I was wrong on pizza,” admits Mort Fleischer. He thought the local competition would be too strong for a national franchise chain such as Pizza Hut. Now we all know better and Fleischer himself, through his Franchise Financial Corporation of America (FFCA), bankrolls new Pizza Huts.
Despite his pizza misjudgment, the Scottsdale, Ariz.-based financier has generally been right about fast food franchises over the last decade. Founded in 1980, FFCA is now the major financing source in the industry, leasing over 1,200 fast food franchises with every major chain in America, except McDonald’s. In 1989, FFCA distributed $116 million on the $900 million investment of 120,000 limited partners.
“Fast food,” says Fleischer, “is the backbone of the firm’s credit line. It’s not something bankers or S&Ls understand.” When he started FFCA in 1980, Fleischer perceived a “vacuum” in franchise financing and decided to fill it with a specialized operation that would back operations by picking locations with high real estate value. “My goal was to establish the necessary infrastructure.”
Aligning good franchise locations with proven management has, Fleischer claims, resulted in steady growth with only a 2 percent average failure rate for FFCA. What the approved client gets is a fully equipped and leased fast food franchise. What the client pays FFCA is 12.5 percent of FFCA’s investment or 8 percent of sales, whichever is bigger. The payments are deducted automatically from the franchise’s bank account.
In 1980, when Fleischer started FFCA, 90 percent of the franchises he financed were new and 10 percent were existing. By 1990, these figures have been exactly reversed. Also changed is the typical franchisee: The era of the mom and pop single-unit enterprise has given way to multi-franchise operations using efficient management techniques. Fleischer believes 50- to 100-unit franchise owners will become the norm. In the meantime, FFCA is looking for new franchise ideas, and is already promoting an interstate truck stop called Flying J Travel Plazas -having luckily avoided Jiffy Lube. Fleischer, 53, tried clothing, sporting goods, insurance, M&A, real estate, and coal mining before he came up with FFCA. Today he dines at The Four Seasons, not Arby’s.