidence exists of interested parties having examined the feasibility of using the business format franchise model in low income communities on a “for-profit basis” to reduce employment and buying power leakage to other surrounding communities while building an economically beneficial business presence in the market.

There is also sufficient evidence of the positive and advantageous impact of the business format franchise model generally and in low-income markets in which providing training in business skills for entrepreneurs is critical.

Finally, there is sufficient evidence of available franchises that can fill the gaps identified in surveys between existing businesses in the market and the lack of healthy food, retail, fitness and

104 MacArthur Foundation, Program-Related Investments, (2010). 105 Karen E Klein, Paying Back Private Investors, (2008).

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basic business services, in demand by the public, but having no available service provider in the market. And there are examples of franchisors who have unilaterally implemented programs facilitating the training and qualifying of franchisors’ employees interested in becoming a franchisee.

There is, however, a lack of sufficient evidence of how low-income communities, impact investors, universities, government agencies and franchisors have worked together in any of these markets to bring trained and qualified local entrepreneurs the opportunity to operate franchised businesses in the areas so needing attention.

There is a lack of evidence of: 1) how finding, paying for and maintaining resources to support the training and eventual qualifying of a local entrepreneur can be allocated and shared among the franchisor, CDC, impact investors, universities and government agencies; and 2) how revenue can be allocated and shared among the same parties in a fully “ for-profit” environment.

Section 5 of this paper proposes how allocation of time, effort and resources and allocation of revenue can be shared among the appropriate parties permitting a queue of qualified local operators can be established and continue to grow in a market supported by franchisors and community investment on a “ for-profit” basis.

It is hoped that the reporting and analysis described in this paper will provide a foundation for franchisors and community and other investors to engage in building a shared network of resources to foster and scale a program that results in trained qualified local operators at its core. Once the South Dallas Initiative is executed and others take the work to its fruition, it is hoped additional data on the relationship of allocated resources and revenue will be made part of record for future reference.