Starting a new business can be risky at the best of times, especially during periods of economic uncertainty. So Graham Cooke, vice-president of new restaurant expansion for A&W Food Services of Canada, said choosing a strong franchise brand is always a safer way to go.
"People seeking a small-business opportunity can rely on the franchisor to have done a lot of the spadework in terms of marketing, operational excellence, site selection and a whole host of other success factors," Cooke said.
But A&W has not been impervious to the effects of a bad economy.
Although the company's total sales nationwide increased slightly in 2012's second quarter when compared with the same period last year with the net addition of 22 new stores (28 were added, but six closed permanently during 2011), same-store sales decreased by 3%. That's the biggest drop since 2011's first quarter. Year-to-date, same-store sales have decreased 1.4%.
Cooke said the company anticipates that the conditions will remain similar for the next six months but should begin to improve in 2013.
"We expect to see some further ups and downs by region, but overall we expect a continuation of very competitive business conditions pretty much everywhere. We'll therefore need our promotional programs to work harder than ever."
A&W's strategy for dealing with the short-term uncertainty is to focus on a company-wide re-imaging program intended to modernize the brand. Many existing restaurants have already adopted the "Home of the Burger Family" theme and several others are converting.
The cost of the re-imaging is borne by individual franchisees.
"Every eight years, each of our franchisees is contractually committed to modernize their facility to the current A&W standard," said Cooke.
When the HST came into effect in British Columbia in July 2010, it put an additional 7% tax on restaurant food when compared with the previous combined GST and PST regime. The extra tax hurt A&W sales.
"The entire foodservice industry in B.C. has really suffered with the introduction of HST, which had the effect of raising our menu prices by 6% to 7%," said Cooke. "We have noticed some modest recovery in recent weeks, but business is still very competitive here."
That's consistent with what occurred throughout the restaurant industry.
Ian Tostenson, president and CEO of the BC Restaurant & Foodservices Association, told Business in Vancouver that sales dropped industry-wide by about 8% when the HST was introduced.
All of A&W Food Services of Canada's 172 locations in British Columbia are franchises. •
