SOLD!

For Bollywood, the Credit Crunch Means More Slumdog, Less Millionaire

For Bollywood, the Credit Crunch Means More Slumdog, Less Millionaire

HEARD ON THE STREET APRIL 4, 2009

By DEEPALI GUPTA

No money, no film; no film, no money. Bollywood is in a tough spot.

Lacking financing, India's movie producers are unable to finish and market their films. It could mean as many as half of the films scheduled for release this year mightn't make it, industry officials say.

The results speak for themselves. Bollywood, an industry that generates annual global revenue of above $2 billion, has released only about 20 major films -- targeted India-wide, with a reasonable publicity budget -- so far this year.

Associated PressBollywood actress Ameesha Patel gestures during a promotional event in Ahmadabad, India, Tuesday, March 31, 2009. (AP Photo/Ajit Solanki)
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That is down from about 100 for the same period in past years, estimates UTV Software, a large movie production and distribution company.

Without these blockbusters, and the marketing behind them, to lure audiences into cinemas, ticket buyers are staying home. Cinema occupancy in India has dropped to 40%, from as high as 60% at the end of 2007, analysts estimate.

So the film industry is being forced to change the way it does business. Song and dance routines may be less flashy. And massive upfront salaries for film stars -- actors' pay accounts for nearly half of a film's typical budget -- are out.

Already, two of Bollywood's top male leads, Shah Rukh Khan and Aamir Khan, have agreed to be paid out of film profits instead of a straight salary. More are agreeing to similar profit-sharing terms.

Total film budgets could be cut as much as 30% to 45%, and more funds will go toward publicity to draw audiences, says Sheetal Talwar, managing director of Vistaar Religare, a $40 million fund that invests in films.

Some are hoping low-cost but high-quality content targeting the urban elite -- pointing to the success of "Slumdog Millionaire" -- will get them out of this spot.

Still, one thing Bollywood mightn't be able to address is cheaper alternative entertainment that has been keeping audiences at home. A key new rival is the TV broadcast of the Indian Premier League cricket tournament.

A spat between the producers and cineplexes that screen their films could make a bad situation worse. The producers have threatened that, unless they get a full half of ticket sales, they will stop releasing films entirely, as of Saturday.

This is a hard bargain to drive. As it is, multiplexes -- which currently share between 38% and 48% of collections, according to the finance chief of one large chain -- are dropping ticket prices. Movie-goers also aren't spending as much on high-margin food and beverages.

The key to combating Bollywood's malaise could be spending more money on promotion to draw in audiences.

The snag: That requires financing to flow again.

Learn to Impress Lenders

Learn to Impress Lenders
Proper preparation is key when you're angling for money to fund your business.
By JOSEPH BENOIT, ENTREPRENEUR.COM
Posted: 2009-08-11 13:21:31
Filed Under: Small Business, Small Business Funding

While obtaining a loan may be challenging amid the current economic climate, you can increase your viability as a loan candidate by taking steps to prepare for that initial meeting with a lender.

First, be thorough when preparing documents a lender may request. These include: past financial statements and tax returns, a copy of your current note and payment schedule (if your business is already established), and a detailed business plan.

Your business plan should include:

* Executive summary: A critical introductory statement encapsulating the main points of the plan; a window into every facet of your business.
* Market analysis: A thorough overview of your industry, target market and competitors.
* Company profile: A summary of your company's industry and a description of the elements that will make your business stand out.
* Organization description: A description of your management and organizational structure, the marketing and sales strategy; a description of services or products and financial information, including the requested loan amount, your company's current and forecasted income statements, balance sheets and cash-flow statements.

In addition to preparing a comprehensive business plan, consider these strategies prior to seeking a small-business loan:

* Contact a financial advisor early. Consider cultivating a relationship with your financial advisor before you need a loan. By establishing a relationship early on, you can build a foundation the advisor can draw on later to make a determination about a loan.
* Research loan options. Find out which loan options will best suit your needs and be prepared to discuss these options when meeting with a lender. Will you seek a secured (collateral-backed) or unsecured loan, and what type of payment terms would best meet the needs of your business?
* Plan ahead. Anticipate the questions a lender may pose and have honest, well-researched answers ready. Decisions to lend are fact-based; don't be idealistic when answering questions and providing projections. Lenders will appreciate your practical perspective. It may also be wise to organize all of your documents prior to the meeting for easy access to specific items when requested and to highlight your meticulous attention to details.
* Lend to your venture. Amid the tightened credit market, managing risk is increasingly important for lenders. With this in mind, consider providing ample collateral or money toward your venture if possible. Your willingness to invest in your success may reflect added confidence in your plan.
* Preparation before meeting with your lender is key. The time and commitment you dedicate in advance may help increase your appeal as a solid loan candidate in this competitive market.

Joseph Benoit is the small business banking executive for Union Bank, N.A. Visit www.unionbank.com for more information.

Coffee perks up McDonald’s global sales

Coffee perks up McDonald’s global sales
By Jenny Wiggins in London

Published: August 10 2009 17:51 Last updated: August 10 2009 23:43

McDonald’s move into mochas and iced lattes has helped the fast-food chain report its seventh consecutive month of increases in global sales this year, underscoring the resilience of its business model in the recession.

The company’s shares rose 1.9 per cent on Monday to $56.27 after it said comparable-stores sales had risen 4.3 per cent in July, compared with an increase of 8 per cent a year earlier but beating analysts’ consensus expectations of a 3.2 per cent climb and ahead of June’s 2.6 per cent rise.

Jason West, analyst at Deutsche Bank, said the global sales increase had alleviated concern about a possible “downward spiral” in comparable sales, as had been seen at competitors like Burger King. “Globally, they have not had a negative month [in sales] in several years,” he said.

Sales were up 2.6 per cent in the US – which contributes about half the company’s profits – because of strong sales of coffees and core menu items like hamburgers and fries.

McDonald’s expansion into fancy coffees under the McCafé brand is part of a strategy to capture more customers at breakfast time and win them over from coffee chains to its lower-priced drinks.

The move has forced Starbucks to defend its brand. It has been running marketing campaigns with the slogan: “It’s not just coffee. It’s Starbucks.”

In the US, McDonald’s is selling espressos and mochas in its existing stores.

In Europe, it is emulating its Australian business and opening separate McCafé counters, operating in or next to its restaurants. The group plans to have 1,200 McCafés in Europe by the end of the year.

McDonald’s strongest sales were in Europe, up 7.2 per cent because of the popularity of its “tiered menu” – which offers cheap, middling and expensive options – as well as summer specials such as chicken, bacon and onion sandwiches in France and burgers based on the “great tastes of America” in the UK.

These include a “New York special”, which has beef, streaky bacon, smoked cheese, lettuce, onions and onion mayo in a chilli, chive and sesame bun.

In Asia-Pacific, Middle East and Africa – which make up 13 per cent of total profit – sales rose 2.1 per cent. McDonald’s attributed the rise to the “creativity” of its Australian business, which runs marketing campaigns based on a single theme – currently, family – and has introduced apple and cinnamon mini-muffins and spinach feta strudels, as well as opening more 24-hour and drive-through stores.

But sales in China, where it has been slowing new store openings, were weaker as consumers favour cheaper local brands.

McDonald’s has some 1,000 stores in China and plans to open 150 this year, compared with earlier projections of 175.

Just SOLD!

Chains, franchisees square off over discounted menu items

Chains, franchisees square off over discounted menu items


By RON RUGGLESS

(July 27, 2009) The recession-driven rush to grease sales with promotions and value deals is leading to mounting frictions between franchisors and franchisees.

Brands such as Burger King, McDonald’s, Quiznos, Subway, Popeyes and KFC all have recently found themselves working to restore the delicate balance between the franchisor’s need to drive traffic and the franchisee’s need to protect margins.

Burger King recently battled franchisees over plans to offer a $1 double cheeseburger.
Most recently, Burger King franchisees in mid-July twice rejected plans by Burger King Corp. to offer a $1 double cheeseburger that could square off against value items from quick-service competitors. The Miami-based franchisor eventually capitulated, deciding to offer the value item with a coupon program planned for August.

“It’s a challenge for any franchisor to push through a promo that cuts at franchisee’s profit margins,” said Lorne Fisher, chief executive and owner of Fish Consulting Inc. in Hollywood, Fla., whose clients include a number of restaurant and retail franchisors.

Communication from both parties is key to dissipating such tensions, Fisher said.

“From our experience, it is important to quantify the benefits to the franchisee to ensure they understand the value despite the cut in margin,” Fisher said.

“Whether the increase comes in consumer traffic, average check size or brand awareness, the franchisor must be able to present the tangible benefit to sell the promotion successfully and maximize the system’s participation,” he said.

Quiznos is among the franchisors that have run into conflict with franchisees this year. The Denver-based franchisor encountered wide pushback from franchisees over the $5.29 sandwiches it had hoped to give away in its “Million Sub Giveaway.” McDonald’s franchisees reportedly expressed concerned over the national introduction of the premium Angus burger in early July, while some Subway franchisees were upset by the chain’s ongoing “$5 Footlong” promotion.

Tempers also flared at both Popeyes and KFC over one-day product giveaways that found many franchisees emptying their larders as cash-strapped consumers rushed in for free goods. KFC’s high-profile marketing boost from Oprah Winfrey exacerbated the situation.

Burger King on July 14 reached detente with its franchisees when it said it would beef up the promotion of its $1 Whopper Jr. and feature the double cheeseburger in an August coupon offer.

“Burger King Corp. remains fully focused on its value offerings and delivering value for the money to its guests,” the company said in a statement. “As such, many product and menu options are always in development and under consideration.”

The company added, “BKC will also be deploying traffic-driving national coupons to nearly 80 million households during this time period with almost $50 in savings per coupon booklet.”

A spokeswoman added: “The direct-mail coupon book includes a $1 double cheeseburger offer from Burger King restaurants, and with more beef than a similar sandwich from McDonald’s, the offer will represent motivating affordability to burger lovers nationwide.”

McDonald’s replaced its double cheeseburger that had been on its Dollar Menu with the McDouble, above, which has only one slice of cheese.
Rival McDonald’s raised the price of its double cheeseburger from $1 to $1.19 late last year amid rising costs and franchisee complaints that a profit could not be made on the item. The double cheeseburger was replaced on the Dollar Menu with the McDouble sandwich, which contains two patties but only one slice of cheese.

Joe Buckley, an analyst with Bank of America-Merrill Lynch, said in a report that franchisee tension stemming from an ongoing soft-drink contract dispute could be a roadblock for Burger King as it seeks to add value offerings to drive traffic.

“We are concerned that the lack of alignment between Burger King and its franchisees could complicate efforts to turn sales,” Buckley said in downgrading the stock to “neutral” from “buy.”

The economic downturn has only served to heighten franchisee-franchisor tensions. Analysts said low-margin promotions in flush times could be a “loss leader,” drawing in customers who may buy additional, more profitable items to raise the check average. However, as patrons cut back on those extras, the “loss” loses its “leader,” and the franchisee is left holding the bag.

McDonald’s recent introduction of both the new coffee line, of which both the iced and hot mocha are being offered for free on Mondays through Aug. 3, and the new premium Angus burger have raised the eyebrows of franchisees. They have expressed concern that McDonald’s is trending too far away from its value focus and placing too much strain on franchisee operations.

In an April survey of McDonald’s franchisees by former stock analyst and independent researcher Mark Kalinowski, one unidentified McDonald’s franchisee called the Angus burger “another poor-margin item.”

However, Danya Proud, McDonald’s senior manager of U.S. communications, said many franchisees’ concerns were allayed.

“The franchisees told us they couldn’t get it in their restaurants quickly enough,” she told Nation’s Restaurant News earlier this month. “I think people misconstrued things. During the early stages of the test we were using a slightly bigger burger that would have required new equipment. But we went to slightly smaller burgers that can be prepared on existing grills.” —rruggles@nrn.com

Restaurants, Franchising and Discounting

Restaurants, Franchising and Discounting
by john a. gordon

In a June 23 New York Times Business article, Discounts Have Restaurants Eating Own Lunch, the woes of chain restaurants offering discounts—and the possible long term effect of doing so, was well outlined. The following passage caught my eye:A T.G.I. Friday’s promotion in April and May offering $5 sandwiches and salads led to a small-scale revolt among franchisees. Ross Farro, who has seven T.G.I. Friday’s restaurants in Ohio and Pennsylvania, said the promotion included salads that normally sell for as much as $10 and a steak sandwich priced at $11.89 on the regular menu. The ingredients alone for each steak sandwich cost about $4, he said.

The promotion was supposed to run at lunch and dinner, but Mr. Farro said he and some other franchisees put away the $5 menu inserts at night to stop the bleeding.

This was not the first such example just this year of such issues plaguing chain restaurants and franchisees. Sonic (SONC), for example, has been struggling for almost the entire last year by promoting either drinks or its $1 value menu, and having declines in average customer ticket, not offset by increases in customer traffic. It reported earnings on June 23, which were still weak. And Burger King (BKC) and Subway franchisees have also noted the same problem. But Subway units, with their overwhelming US presence, seem to be visually busy, and seem to of the right scale.

Routinely, in my field visits of restaurants so far this year, I find situations where the company’s central marketing thrust is all but hidden or ignored by misplaced restaurant outdoor posters, in store merchandizing, OR where cashiers actually “trade down” customers to the more discounted offers, from a higher margined item. Either action results in a very sub-optimal outcome.

In the example above, the TG I Friday’s franchisee pointed to a gross margin of only about 20% on that particular steak sandwich item. That’s far below the typical 60-70% margin. I’d bet that not every item in the mix resulted in such a steep discount. But any discount means that incremental sales traffic must be generated to offset the lower margin resulting from the promoted item sales.

Franchisees are more margin centric in their needs and outlook, while the large publicly traded companies are more comp sales oriented, because that is a key metric The Street is looking for.

A lot of that tension is due to the franchise model, where franchisors get royalties based on sales but franchisees make profit the old fashioned way, taking what’s left after expenses are paid. Also, franchisees generally have higher cost of capital (if they can get credit at all right now) and have lower potential margin structures, as they must pay a royalty to the franchisor off the top, usually 3-8%.

Very clearly, deal and value is very important in retailing, but how do you drive it optimally?

One, is that you avoid the mistakes noted in the TGI Fridays example above: work to make the discounts meaningful but not such that individual item sales are slashed beyond feasible (rule of thumb: 50% gross margin is a starting point).

Another is that Fridays could have limited the discount to lunch only—most casual dining operators are slower daytimes and are much busier in the evening. Work to fill in your gaps but play to your strengths.

Another is offering attractive, limited time offers with the price point and margin you can tolerate. Both Brinker (EAT) and Darden (DRI) have kept their product development groups busy lately, creating and rolling out such items.

About the author: John A. Gordon is with Pacific Management Consulting Group, an analytically oriented chain restaurant management consultancy; focused on restaurant economics and earnings