Joel LibavaBack in 2001, when I was learning about the sales and marketing side of franchising, I attended one of my late Father’s franchise seminars. It was a crucial part of my training, since I would soon be doing seminars on franchise ownership, myself. Look
Dad, (Jerry Libava) was really energetic. (Maybe even more than me!) He loved to get his seminar attendees engaged, and one of the questions he asked of them was this;
Can you guess which type of franchise business type has created more millionaires than any other?
Of course, I had no idea; I knew automobile franchising from a managment perspective. I didn’t know much about franchise consulting/brokering. And, I didn’t know the answer to his question.
A couple of the attendees chimed out some of their guesses, which included;
- McDonald’s
- Burger King
- Hilton Hotels
Well, you get the picture. And then Dad made the attendees wait until the end of his presentation to give them the answer.
He told all of us that dry cleaning franchises have made more millionaires than any other type of franchise business. I had no idea.
Even though I don’t have any data in front of me to verify that statement, the franchise brokerage group that we used to be franchisees of told us the same thing. So, it must be true.
Anyway, think about it; the chemicals used in dry cleaning can’t cost more than a fraction of a penny per item, there isn’t that much labor needed, and there’s no real inventory. (The customer brings in the inventory!)
When was the last time you went to a dry cleaners, and thanked them profusely for charging you “only“ $14.00 to clean a suit. (Plus the $1.75 “environmental” charge.)
Millionaire’s Row
Cleveland, Ohio Mansion. Euclid Ave. Millionaire’s Row. Around 1890.
Now, just because I don’t have the data to support what my Dad and other franchise industry folks have said in the past, doesn’t mean that it’s not true. So, for now, let’s just assume that there’s a ton of money to be made in dry cleaning. Forget that last statement; let’s not assume. There is. I know the owners of a few franchise and non-franchise dry cleaners. They’re loaded.
That’s why the executives at P & G have decided that their company should be in the franchise dry cleaning business. They will make tons of money from royalties! It’s a huge, profitable business! And, they have one heck of a brand to bring to the steam table. Tide®. Except, there’s a little bit of an issue going on. Right now. This week.
If you aren’t in the franchise business, or if you haven’t been following the CNBC “Behind The Counter, The Untold Story of Franchising” saga, here it is in a nutshell;
The CEO of the franchise division of Proctor And Gamble, was interviewed on camera for the CNBC one-hour franchise program. In it, he stated that the royalties that are paid by franchisees of the new Tide® Dry Cleaning franchise are based on net, not gross reciepts/revenues/sales. My wife happened to be watching that part of the CNBC show that night, and said, “Joel, that’s a pretty good deal, huh?” I responded, “that’s unusual, but I like it!”
It turns out that his statement about P & G’s royalty calculation, (royalties are what the franchisor receives from it’s franchisees every month for the use of it’s franchise system. It’s usually a % of gross revenues /sales) was “misstated.” CNBC pulled that segment off of the show, (which had already aired once or twice) and put this paragraph on the bottom of the show’s web page;
“During an exchange in our documentary with Bill Van Epps, CEO of Agile Pursuits, Procter & Gamble’s wholly owned franchise subsidiary, Mr. Van Epps told us that P&G was basing its royalties on net sales, rather than gross sales. It has come to our attention that P&G’s definition of net sales is what other companies call gross sales. Our documentary calls into question the practices by franchisors and shows the viewer how, sometimes, the difference between the franchise business being a profitable one and a losing venture is in the details. We have removed that exchange from the documentary.”
Politically Correct
Now, since I’m really not in the mood to be politically correct, (and rarely am) here’s my thought;
How the heck can a gentleman who’s been in the business world and franchising for many, many years, “misstate” something that huge? On television? If I was a prospective franchise buyer, and I was comparing the merits of two franchises, let’s say One-Hour Martinizing, and Tide Dry Cleaning®, if everthything was equal when I did my flawless franchise due diligence, I’d have to choose Proctor And Gamble’s franchise system on numbers alone. I’d be able to put 5 figures into my own pocket every year, from my royalty savings! Where do I sign?
****************************************************************************************************
So here’s my question;
Why did the experienced CEO of P & G’s franchise division state that franchisees pay royalties on net instead of gross? On television?
Note: When you buy through links on this website, we may earn an affiliate commission. In addition, I've started to use AI to help me craft better article titles and headings.
