Homegrown LI franchises spread, offering rewards, risks

Small business owners on Long Island looking to expand their brand are increasingly deciding to franchise their companies.

The Island is dotted with franchise operations that started here, ranging from iLoveKickboxing to candy store chain Chocolate Works, to wellness franchise Phountain.

More than 40 franchise companies that began in Nassau or Suffolk counties are still headquartered locally, state records and research show. The pace of converting to a franchise model seems to be accelerating: More than 25 did so in 2011 or later, although some, such as Minuteman Press, a marketing and advertising service provider, have been around for decades.

Franchise models have spread on Long Island and nationally because the economy has gotten stronger and the franchise industry has received publicity as more concepts are introduced, resulting in the creation of jobs, franchising experts said.

Long Island is an attractive market for franchises because of its diverse and dense population with high incomes, access to capital, and proximity to New York City, experts said.

“As franchising continues to grow as an industry, more franchises will continue to open on Long Island,” said Ed Teixeira, chief operating officer for research firm FranchiseGrade.com, who lives in Stony Brook.

To create a franchise company, an existing business has to be successful, have funds to invest, and have a model that franchisees can follow. A franchise attorney prepares the franchise disclosure document and the franchise agreement. A consultant can assist in designing the operations and training manuals. The franchisor would need to register with the state before promoting and selling to franchisees.

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The cost of buying a Long Island franchise ranges from $60,000 for a marketing and advertising shop to $1.2 million for a fitness club. Franchisees usually pay the franchisor a fixed percentage of their sales as a monthly royalty, and an advertising fee for promotion. In return, franchisees get training, equipment, supplies, and assistance with accounting and marketing.

“The major benefit of franchising is the ability to grow a system more rapidly, utilizing the investment capital that franchisees are providing,” Teixeira said.

The cost of becoming a franchise company can typically run from $75,000 to $150,000, and can take from six months to a couple of years.

For those wanting to own a business, franchises offer a track record, brand recognition and guidance, said Melville franchise lawyer Harold Kestenbaum, who has worked for more than 40 years with franchisors.

Franchising grew faster “during the recession because people were unemployed and the only way for them to find jobs was to open their own businesses,” Kestenbaum said. Buying a franchise that started on Long Island may be less expensive and more accessible, since many of the bigger franchisors, such as McDonald’s or Subway, are already taken here, Kestenbaum said.

Matt Haller, senior vice president of public affairs for the International Franchise Association, a Washington, D.C., trade group, said new franchises offer a higher potential reward, but he cautioned: “There is also a lot more risk with working with an emerging brand than an established brand.”

One of Long Island’s oldest franchises is family-owned and operated Minuteman Press, based in Farmingdale, which was founded in 1973. The company began franchising in 1975 and has grown to about 950 locations around the world, with 29 stores on Long Island. The company has 45 employees at its headquarters and does not have any corporate-owned stores. Last year, the company said it had more than $400 million in revenue.

Franchising “is a tried and proven method of success,” said Bob Titus, 62, president and chief executive of Minuteman Press. “You can take anyone from any walk of life, and if they follow the program and do what is laid out, they can be successful.” Minuteman Press requires a total investment of $62,207 to $161,865 to open a location, depending on how it is financed and landlord requirements, plus a 6 percent royalty from sales.

The Federal Trade Commission sets guidelines for what constitutes a franchise and how it should operate. However, states individually verify or enforce business registrations. In New York, the Office of the Attorney General’s Investor Protection Bureau is responsible for registering franchisors and protecting franchisees.

The initial registration filing fee for a startup franchisor is $750, and franchise registration renewals are $150 a year.

Lake Success-based in-home-health-care franchise CareBuilders at Home, founded in 2012, has 15 franchise locations in the United States, but none in New York. It chose to become a franchise in Texas, where the process took six months.

“New York State has very stringent regulations, and it could take a couple of years to actually get a license,” said David Savitsky, chief executive of CareBuilders at Home, which requires a total investment of $85,000 to $155,000, plus an 8 percent royalty.

One franchisor looking to expand is Josh York, chief executive of GymGuyz, a Plainview company he formed in 2008. The company has mobile vans stocked with gym equipment for trainers to bring the workout to the client at home or at work.

GymGuyz, whose clients range from individuals to day care and senior centers, became a franchise in 2014 and has grown to 71 locations in 14 states with 178 employees, including three franchisor-owned locations. By the end of the year, it expects to have $3.5 million in revenue and 100 locations in 20 states.

“It is very easy to scale the business,” said York, 33, adding the total investment to open a location is $75,000, plus a 6 percent royalty and 2 percent ad fee. “You are in a moving billboard. Our profit margins are going to be higher because of the fact that there is no brick-and-mortar, so expenses are really low.”

Chocolate Works founder Joe Whaley, 41, franchised in 2013, has grown within New York and plans to expand to other states. Freeport-based Chocolate Works has 20 units in five states, two of which are franchisor-owned, and about 35 employees. In the stores, kids and adults can mold and decorate their own chocolate and candy creations.

“We have retail, corporate, and then we have parties, events and workshops in the shop,” Whaley said. The total investment for franchisees is between $260,000 and $400,000, plus a 5 percent royalty and 1 percent ad fee.

Merrick-based iLoveKickboxing started as a licensing business — giving others permission to use the brand concept in return for payment — in 2009, and became a franchise in 2012. Chief executive Michael Parrella eventually phased out the licenses. “Franchising was a better opportunity, not just a more exponential financial growth, but more control over quality for the brand,” said Parrella, 49.

There are now 157 iLoveKickboxing locations in the U.S., Peru and Canada, including eight locations owned by Parrella. Last year, the company booked $18 million in revenue, and it is projected to reach $30 million this year. Opening a unit costs $250,000, plus a 6 percent royalty and 1 percent ad fee.

Phountain, based in Lindenhurst, was started in 2010. Its customers refill canisters with alkaline water and buy detox products.

Glenn Taylor, founder and chief executive, said the business model depends on building rapport with customers. The company, which has about 40 employees, became a franchise in September 2015 after a six-month process. It has eight locations, two of which are franchisee-owned.

Taylor, 44, said he is relying on independent franchise owners as the business grows. “A manager comes and opens up the store. An owner picks up all the garbage as they are walking into the store.” The total investment to open a franchise location is $150,000 to $250,000, plus a 4 percent royalty and 1 percent ad fee.

Energy Fitness, a St. James-based chain of three clubs on Long Island that was founded in 2003, started pitching its brand to potential owners after officially becoming a franchise in May, after a two-year process. The company, with 130 employees, offers personal training, a nutrition program, physical therapy and acupuncture in an 8,000- to 10,000-square-foot space. The total investment is $700,000 to $1.2 million, plus a 6 percent royalty and 1.5 percent ad fee.

“We felt this model lends itself well for people who have a passion for owning their own fitness opportunity but can’t open a big-box gym,” said Michael Tucci, 36, founder and chief executive.

Managing franchisees is essential. “The biggest challenge is trying to herd the cats,” said Marc Shuman, owner of GarageTek, a Melville-based company started in 2000 that installs custom garages and became a franchise in 2001. “You have to have product development, strategic planning, brand development and manage legal issues.” GarageTek has about 30 U.S. franchisees and three international operators, but it is no longer selling franchises. Franchisees pay a 6 percent royalty and 4 percent ad fee.

A franchise business could fail if there is not enough revenue for franchisees to earn a profit, new stores open in the wrong locations or if the market is saturated, experts said. Increases in the minimum wage, and new overtime rules for managers that go into effect on Dec. 1 add new pressures.

“Not every franchise succeeds,” Kestenbaum said. “It is not guaranteed that a franchisee will make it, but they have a better chance than if they try to do it by themselves.”