Tuesday, October 2, 2012 | Edited by Daniel Moores
||People Are Refinancing -- Again and Again
Many homeowners are feeling a tad richer after refinancing -- some again and again -- thanks to the Fed's never-ending efforts to drive down interest rates.
Call it the refi redo.
Some homeowners nationwide are in the unusual spot of refinancing a couple of times in the past few years. The saga could continue in the months ahead, after the Federal Reserve's extra efforts to keep mortgage rates low.
"It makes all the sense in the world," said Greg McBride, senior financial analyst for Bankrate.com.
Some borrowers can save money when they spot a rate that's at least half a percentage point lower than their existing rate, experts say. More typically, people tend to move when they see more than a full percentage-point drop.
Robert Traviss, 48, refinanced last month -- the second time in four years -- and saved roughly $150 a month.
Traviss, who lives in Monroe, Mich., and works at a utility company, said that he and his wife started with a rate around 8% in 1999, refinanced to about 6% in 2008, refinanced again in September, and now have a rate at 3.75%.
The couple, who owe $112,000 on their mortgage, pay extra each month so they're not just refinancing and dragging out the mortgage another 30 years.
"It's kind of a no-brainer to save $200 when everybody's hurting these days," he said.
Take another example: Say a homeowner refinanced a $200,000 mortgage in January at a rate of 4.25%. If that homeowner now refinances to 3.7%, McBride said, he or she would save $63 a month. The monthly mortgage payment would drop to $920 from $983 a month.
To be sure, we're not talking about the highflying days of refinancing when people grabbed thousands of extra dollars out of the house to pay for cars, trips or other goodies.
Data from mortgage giant Freddie Mac showed that in the second quarter of this year, 23% of homeowners who refinanced reduced their principal balance during the process, and 59% maintained the same loan amount. The percentage of borrowers keeping about the same loan amount was the highest in the 27 years of tracking.
Naomi Pennington, 69, who lives outside of Houston, didn't want to tap into equity when she refinanced in September.
"Who would want to owe more money?" she said. Instead, she refinanced to drop her rate by about three percentage points to 4.25%. She's saving $300 a month on the payment. It's her second refinance in five years. Refinancing only makes sense to her if you don't end up owing more money.
These days, some homeowners who refinance might bring extra money to the table to be able to pay a little more toward what they owe, said Joel Gurman, vice president of mortgage banking for Quicken Loans.
As people refinance for the second go-around in a few years, Gurman said, some might opt to go with a shorter-term mortgage, maybe 20 years or 15 years, to save money in the long term. Quicken has a product called "Yourgage" that has a customized term ranging from eight years to 29 years.
Refinancing, of course, is a math problem -- how much will it cost you to refinance to save X amount of dollars? How long will it take you to recoup the costs?
"Refinancing does have costs," said Kathy Conley, housing specialist for GreenPath Debt Solutions, a non-profit HUD-approved housing counseling agency.
It might not make sense for someone in their 80s to spend $4,000 upfront to save $50 a month, she said. Others can look at their costs, how long they plan to remain in the home and explore various types of loan products. Talking to a housing counselor in advance can help work out the numbers.
Mark Stevens, a regional sales executive for Bank of America overseeing Michigan, Ohio and upstate New York, said he's seeing more daily refinance applications now than in the previous month -- thanks to the Fed's latest move.
"People are more focused on how do they improve their situation and not increase debt," Stevens said.
His advice to consumers is to not rule anything out. Some federal programs covering Fannie Mae and Freddie Mac mortgages allow for refinancing even if the homeowner owes more than the house is worth.
"Don't think that you can't do it," Stevens said.
What works -- and what doesn't -- for a refi redo:
Some people who refinanced a year or two ago might not qualify for refinancing again.
For example, what if both the husband and wife worked in 2010 but one retired or lost a job this year. If only one person instead of two is working, their income would be much smaller than when they took out the loan, and they might not qualify again. If the debt-to-income ratio is now above 40%, that becomes a red flag for the lender, said McBride.
Some who recently became self-employed could face roadblocks, too.
A homeowner needs a job or income. The refinance application could be turned down if you're now out of work.
A homeowner who owes far more than the house is worth is still not going to be able to refinance with a traditional mortgage. Their best bet would be the Home Affordable Refinance Program. But if you've already refinanced once under that program, you cannot refinance with it a second time.
Most experts say homeowners should start with their original lender to see about any streamlining options for that refinance. But it's key to compare options at various lenders, too.
The good news is that many homeowners have time to shop.
"There's no deadline pressure. The Fed's not going to increase rates tomorrow afternoon," said Keith Gumbinger, vice president for HSH.com, a mortgage-information website.
"Not for a bunch of afternoons."
(Source: USA Today, 09/27/12)
||Supermarkets Aim to Win Back Health-Food Shoppers
Traditional supermarkets are investing more in the healthy food fad, trying to win back customers from the increasingly popular Whole Foods Markets Inc. and farmers markets.
Kroger Co., one of the nation's largest grocery store networks with 2,200 locations, is the latest in rolling out a new natural and organic foods brand it hopes will boost profitability and help it compete stronger in the segment.
In recent years, mainstream supermarkets have been losing their hold on the grocery business to a myriad of competitors infringing on the territory. Meanwhile, food cost inflation and budget-minded consumers are making it tougher for them to turn a profit.
Kroger has outpaced competitors, such as Safeway Inc. and Supervalu Inc., by marking down its prices to become value-oriented, even before the recession started, and expanding its store-branded line of products to lure budget shoppers.
Kroger's first natural foods line, Naturally Preferred, was brought to stores in 2000. The company then launched its Private Selection Organic line in 2006. But the two didn't generate the loyal following Kroger hoped.
"Our customers told us that having multiple brands was confusing to them," Mary Ellen Adcock, Kroger's vice president of natural foods division, said in an interview. "This way it's easy for them to find natural and organic products that they know they can trust, and to have more choices of both...Choice drives incremental sales," she added.
Kroger's new brand, Simple Truth, is intended to be less complicated -- by rebranding the two existing lines under one umbrella -- and to be more affordable than fancy organic brands.
Even though private-label prices are lower, that business is more profitable for grocery stores than sales of name-brand products. On average, store brands generate a 35% gross margin compared to 25.9% for national brands, according to the Food Marketing Institute.
Kroger has increased its store-brand business over the past few years to now constitute about 34% of the grocery items it sells, compared to just 19% at rival grocer Supervalu.
Demand for organic food is also on the rise, according to the Organic Trade Association, which claims 78% of U.S. families say they're choosing organic foods as part of their shopping. The trend has gotten credit for the ongoing success of stores like Whole Foods and The Fresh Market Inc., along with the big boost in farmers markets over the past few years.
Kroger is rolling out nearly 250 new products to the Simple Truth line now, and plans to come out with others, such as cereals and frozen pizzas, over the next few months. The company expects Simple Truth to become a "billion-dollar brand" in terms of sales, like the rest of its private brands.
Other grocery stores, such as Supervalu, have also recently moved to a single private-label line across all their stores, counting on the larger-scale operations to help decrease costs and increase marketing capabilities.
Supervalu, whose brands include Albertsons, Jewel-Osco, Shaw's and more, is also expanding its private-label business with another 1,500 new products, including a line of natural and organic foods called Wild Harvest.
Safeway, which operates regional chains such as Vons and Randalls, introduced its all-natural brand, Open Nature, in late 2010. Safeway already had an organic line, called O Organics, and its Eating Right brand, which focuses on high fiber, low fat and other healthy attributes. The company has said profit margins on its store-brand products are about 4 percentage points better than name-brand sales.
Kroger's solid fiscal-second quarter reported in September underscored its separate path from the struggling rivals, as higher revenue and operating-cost controls lifted earnings.
(Source: MarketWatch, 09/24/12)
||Refranchising Gets Hot Again in the Restaurant Industry
Once-struggling restaurant chains like Arby's and Sizzler are building a new face for customers and pitching a new opportunity to successful franchisees through a process called refranchising.
As franchisors look to expand while slashing expenses and paying off debt, several brands in the restaurant industry are resorting to selling off corporate-owned stores to franchisees with the capital to give the neglected stores a boost.
"Refranchising is not a trend or fad. It's been happening for a long time," says Steve Caldeira, CEO of the International Franchise Association. "It's an excellent way to free up working capital for franchisors to focus on growth markets or new products and deliver value back to shareholders. Generally these stores perform better because franchisees tend to focus on operations full time as opposed to corporate owned stores."
While the trend may not be new, industry observers say it is picking up as a strategy in the restaurant sector, another byproduct of the recession.
Dine Equity's Applebee's Neighborhood Grill & Bar and IHOP Restaurants, Roark Capital's Arby's, Sizzler, Yum Brands -- owner of Taco Bell, KFC, and Pizza Hut -- Jamba Juice, and Burger King are just a few of the names that are selling off company-owned stores and becoming primarily franchise models.
"I think a lot of brands are looking to bring capital in because they've been hurt by the recession. It's an asset that they can convert to liquid," says Darren Tristano, executive vice president of Technomic, a food and restaurant research and consulting firm.
Restaurants have struggled for years -- and particularly in recent times -- to build profitability.
"They've taken on debt and increased capital expenditures because of remodeling restaurants, enhancing risk efficiencies, adding equipment," to be able to create new and more appealing items, Tristano says. Refranchising takes the burden of running the restaurant off the company. "They're basically running the brand and not the restaurants," Tristano adds.
When DineEquity announced in July the sale of 65 company-owned Applebee's in Michigan to TSFR Apple Venture LLC, the company noted that its "increasingly franchised business model is less capital intensive and experiences less volatility in cash flow performance compared to the operation of company-operated restaurants."
As of July, the company had sold or entered into agreements for all of the 510 domestic Applebees restaurants, leaving just 23 units as test markets for the parent company.
Refranchising is becoming increasingly attractive for both sides of the transaction.
"Independents have been struggling. As a result, chains continue to dominate in the restaurant industry," Tristano says. "It's a good opportunity to be refranchising."
Company-owned stores tend to be in markets close to headquarters so they're easier to manage. Depending on the strategy, if stores are updated, parent companies could maximize the sale price, but more than likely they want to offload underperforming units as fast as possible. Franchisees can acquire locations for cheap and get an immediate return on their investment once they update the stores, Tristano says.
But the strategy isn't something that individual franchisees are likely to get in on. In many cases, companies will approach existing franchisees with the offer, then ideally take it to a franchise group that is managing other non-competitive brands. Beyond that, perhaps they will turn to individual franchisees in the market, Tristano says.
"Restaurant organizations, in general, like to work with fewer franchisees" and those who have better infrastructure because "the individual franchisee is going to be very needy," Tristano says. "The multi-unit franchisee is going to have an infrastructure in place to deal with issues that come up."
Tom Kelley, principal of AccessPoint Media Group, and a brand consultant for restaurants, suppliers, retail, and hospitality, offers a less rosy picture of the process of refranchising.
"A lot of times, unfortunately, it's not part of a strategic plan; it's a knee-jerk reaction of having to raise cash or wanting to focus on a new concept," he says.
Many times the locations that chains are looking to get rid of are undesirable or those that have not been updated. While franchisees are likely to get a good deal on the purchase of locations, they also take a big risk, Kelley says.
"Those really don't attract the best franchisees so if the company can't save them it's somewhat unlikely that the franchisee can" without resources to update them, he says.
Guillermo Perales, the largest Latino franchisee and CEO of Sun Holdings, is one multi-brand franchisee with the resources to take advantage of buying company-owned stores. His group acquired 51 company-owned Arby's locations in July. That brings his roster of Popeye's, Golden Corral, Burger King, CiCi's, and Del Taco locations to 390, mainly in Dallas.
Earlier this year, Perales' group purchased 96 Burger King stores.
While Perales was able to acquire the Arby's restaurants at a discount, he says they were appealing for several other reasons including: location (most are in Dallas), an exclusivity agreement to develop 15 more stores in the area, confidence in Arby's management (it was bought by Roark Capital in 2011), as well as the fact that it was a concept that didn't compete with his existing brands.
"They had brought in leadership that I had known from the past and they're going to overhaul the concept by giving it a new look and new products so I'm betting on the upside," he says. "We're always looking for concepts to expand. I think we would do a much better job here than they can."
Of course, Perales will need to do more investment including some closures, moves, and updating of restaurants, but he is optimistic of the potential for returns.
"We've done it before. It's not as easy as it looks. It's like a marriage. The brand has to have a lot of faith in you as a franchisee to run the stores right, to remodel and to rebuild. They're looking for the franchisee to be the right partner," he says. "You're required to put a lot of cash back into stores...to keep the operations running better."
To be sure, franchisors are not looking to sell all of their corporate stores. Having a small test market is still needed to test new products and stay relevant to what's happening in the trenches. Experts say that franchisors that don't "have skins in the game" should for the most part be a red flag for franchisees. (Two exceptions are Subway and McDonald's, he says.)
Sizzler is one such brand.
Once with 600 stores, new management in 2008 halted Sizzler's franchising program. Of the remaining 170 currently, 19 are company-owned.
After nearly four years of initiatives to breathe new life into the 54-year-old brand, which included bringing in new management, paying off the company's debt, and overhauling the menu and pricing, the final piece that was needed to complete the revamp was updating its locations -- and for that they needed help.
"The difference between a remodeled and non-remodeled restaurant was 6%-8% more sales and positive guest count versus flat. The remodeled look changes the whole perspective of what people thought about Sizzler," Sizzler USA CEO Kerry Kramp says. "We're confident we can move outside of California and continue to develop the brand."
This past February, Sizzler signed its first deal with venerated multi-franchisee Tony Lutfi since its revamp began in 2008, agreeing to sell five locations in California and allow Lutfi to open five new Sizzlers in the San Francisco Bay area. Lutfi's portfolio includes Jack in the Box locations, Church's Chicken, Arby's, and Little Caesars.
The company is looking to sell more stores to franchisee heavyweights to essentially endorse its new look as it moves towards expansion again, but that doesn't mean it plans to move entirely away from corporate-owned stores.
The cash gained from selling off some stores would be used to accelerate more remodels and build more company-owned restaurants, Kramp says.
"We intend to develop more company restaurants. We don't know the exact ratio but we like the thought of having company-owned restaurants," Kramp adds.
Sizzler plans to announce a second multi-unit deal. Kramp declined to offer more specifics.
(Source: TheStreet.com, 09/28/12)
Daily Sales Tip: Develop a Powerful Introduction
The majority of salespeople fail miserably at this. I recall talking to a person I met at a networking event and after a 15-minute conversation, I still had no idea of what she did or what service she provided to her clients.
Jeffrey Hayzlett, former CMO of Kodak, suggests that you have 18 seconds to capture someone's attention and an additional 100 seconds to convince them why they should continue a conversation or schedule a follow-up call or meeting.
Is your introduction powerful enough to capture the attention of new prospects?
Source: Sales consultant/author Kelley Robertson