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Refranchising Gets Hot Again in the Restaurant Industry

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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.

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"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 operationsfull 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 (NYSE:DIN) Applebee's Neighborhood Grill& Bar and IHOP Restaurants, Roark Capital's Arby's, Sizzler, Yum Brands (NYSE:YUM) -- owner of Taco Bell, KFC ,and Pizza Hut -- Jamba Juice (NASDAQ:JMBA), and Burger King (NYSE:BKW) 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.

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