Growth | February 2011 | By Marilyn Odesser-Torpey

Churches, Rec Centers Could Be Next Hot Market

Nonprofit organizations can bring strong assets, management, and leadership to a franchising relationship.

When the YWCA of Greater Pittsburgh opened a Nathan’s Famous restaurant within its downtown facility last fall, it marked two milestones for the quick-serve chain. Not only was it the first Nathan’s Famous store to open in Pittsburgh, but it was also the company’s first franchising venture with a nonprofit organization.

While Nathan’s Famous isn’t the first company to enter into such a relationship, it’s helping bring attention to what has become known as social franchising, says Benjamin Litalien, founder and principal of FranchiseWell LLC, a Stafford, Virginia–based company that was instrumental in matching Nathan’s Famous and the YWCA.

Ben & Jerry’s is generally considered to have been the innovator of social franchising with the opening of its first “PartnerShop” in 1987 with The Learning Web, a nonprofit youth development organization in Ithaca, New York. Other companies that have done similar franchising partnerships include Auntie Anne’s, Maggie Moo’s, and Subway, according to a report from Community Wealth Ventures (cwv), a Washington, D.C.–based consulting firm for nonprofits.

One executive at Ben & Jerry’s says its early road to successful social franchising was somewhat rocky. Of the approximately 15 nonprofit organizations that have opened Ben & Jerry’s franchises over the past 25 years, five remain in operation, says Debra Heintz, director of retail operations for Ben & Jerry’s.

Litalien says this fact isn’t surprising because, as with any new venture, there has been—and continues to be—a learning curve, both for the franchisors and their nonprofit partners.

This might be part of the reason that although there are close to two million nonprofit organizations and thousands of franchisors in the U.S., there are fewer than 100 social-franchising ventures in operation. That, Litalien says, leaves ample opportunity for nonprofits to develop sorely needed, sustainable revenue streams to fund their programs and for franchisors to ally with organizations that have the capital, motivation, and community connections to operate successful units.     

“If your concept of a typical nonprofit is the local church or shelter down the street, think again,” Litalien says. “Many public charities are well-heeled, mature operations with significant assets at their disposal, strong management teams, strategic leadership, and political and community clout.” In addition to their existing assets, nonprofits often have access to nontraditional funding sources such as endowments, foundation grants, and sub-market rate loans.   

The YWCA of Greater Pittsburgh had the whole package when it approached Nathan’s Famous about purchasing a franchise.

“We were looking to diversify our investments,” says Pittsburgh YWCA CEO Magdeline Jensen. “And we had a survey showing that more than 160 people walked by our downtown facility every five minutes between the hours of 11 a.m. and 2 p.m. each day.

“It just made sense to us that a well-known quick-service brand offering quality food at a reasonable price point could become a reliable source of income to support our social service programs.”

After the initial meeting, Nathan’s set out to impress the YWCA, says the chain’s vice president of franchise operations, Randy Watts.

“Every operator is fighting for the same sites and customers, so we’re following up every lead,” Watts says. The opening of this site has exceeded high expectations, he says.

When Pastor Darius Pridgen came to Subway wanting to open a unit inside his True Bethel Baptist Church in Buffalo, New York, his primary goals were to inject new economic life into the crime- and poverty-beset neighborhood and offer job training to its residents. Although the church had little room for a retail business, Subway’s flexible footprint offered a viable solution, says Elizabeth Rolfe, director of the chain’s new business development.

True Bethel Baptist Church’s Subway unit has overcome some serious obstacles, including inner-city crime and employee issues, since it opened in 2004, but its overall performance inspired a sister church in Niagara Falls to follow suit.

Even before working with Pridgen, Subway was an active advocate of social franchising. In 1996, the company established a nonprofit-owned franchise with a high school. Today, Subway units can be found in the cafeterias of close to 50 schools throughout the U.S., 30 of which have opened within the past two years and a number of which are franchised by the institutions themselves, Rolfe says.

Fifty-eight of the 180 Subway units in hospitals throughout the country are also nonprofit-owned. Similar locations include a unit within a Goodwill store in Greenville, South Carolina, and one in the Quadco Rehabilitation Center in Stryker, Ohio.

“Many public charities are well-heeled, mature operations with significant assets at their disposal, strong management teams, strategic leadership, and community clout.”

As long as partners are committed to “maintaining the full Subway experience, they are free to adjust operating hours and offer limited menu options to fit their specific needs,” Rolfe says. Otherwise, “we don’t see any difference between nonprofit and traditional Subway franchises.”

Many nonprofits establish wholly owned, for-profit subsidiaries to operate their franchises. Not only does this protect the organization’s nonprofit status, Litalien says, but it makes the accounting process much easier and more consistent. There are also bonuses for the local economy.

“The structure of the new company as a for-profit corporation benefits the City of Pittsburgh by paying taxes on profits as well as real estate tax on the space it occupies,” YWCA’s Jensen says.

For Ben & Jerry’s, the franchise screening process for nonprofits is “much the same as for individuals who are interested in opening a scoop shop from the experiential and financial perspectives,” Heintz says. One major difference, however, is the need for the chain to screen the entire nonprofit organization “to ensure that its overall mission, structure, and long-term goals would be strengthened by a relationship with Ben & Jerry’s.”

While Subway and Nathan’s Famous are actively seeking new nonprofit franchising partners, Ben & Jerry’s no longer accepts such applications.

“It’s been a really tough economy for everyone these past few years, and our scoop shops saw an incredible jump in their competition at the same time the economics of operating a shop became really tough, with leasing costs increasing like crazy,” Heintz says. “I think we’ve realized, too, that all of our scoop shops can serve as excellent job training sites for youth, and we would like to broaden the job training opportunities overall.”