Franchising loans account for a major share of the U.S. Small Business Administration's loan approvals in New Jersey. A lot of those new businesses are not fast food restaurants.
MONTCLAIR--Colleen Carlee, a former Wall Street trader, was looking to start her own business when she came across what she thought was an unusual franchising idea that paired art lessons with drinking wine.
While it might sound like a recipe for really sloppy abstract expressionism, she was hooked.
"I thought it was an interesting concept. It's a really fun night out. It was something I would do with my girlfriends," she said.
Not long afterward, she opened up her own Pinot's Palette franchise in Montclair, a "paint and sip" studio that hosts wine and painting classes as well as and private parties.
The brainchild of a two friends from Houston batting around potential business idea, Pinot's Palette now has more than 180 studios open or under development, including Carlee's business on Bloomfield Avenue.
Art classes at Pinot's Palette in Montclair, a "paint and sip" franchise that now has more than 15 locations in New Jersey. (Photo by Pinot's Palette)
"I didn't have experience in opening a business. It was a little daunting to me," recounted the Verona entrepreneur, who had no background in art. "But a franchise is different. They gave me a roadmap."
There are hundreds of retail franchises in New Jersey, from big, iconic fast food operations with familiar golden arches, to Carlee's downtown studio.
It's all big business. The U.S. Small Business Administration said, franchising loans accounting for 11 percent of the SBA's $806 million in loan approvals in New Jersey last year.
That represented 160 loans totaling $86.4 million in fiscal 2016, said a spokesman. In this fiscal year, it has so far approved 71 franchise loans for $32.3 million.
Elayne McClaine, regional director of the N.J. Small Business Development Center at Rutgers Business School-New Brunswick, said franchises offer more than just a roadmap. It is far easier to get financing for businesses that have an operating history, she said.
"That's the cold reality," remarked McClaine. "No bank is going to lend money to someone without a track history. You can have an idea with the best intentions. But most people in the lending business want to see financials in place."
The likelihood of success for those who start a business from scratch has always been small, she noted, with many under-capitalized and most never becoming a viable business entity. Not only are established businesses more attractive to a lender, but she pointed out that franchises themselves have vetted out the financial wherewithal of applicants before a contract is signed.
That's not to say franchising is a road to easy street.
Subway Restaurants, which are entirely owned by franchises, said it lost 359 U.S. locations last year--the first time the Milford, Conn.-based company had a net reduction. The third-largest franchise operation in New Jersey, Subway has the most outlets of any food chain in the country, although McDonald's Corp. is No. 1 by sales. It said in a statement said the decline reflected a "focus on international growth."
Some of the biggest growth in franchising these days is concentrated in the specialized segments of the market, according to Ritwik Donde a senior analyst with FRANdata, an Arlington, Va.-based data analysis company that tracks the franchising industry.
"That's where the money is right now," he said, pointing to the emergence of new players in fitness centers, trampoline parks and home health care services like senior care. Even tutoring has specialized franchises that teach robotics and STEM (science, technology and math) classes.
"There are medical marijuana concepts. Hair care is growing rapidly. One of the hot topics is wine and painting," he said. "I'm still amazed at how the business model allows itself to expand."
But the reasons relate to why people still look to buy fast food restaurants with recognizable names, rather than open up a place with its own unique character.
"You get a grand name recognition. You get the strength and support of marketing and supply," Donde said. "If I put a Dunkin' Donuts versus a Joe's Coffee Shop, Dunkin provides the brand recognition right from the start."
For customers, he said they know immediately what they will find if they go into a Dunkin' Donuts.
"There are quality standards, so Dunkin' Donuts tastes the same in New Jersey as it does in Virginia," the analyst said. "Then you have the pricing relationships. The economies of scale."
While one would think food franchises dominate franchising, 65 percent of the 3,400 franchise brands are not food related, including handyman and maid services, plumbing, commercial cleaning and hair care, which have a far lower cost of entry for those seeking to be their own boss, than a major fast food restaurant.
SBA officials say there are some who come up with their own franchise plans, pointing to Lucas Kovalcik and high school friend Timothy Walsh, who got their franchising idea from their love of climbing. It began after they opened The Gravity Vault, an indoor rock climbing gym in Upper Saddle River, in 2005.
Climbers at The Gravity Vault in Chatham, an indoor rock climbing gym. (David Gard | NJ Advance Media file photo)
"We had a number of people coming to us, asking advice," said Kolvalcik, who had studied hotel management in college. "There are a lot of mental and physical benefits to the sport and we wanted to share it with people."
Together, the two came up with a franchising concept and a business plan, helping investors with site selection, floor plans and wall design, instruction and marketing.
In addition to their own three gyms, there are now three Gravity Vault franchise locations in operation as well. It has become his full-time job.
In Montclair, Carlee said it took a while for people to understand the idea of "sip and paint," but in a downtown that has dozens of restaurants in walking distance, she has no shortage of foot traffic. She recently opened a second Pinot's Palette with a partner in Nutley.
"The biggest thing is finding great instructors with a good personality and make it great evening," she said.
At the same time, she said she would not have been able to do it without a franchiser holding her hand.
"Trying to do it on my own would have been overwhelming," Carlee said.
Ted Sherman may be reached at tsherman@njadvancemedia.com. Follow him on Twitter @TedShermanSL. Facebook: @TedSherman.reporter. Find NJ.com on Facebook.