Dr. Jim and Janet Wheeler, new owners of Little Rock company Candy Bouquet International, hope to lead the franchisor out of the recession and into new prosperity.
Dr. Jim and Janet Wheeler of Houston didn’t spend much time with Candy Bouquet as mere franchisees.
The husband-and-wife team bought Little Rock’s privately owned Candy Bouquet International — the franchise company Arkansan Margaret McEntire started — after just one year of operating a Candy Bouquet franchise in Texas.
The franchisor’s selling price is cloaked behind a confidentiality agreement.
However, McEntire and the Wheelers talked to Arkansas Business about getting to the deal, sans dollar amounts.
Wheeler, who is an OB-GYN and medical legal consultant, said he and his wife chose to open a franchise after health problems forced him to cut back his medical practice about 85 percent. Janet Wheeler, 41, is a nurse and works for Wheeler’s practice.
“We took every dime we had and bought a franchise,” Jim Wheeler, 55, said. The pair maxed out their credit cards and spent $143,000 in cash and credit to buy the rights to the Candy Bouquet territory that encompassed 220 ZIP codes in the greater Houston area. They also paid about $70,000 to renovate a portion of the office building that houses Wheeler’s medical practice for their franchise fulfillment center, where they make candy bouquets for online and phone orders in Houston. The Wheelers started that franchise in October 2010, but do not have any storefronts.
Candy Bouquet franchises were attractive, Wheeler said, because entry costs began at about $12,000, Candy Bouquet International doesn’t charge royalties, and the markup on the candy flower arrangements, from wholesale to retail price, was about 300 percent.
In the middle of 2011, McEntire offered to sell the Wheelers all of Candy Bouquet International.
The Wheelers turned to their retirement accounts. Benetrends Inc. of North Wales, Pa., a company that aids in finding business funding, helped the Wheelers roll over five 401(k) and individual retirement accounts into the purchase of the franchisor, without tax penalties.
The Great Recession was a motivator for the Wheelers to expend their retirement funds on the business.
“Do I trust my brokers or do I trust my own ability to run a company?” Wheeler said. “[Candy Bouquet] did survive the recession. We think it’s going to get much better.”
The Wheelers gave McEntire a cash down payment and signed a promissory note to her secured by the tangible assets of Candy Bouquet International and Jim Wheeler’s life insurance. Wheeler said he did not consider bank loans for the purchase, preferring to use the assets he had.
“I had this chunk of money that was dwindling post-recession…,” he said.
Estimating the selling price of franchisors like Candy Bouquet gets thorny because, unlike other businesses, franchisors’ main assets are typically franchisee agreements — not facilities, product inventories or other more tangible possessions, said Michael Seid, managing director for MSA Worldwide of West Hartford, Conn., a consulting firm for franchises. Good franchise systems sell at prices between 8 and 13 times their earnings before interest, taxes, depreciation and amortization, Seid said.
“So what the franchisor is selling is the stability of the franchise network to generate ongoing cash,” he said. The price, he said, “really depends on the health of the system.”
That health for Candy Bouquet could have been affected directly by committed and successful or ready-to-ditch franchisees, Seid said. “If the franchisor this year made a million dollars, but none of the franchisees are going to renew, … then the franchisor would have no value going forward,” he explained.
McEntire, 59, said the franchisor was healthy financially at the time of its sale and owed only $14,000.
“The company was cash flush with zero debt,” McEntire said. For 2010, the company reported revenue of $2.18 million.
McEntire started Candy Bouquet as just one store in 1989 in Houston, but she moved the store nearer to her Arkansas home when her partner wanted to get out of the business. In 1993, McEntire opened the franchising side of the company and ceased to operate a store.
McEntire owned and managed the franchisor until she retired as CEO in 2010. Afterward, she continued to stay deeply involved with the company. She sold the business to gain schedule flexibility.
And while other groups talked about buying the franchisor in the past, the Wheelers followed through with a deal.
McEntire said she approached the Wheelers with her offer to sell because they hinted at wanting to buy the franchisor and owned the largest Candy Bouquet franchise in the U.S.
“I named my price, and he thought for all of 10 seconds,” McEntire said of her conversation with Jim Wheeler.
The recession did damage the specialty gift industry, and Candy Bouquet suffered, Wheeler said. At its 2007 peak, Candy Bouquet International had more than 800 franchises. About 350 franchises in 30 or so countries remain, he said.
“You buy a business when things are down a little bit and you see a huge opportunity for growth,” Wheeler said.
The Wheelers took ownership Dec. 1. The couple plans to keep the company in Little Rock and move Jim Wheeler’s medical and legal work to Arkansas eventually. Currently, the Wheelers divide their time between Houston and Little Rock.
McEntire owns and leases to the Wheelers the warehouse that is Candy Bouquet’s headquarters.
The Wheelers retained the company’s employees, including Jim Benham, who served as CEO after McEntire retired. Benham is now COO and Jim Wheeler is CEO. Candy Bouquet International has a staff of about 14.
McEntire agreed to work for the Wheelers as a consultant, when needed. “The Wheelers are new and green, and they realize that,” she said.
McEntire stocked bulk candies, ribbons and such to sell to franchisees, hosted franchisee training sessions and worked intently on selling franchises, Wheeler said.
Many Candy Bouquet franchises, particularly those that tried to be stand-alone stores, failed, and McEntire didn’t track what it cost to grow the stores or how long it should take to make them profitable, he said. The Wheelers plan to focus more on growing and supporing the existing franchises.
In addition, they want to offer new products such as cookies, fudge and plush toys to complement franchisees’ bouquet sales. The Wheelers also plan to sell pre-made bouquets to the franchisees, instead of only bulk supplies.
The Wheelers already expanded Candy Bouquet’s product options. They added masculine bouquets with sports themes and now feature popular candy, like Snickers bars, in arrangements in addition to Candy Bouquet’s typical gourmet sweets.
Jim Wheeler said he thinks Candy Bouquet can grow and compete in the crowded gift marketplace, particularly since main competitors, like florists and Edible Arrangements of Wallingford, Conn., have more expenses due to products that spoil quickly and require refrigeration.
