More than just window dressing: programs to increase black participation in the franchise industry are nothing new; time will tell if the newest initiatives are just for show - includes rankings of the top 50 black-owned franchises and how Black Enterprise compiled the list - Cover Story

Black Enterprise, Sept, 1994 by Carolyn M. Brown

IT SEEMS LIKE JUST YESTERDAY that Donald J. Bohana began dishing up sould food and enticing customers to his Denny's 'n the 'hood. It was the first family-style restaurant to open in Watts since the 1965 riots.

Bohana's eclectic menu--featuring soul food delights such as collard greens and chitlins as well as pancakes and burgers--was unlike that of any other Denny's outlet. But the nation's first African-American-owned Denny's did more than serve food. It provided jobs and hope to an urban community still smoldering from the civil unrest ignited by the not-guilty verdict returned in the trial of the Los Angeles police officers who beat Rodney King.

Two years since its opening, Denny's of Watts-Willowbrook is still in business at the Kenneth Hahn Shopping Plaza. Some 45 employees continue to serve the restaurant's regular neighborhood patrons. What's missing is Bohana.

The parent company of Denny's Restaurants, Flagstar Companies Inc. in Spartanburg, S.C., took over its only black-owned franchise because Bohana couldn't meet his financial obligations, namely payments on a $735,000 county government loan. It could take another year before Denny's gets a new owner for the Watts restaurant.

Flagstar says it is committed to putting a minority back in charge of the Watts area outlet, says Gaylon Smith, Denny's vice president of franchise development. Smith says Denny's is considering 28 African-American candidates for its roster of franchisees, which totals 1,500.

This newfound commitment to black business opportunity is not a response to some benevolent urge. It comes off the heels of a $46 million settlement of two class-action discrimination suits against Denny's. Both claims were filed in 1993; the first, from 18 young people in San Jose, Calif., who alleged that Denny's made them pay for their meal before eating because they were black. The second involved the Martin Luther King Jr. All Children's Choir of Raleigh, N.C. They accused Denny's restaurants in Woodbridge, N.J., and Dale City, Va., of refusing them service because of their race and not the size of the group as Denny's representatives claimed.

As part of the settlement last May, the $1.5 billion family-restaurant chain signed a Fair Share Agreement with the NAACP. The pact calls for greater minority participation in franchising, management, marketing, purchasing and professional services.

Denny's is one of several franchise companies to launch new initiatives to recruit minority franchisees during the past year. Why has minority business opportunity suddenly become a priority again in the franchising industry? It depends on who you ask.

Franchise companies--whether they're launching first-time initiatives like Denny's, or revamping programs, such as Burger King--insist that their commitment to effective minority business development is simply smart business, given that minorities are often their No. 1 consumers. That is the view held by Terrian Barnes-Bryant, vice president of research/minority and women's affairs with the International Franchise Association (IFA) in Washington, D.C., which represents some 800 franchisors and 2,400 franchisees. She says franchise companies are making their outlets more attractive to African-Americans, "through formal minority recruitment programs and by showing a sensitivity to the particular problems and needs of minority franchisees."

But industry insiders representing the interests of franchisees have their doubts. "Some of these in-house initiatives are nothing but smoke and mirrors," says Susan P. Kezios, president of the Chicagobased Women in Franchising, a group that provides services for women and minorities interested in becoming franchisees. Other programs, she adds, "are tackling the last markets on franchisors' list of priorities--women and minorities."

TINY STEPS AND GIANT LEAPS

Whether franchisors are taking giant leaps of faith or tiny incremental steps to effect change, the numbers paint the picture. Only 4.23% of the more than 75,000 franchise units represented by the 1994 BLACK ENTERPRISE FRANCHISE 50 are black owned. (The BE FRANCHISE 50 is the eighth annual listing of franchise companies with the most black-owned franchised outlets. See sidebar, "Compiling the BE FRANCHISE 50.") Meanwhile, the total number of minority-owned franchises industry-wide has edged up only slightly to 5% from 2.5% in 1990--and that figure includes black franchisees.

There is, however, a brighter story to tell. A number of African-Americans have made inroads in franchising as multiple operators. The biggest revenue generators, say industry experts, are those franchisees who own and operate more than one unit.

Three BE 100s companies are among the most visible black multiple-franchise operators. Thompson Hospitality L.P. became one of the nation's largest black-owned companies in 1992, when Warren M. Thompson acquired 31 Bob's Big Boy restaurants for $13.1 million from Marriott Corp. (11 of the units were converted to Shoney's restaurants). No. 44 on the BE INDUSTRIAL/SERVICE 100, THLP in Reston, Va., had revenues of $34.3 million in 1993. Another entrepreneur who cooked up a huge deal in 1992 was Larry Lundy. He purchased 31 Pizza Hut restaurants for $15.5 million. New Orleans-based Lundy Enterprises, No. 69 on the BE INDUSTRIAL/SERVICE 100, generated $23.3 million in revenues last year. By far the largest black-owned Burger King franchise is V&J Foods Inc., No. 70 on the BE INDUSTRIAL/SERVICE 100. The 10-year-old Milwaukee-based business grossed $23 million in 1993. Last May, CEO and founder Valerie Daniels-Carter snared a 17-store deal, bringing the company's royal total to 32 Burger King outlets in Wisconsin and Michigan.