Spicy Pickle growth prospects sweeten for 2011

 
April 5, 2011

By Steve Coomes

 

In the crowded fast casual sandwich segment, Denver-based Spicy Pickle was a little-known brand when Mark Geman took notice in 2002. Founded by former fine dining chefs Kevin Morrison and Tony Walker, locals regarded its innovative sandwich and panini offerings as unique and delicious, and the small chain developed a cult following. Geman recognized that potential, bought into it that year, became its CEO and launched a franchising initiative in 2003.

Store counts began a slow and steady upward march before hitting the accelerator in 2007, when it swelled to 36 units with the addition of 19 new outlets.

But with 2008, and with just a few new units slated to open, Geman searched for other opportunities to boost the value of Spicy Pickle’s thinly traded stock. Learning that the owners of Vancouver, B.C.- based Bread Garden Urban Café wanted to sell, Geman bought the 11-unit sandwich chain with plans to expand it in Canada and the U.S.

“That was the absolutely worst time to try to open restaurants,” said Clay Rule, a two-unit Spicy Pickle franchisee in Austin, Texas. Sales at the first unit he opened in 2007 took off, so he opened two more stores. “The recession got pretty tough though, so I closed that first one. We got to $13,000 a week in sales within the first six months there, so we thought enough of it to keep opening stores."

Meanwhile, sales slid, units began closing and franchised growth stopped for Spicy Pickle. Eager to stop the losses, the chain’s board sought help from Mark Laramie, a veteran executive of franchised companies such as Little Caesars Pizza, Quizno’s Subs and Papa Murphy’s Take ‘N’ Bake Pizza. After selling his interests in the 12-unit Smiling Moose Deli chain in Boulder, Colo., he was appointed CEO in May of 2010, and started in on the sizable task of reinvigorating Spicy Pickle.

“Overall the concept was underfunded and its leadership really didn’t know what steps to take to fix things,” Laramie said. Upon his appointment, Geman, a lawyer by trade, moved his focus to Spicy Pickle’s legal affairs, but left shortly afterward. “Part of what I had to do was put in place the leadership it needed to effect a turnaround and reposition it for growth mode. Part of that was putting existing management in the right seats on the bus. I’m very pleased with where the staff is now.”

Just as it did to so many other restaurant chains, Laramie said the recession exposed the many chinks in Spicy Pickle’s armor. It had drifted some from its chef-inspired roots: about half its stores had abandoned baking bread fresh in stores and turned to commissary production; its once innovative menu needed reinvigorating; and corporate leaders weren’t visiting stores frequently enough to support field personnel or correct problems.

He also said its supply chain “was way out of whack,” so he used long-established industry contacts to renegotiate prices, which “lowered our cost of goods by six or seven hundred basis points.”

Laramie also used his contacts to round up funding for the chain. “It was all private capital coming from people who were as passionate about the brand as we are. … Our board has been incredibly supportive so far, too.”

To find out what customers thought of Spicy Pickle, the chain began a mystery shopping program. It also polled franchisees to ask what they thought needed changing. And while “none of our franchisees were bashful about telling us what they thought was wrong, they still believed in the brand and wanted to stay.”

Snapshot: Spicy Pickle

  • CEO, Mark Laramie
  • System unit count: 34 (6 corporate, 28 franchised)
  • 2010 gross sales: $14.5 million
  • Avg. unit volume, check avg.: $470,000, $9
  • Cost to open: $270,000 to $350,000
  • Current growth markets: Austin and Houston, Texas, Denver, Las Vegas
  • 2011 sales growth opportunity: catering and social media

The chain also desperately needed to revive its marketing effort through new digital campaigns such as regular e-blasts and online marketing. It’s now developing online and mobile ordering platforms.

A turnaround plan

Knowing franchisees felt they’d been left alone to market on their own in the past, Spicy Pickle chose to foot the bill for its new initiatives.

“We told them (in 2010) we were going to do it for them to show them our ideas would work,” Laramie said. “We went from eight quarters of negative sales to a positive one, so once they saw sales turn around, they became believers.”

Peter Forastiere, the owner of four units in Houston, said Laramie’s efforts have definitely helped spur new business.

“With the new media plan, they’re bringing out quarterly LTOs, quarterly mail drops in all our regions, and a lot of things are going on with mobile, website and Facebook,” Forastiere said. “They’re also developing online ordering for takeout customers, which I think is very good.”

In April, Forastiere will be the first franchisee to open a new Spicy Pickle prototype store, which he said includes substantial updates. All food preparation areas are closer to front counters and fully visible to guests, who Laramie said want to see their food prepared. Interior colors and materials, such as new carpet and tile, have been updated, as has a new sound system.

“It’s a much nicer, friendlier atmosphere with the staff facing customers while they make their food,” Forastiere said. “We think the exposure to more food items while customers are in line will entice them to purchase things they might not have thought of before.”

Which is exactly what Laramie wants and believes he’ll get in 2011.

“The whole (corporate) organization is guest- and franchisee-centric right now because we have to improve topline and bottom line sales,” Laramie said. “Without doing those things, there’s no point in us being around here.”


Topics: Business Strategy and Profitability , Franchising & Growth , Operations Management , Sandwich


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