Finding The Right Time To Franchise
Franchising a full-service restaurant concept is the goal and the dream of many successful restaurateurs, but taking the next big step to package a successful concept into a business model that can be replicated by franchisees requires careful consideration, typically after years of hard work to grow a business. No matter where or how one starts, expanding from single to multiple units stems from the right combination of time, investment, and experience.
Replicating the European coffeehouse experience, Atlanta-based Café Intermezzo has more than 1,000 menu items and 800 alcoholic beverages, according to founder and CEO Brian Olson. After establishing Café Intermezzo in 1979, he took eight more years to build a second unit and ultimately license a third unit in the Atlanta airport in 2009.
“Over the years I decided that it was probably too complicated to franchise and thought I would open more locations,” Olson says. “But around 2006, I started studying franchising and was getting the feeling that I would like to see it in other cities and share it with other people. In traveling [around the U.S.], I wasn’t seeing anything quite like Café Intermezzo. I thought it was a great concept to share with people because the primary product is the environment, more than food and beverage, so I think that’s a key cornerstone difference from other franchise concepts.”
A year and a half ago, Olson hired Chicago-based consultants iFranchise Group to help assemble his franchise package and documentation, and to move the plan forward. “One element that makes it quantifiably a bit more challenging than a typical foodservice franchise is that it’s a $2.1 million to $2.4 million investment to open turnkey,” Olson says. “That’s more than a lot of people are looking to invest in an operation, but it’s justified—at least in our operations—by the revenues.”
His franchise consultants urged him to initially franchise at least one or two units fairly close to home, so the first real estate targets for franchised units will be Nashville, Tennessee; Charlotte, North Carolina; or Charleston, South Carolina.
Founded in 2007, Bad Daddy’s Burger Bar has seven units in North and South Carolina and Colorado, three of which are licensed, and one, in Greenville, South Carolina, that was franchised in November 2013. Boyd Hoback, president and CEO, and Bill McClintock, vice president of franchise development, jointly own the franchise company with Bad Daddy’s co-founders Frank Scibelli and Dennis Thompson.
“We got involved with Bad Daddy’s both to build stores for our own account as a licensee and to help franchise the brand,” Hoback says. “Part of that decision was to get other very qualified multi-unit operators involved in the brand as well as to develop markets that we may not be familiar with. For us, the advantage of franchising is to be able to franchise to guys that know their own market well, know their own real estate, and have an infrastructure in place. [It’s also beneficial to leverage] their operating expertise and access to capital.”
Over the years, McClintock has seen many young brands that want to franchise make the mistake of not having adequate systems in place, from training and marketing to layout and design. He recommends a brand should have five or six of its own company stores that have been operating for a number of years before it considers franchising.
“Many times, young brands want to grow first, and they don’t even know [everything] about their own brand,” he says. “You’re shortchanging your new franchisees because you really don’t know much about your own brand. That includes opening some restaurants to serve different demographics, so that when a franchisee wants you to approve their site in a certain area of the country, you’re going to have a general idea of what does and doesn’t work.”
McClintock adds that he recommends new brands grow at a slow pace to make sure each restaurant is successful. “You’re not necessarily going to be the fastest-growing, but when you look up in five years you may have a bunch of really successful restaurants,” he explains.
The other thing McClintock recommends to a young brand is to refrain from international expansion within the first five years, because it spreads the company thin and weakens the domestic infrastructure. “It sounds attractive and looks good in a PR release, but it isn’t much fun when you’re trying to pull it off.”
Slow and Steady Growth
J. Gilbert’s is a brand that knows the benefits of steady growth. A part of the Houlihan’s family of restaurants, J. Gilbert’s is a wood-fired steak and seafood establishment appealing to business travelers and an affluent demographic.
“We have been careful with franchising it,” says Rob Ellis, chief development officer for Houlihan’s Restaurants Inc. “There are only five of them [in five states], and across our whole system we have about 95 restaurants. We think very highly of our brand and are pretty protective of it.” The first J. Gilbert’s opened around 20 years ago, and the dinner-only chain has recently been looking into expansion.
“The precipitating events that led us to consider franchising J. Gilbert’s were related to our experience as we came out of the Great Recession and our perception of casual dining, polished-casual dining, and fine dining, and how those different segments are performing and appealing to consumers today,” Ellis says. “We came to the conclusion that J. Gilbert’s, being positioned well above polished-casual and below fine dining, was in an interesting niche and might be something franchisees are interested in growing.”
Also helping his case are strong unit economics, including an average sales volume of $4.4 million at J. Gilbert’s. Ellis says the sales volumes provide J. Gilbert’s with the financial background of a successful franchise concept.
Ken Phipps, director of U.S. franchise sales for Boston’s Restaurant & Sports Bar, which has 421 North American locations including 29 in the U.S., says the company’s road to franchising was rocky at first. The 50-year-old Canadian concept failed at its first major attempt at expansion.
“Boston Pizza [the original name] had attempted growth east from Alberta in 1989, but it failed,” Phipps says. Eight years later, though, the expansion attempt stuck. “[Co-owner] Jim Treliving moved from Vancouver to Toronto in 1997 to grow the company east in Canada, and this time, Jim moved with his family, setting up a business management unit and his presence to ensure its success.”
Similarly, Treliving moved to the U.S. in 2000 when time came to oversee the U.S. expansion. Four years later, building off the assurance that the brand was well-received by diners, the company began franchising in Mexico.
“Even if you’re an existing franchisor, you need to do a feasibility assessment on how your brand is faring out there,” Phipps stresses. “There are a multitude of ramifications that suggest franchising is positive for our economy, but if you don’t do it the right way, you end up with a lot of restaurants, nobody’s making any money, and it’s doomed for failure. So, you have to have a great concept and a great executive team, then you start soliciting and selling to potential franchisees.”