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BEHIND THE NEWS: New Ritter's CEO patches up frayed franchisee relations

August 29, 2005

If Ritter's Frozen Custard goes on to prosper, the behindthe-scenes retooling the Carmel-based chain received over the past year will make a revealing case study for MBA students.

IBJ in September 2004 reported the Ritter family had reacquired control of RFC Franchising LLC and installed Bob Ritter, son of retired founder John Ritter, to replace Saul Lemke as CEO.

Franchisees in the chain, which has 62 stores in eight states, were glad to see Lemke go. Their view: During his fouryear reign, the company focused on rapid expansion at the expense of helping existing franchisees succeed.

It's an oft-told tale in the franchising world. Franchisors love to sell franchise rights because it brings loads of money in the door. In contrast, day-to-day efforts to provide systems and support for existing stores don't yield an immediate payoff. But without them, a chain crumbles.

You don't have to convince Bob Ritter of that. To focus on shoring up operations, he sold no franchises during his first year on the job, even though the suspension dented RFC's financial results. In the six months ending in March, the company lost $194,000 on $284,000 in revenue, papers filed with the Indiana Secretary of State's Office shows.

But Ritter said the company now is reaping benefits from the improved performance of franchisees, which translates into a stronger foundation on which to grow.

"I think the biggest key is, there is a strong and trusting relationship between the two of us," Ritter said of franchisees and the company. "Are they making as much money as they should be? Absolutely not. Every day, I come in and say, 'What can we do to make them more profitable.'"

Ask what changed, and he rattles off details, like the new four-color product manual that instructs franchisees on how to make every menu item. Or the visits by group leaders to every store every four weeks to evaluate what's working and help fix what isn't. If problems surface, some of those visits last as long as three days.

The efforts translate into an improved experience for customers, he said.

For example, franchisees had started buying already-made waffle cones to simplify store staffing. Now, they're making their own again, filling their stores with the aroma of freshly made cones. Franchisees also are making custard in smaller batches to ensure they serve it fresh.

"Our greatest strength is also our greatest weakness," said Ritter, 35, who worked in every part of the company before assuming the top post. "Our product made fresh is absolutely unbelievable. But if you don't make it fresh, that is a detriment."

Before Ritter's promotion, franchisees felt their opinions "weren't listened to real hard," but they no longer have that concern, said Steve Cox, who serves on the franchise advisory council and owns the Ritter's at 56th Street and Georgetown Road.

"It's probably a 180-degree turnaround, in terms of the openness of RFC with the franchisees," he said. "That has been reciprocated, with franchisees being willing to pull together and solve problems that weren't getting done before."

Now, Bob Ritter is starting to think expansion again. In June, RFC hired a new vice president of franchise development. One of the company's potential markets is suburban Chicago.

But whatever expansion occurs won't come at the expense of operations, Ritter said.

"We are building a team," he said. "We are building an infrastructure to support the growth, so our franchisees never see a break in that support."

Blockbuster bank deal

These are gloomy times for many investors in the beaten-down financial sector. But certainly not for investors in Union Community Bancorp, a small savings and loan headquartered in Crawfordsville.

Last week, Greensburg-based Mainsource Financial Group Inc. agreed to buy Union Community for $57 million-a deal that sent Union shares, which had been off 5 percent in 2005, into the stratosphere.

On Aug. 24, the first day of trading after the companies announced the merger, Union shares rose $8.46, or nearly 50 percent, to close at $25.86. Little-known Union now ranks among the top-performing Hoosier stocks in 2005.
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