Velofix Challenges

Velofix Challenges:

First: There’s a very low barrier to entry for competing mobile bike shops. While it might cost you, the Velofix franchisee, about $200,000 to get started, it can cost as little as a few thousand dollars (or less) for a non-Velofix mobile bike shop to open-up and compete in your now-not-so-exclusive territory. This is what Warren Buffet doesn’t like when investing in new companies, preferring instead to focus on companies with ‘economic moats.’ Such a moat provides a business a barrier against competitors who might otherwise mimic what they're doing, at a lower cost. In the case of the mobile bike shop industry, no such moat.

Second: It’s hard to make the Velofix-profitability numbers work. $200,000 for a Velofix franchise isn’t necessarily a lot of money if it generates $1 million in annual revenues. But that seems not the case. Based on franchise fees collected by Velofix corporate, it appears the average Velofix franchise will gross about $75,000 per year. That's before expenses.

How expensive are expenses for a Velofix franchise? Those almost certainly vary, but in most cases the biggest expense will be the mechanic’s salary. In 2019, the average bike mechanic salary was $31,360, about $15 per hour. Other operating expenses (e.g., inventory, taxes, fuel, required monthly storage fees, required minimum advertising and marketing fees, royalty fees to Velofix, business loan payments, etc.) gobble-up much of that remaining estimated $75,000 annual gross earnings number. For specific estimated expenses, see here.

Third: Velofix recently announced in their 2019 Franchise Disclosure Document (available here, search “Velofix”, then scroll to page 4 of the 2019 addendum filing) announced the following: “Competition from franchisor. Even if the franchise agreement grants you a territory, the franchisor may have the right to compete with you in your territory.” That seems to indicate that in addition to possible competition from one or more independent mobile bike shop operators, Velofix Corporate, itself, also reserves the right to compete with its own franchisees.

Fourth: Velofix drama. There are a number of unofficial reports of several Velofix franchises that have gone out of business or are attempting to sell. These include franchises that exist(ed) in Austin, Detroit, Minnesota, Rhode Island, San Antonio, San Diego, Washington, DC, and possibly others.

The same 2019 Financial Disclosure Document (page 13) indicated that a Detroit franchisee is suing Velofix for, it appears, breach of contract.

Lastly, the total number of Velofix franchises have declined and, for several years, the projected number of new franchises have fallen considerably short when compared to those that actually opened.