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FDD Talk 2016: The AlphaGraphics Franchise Opportunity (Financial Performance Analysis, Estimated Costs, and Other Important Stuff You Need to Know)

by Franchise Chatter on October 13, 2016

in FDD Talk 2017: Food Franchises, Franchise Earnings, Printing Franchise

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Alphagraphics Photo by Diversified Construction

In this FDD Talk 2016 post, you’ll learn the following:

  • Section I – Background information on the AlphaGraphics franchise opportunity, including relevant news updates
  • Section II – Estimated initial investment for an AlphaGraphics franchise, based on Item 7 of the company’s 2016 FDD
  • Section III – Presentation and analysis of AlphaGraphics’ financial performance representations, based on Item 19 of the company’s 2016 FDD, including information on the:
  • total gross sales for all AlphaGraphics business centers during the company’s last 3 calendar years (2013 to 2015)
  • 2015 average and median gross sales for the top 25%, top 50%, and all 157 single-unit AlphaGraphics business centers in the U.S. that have been in operation for 1 year or more as of December 31, 2015
  • 2015 average and median gross sales for the top 25%, top 50%, and all 38 multi-unit AlphaGraphics business centers in the U.S. that have been in operation for 1 year or more as of December 31, 2015
  • 2015 median gross sales, operating expenses (payroll, accounting and legal fees, advertising and marketing, auto operating expenses, building rent, franchise fees, lease and rental expenses – copier, office supplies, property and liability insurance, travel and entertainment, utilities, and all other overhead expenses), EBITDA, and other miscellaneous stats (depreciation, interest, gross margin percentage for different profit centers, sales mix percentages) for 138 franchisees operating a U.S. AlphaGraphics business center at a single location for the full calendar year ended December 31, 2015

Section I – Background Information

Dreams of a Visionary

Rodger Ford founded AlphaGraphics in 1970 in Tucson, Arizona. Ford was an entrepreneur and inventor who wanted to create a business center that provided customers with up-to-date visual communications technology. From his initial location, the company grew slowly and began franchising in 1979. By 1984, AlphaGraphics became the first desktop publishing retailer. Ford pushed the company toward global expansion and by the end of the 80s, AlphaGraphics became the first U.S. printing franchise to expand internationally.

In 2001, the Pindar Group purchased the company. They moved AlphaGraphics’ headquarters to Salt Lake City, Utah and continued to run the company for over a decade. In 2012, Pindar went bankrupt and AlphaGraphics was sold to Blackstreet Capital.

AlphaGraphics has undergone a fairly recent leadership shakeup; in 2014, Art Coley, Jr. resigned as president and CEO of the company. Coley had been with AlphaGraphics for seven years. Gay Burke, executive chairman of the board, stepped in as interim president while they searched for a replacement. Finally, in February 2015, Aaron Grohs was appointed as the new president.

Grohs continues to run the company and is dedicated to ensuring that AlphaGraphics continues to flourish. Today, AlphaGraphics has more than 280 locations throughout the United States and internationally.

Making Things Easy for Customers

AlphaGraphics offers an online ordering system called AG Online. It’s a streamlined service that makes ordering efficient and easy for customers. Some of the options available when you create an online account are ordering through your unique catalog, creating multiple-user permissions to allow users from different locations to order what they need, shopping with credit or debit cards in a secure ordering environment, storing your most-used documents and files for fast and efficient reorders, and having finished projects shipped directly to your location.

By using AG Online, customers have complete control over the whole process. Each customer is able to load up a unique catalog. The catalog will store online versions of the customer’s documents, making it easy to reorder the things they need. Some of the most common documents are letterheads, envelopes, brochures, catalogs, and postcards.

Looking Toward the Future

In August of 2016, AlphaGraphics held their annual conference where company executives discussed new ideas for the future of the company with their franchisees. During the conference president Grohs said, “As a world-class franchise, we are committed to strengthening our relationships, investing in innovative technologies, delivering comprehensive training, furthering our product and industry leadership, and ultimately, focusing on achieving operational excellence.”

AlphaGraphics has invested in new technology and products that will help franchisees increase sales and improve operations. Some of the changes include enhancing their online ordering system and making it even easier to use than before. They have also implemented PrintSmith Vision, a print management solution that automates key elements in printing workflow, forming the backbone of franchise operations.

Grohs believes that their commitment to continuous training and investments in new technology will drive the company toward continued growth.

Alphagraphics’ Successful Franchisees

Though the printing business has been in somewhat of a decline, many of AlphaGraphics’ franchisees are flourishing. For instance, AlphaGraphics Seattle landed the No. 3 spot on Printing News’ 2016 top 100 list of quick and small commercial printing operations in North America. Chuck Stempler successfully runs AlphaGraphics Seattle. For 2015, the total sales throughout their six locations was around $15.7 M. Their average sales for each location was around $2.6 M. Stempler says that although printing sales have been down overall, AlphaGraphics Seattle achieved a 2% growth in overall sales in 2015.

Every year, AlphaGraphics gives out its own award, the Franny Award. The award is given to the best-run business center (in all areas of business and service) that also has a proven track record of contributing to the overall success of the brand. Jerrone and Melanie Hale won the 2016 Franny Award for their AlphaGraphics Layton location. Last year AlphaGraphics Denver won the award. Ed Rothschild, the president and CEO of Alphagraphics Denver/Arvada/Golden says they owe their win to their record year in 2014. They also won the Franny in 2013 for their AlphaGraphics location in Arvada.

Highs and Lows on Entrepreneur’s Franchise 500

Overall, AlphaGraphics tends to rank in the lower half of Entrepreneur’s annual Franchise 500 list. In 2016, AlphaGraphics earned their lowest spot, landing at No. 444. This is a pretty large fall from their 2015 rank of No. 296. Alphagraphics achieved their highest position in 2012 at spot No. 129.

Section II – Estimated Costs

  • Please click here for detailed estimates of AlphaGraphics franchise costs, based on Item 7 of the company’s 2016 FDD (updated).

Section III – Financial Performance Representations (Item 19, 2016 FDD) and Analysis

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