Article
Controlling fast casual growth
When it comes to brand expansion, patience, persistence make the difference.
March 3, 2008 by Valerie Killifer — senior editor, NetWorld Alliance
When Phil Friedman led a management buyout of McAlister's Deli in 1999, he knew the chain was an opportunity in the making.
Started by a dentist and his two sons in 1989, McAlister's had grown to 30 units in just a few years, and by 1998 sales had reached more than $34 million.
"It was a young company that had grown pretty fast and it didn't have the infrastructure to support what it had, or the opportunity," Freidman said.
What it needed to grow, Freidman knew, was a strong leadership and management team that could capitalize on where the chain was going and had the ability to take it there. But first, the chain needed to build a more solid foundation, one that could support the level of growth Friedman envisioned and the franchisees willing to invest in its success.
"We looked at developing the infrastructure and worked on that and put off growth plans until we were ready," Freidman said.
In 2005, Friedman, who still is the chairman, president and chief executive officer of McAlister's Deli, led another buyout of the chain — thistime to Roark Capital Group. Since then, sales have grown to more than $307 million (from $255 million in 2006) across 250 units with 2008 projections upwards of $375 million.
"My philosophy is we're really in this for the long term," Friedman said. "So we built the foundation for growth and continue to solidify and enhance the brand. The opportunities are better long-term if you go slower, but it doesn't always seem that way."
On solid ground
Building a strong fast-casual brand often is compared to building a strong marriage; it's the united vision of the future that brings people, and brands, together. But once you lose that vision, it's easy for things to fall apart.
"Oftentimes, business leaders have their company's vision and mission in their head, but they don't articulate it to their people,"said Lee Froschheiser, president and CEO of business-management consulting and executive-development firm Management Action Programs (MAP). "It is important to create a common vision, mission and values. What I see is companies write it on a wall or a piece of paper, but never look at it again. Go out and talk about it. Execute against it and make sure you have measurements that tell you whether you're achieving those things."
John Scardapane, Saladworks' CEO, attributes the success of his brand to the strength of his executive team and to the company's core values.
"The most difficult part is realizing these values don't go away," he said. "When we interview with franchisees, we have to see those values in them. One of those values is to do the right thing. The other is don't try to be all things to all people."
When Scardapane launched Conshohocken, Pa.-based Saladworks in 1986, the company took off almost immediately — quickly going from one to 12 mall food court locations with only his mother and brother to help run the businesses.
"We grew a little too fast for my experience," he said. "So, we had to make a decision to build an infrastructure in-house or find a partner. I was even contemplating selling it and becoming a franchisee, but we cared too much about what we had built."
What Scardapane did was seek key executives at companies he admired who could serve as consultants while he built the organization.
"They helped us build this whole culture and infrastructure based on strategic planning," he said.
From there, it took Scardapane slightly more than a year to build the kind of executive team he wanted.
"We do a lot of interviewing because our tenure is very long," he said. "One of our biggest fears in this industry is these young franchise concepts who sell hundreds of units with no way to support them properly. I think it takes a good eight to 10 years to develop any concept. That's what your competitive edge is in this industry."
For brands such as McAlister's Deli and Au Bon Pain, patience has played a key role in their successes. But many other concepts have learned the hard way what can happen when growth outpaces experience and infrastructure.
"If you look at any of the long-term good concepts that are out there, they have had a controlled growth over all of those years — not through franchising, but they planned their mission pretty well," said Andrew Gennusa, president of Red Bank, N.J.-based Zebu Forno Franchise LLC.
Gennusa has been in the restaurant industry nearly 25 years. In 1987, he cofounded the Manhattan Bagel Company with his brother, Jason, and in 2001 co-founded Zebu Forno, where he currently serves as president.
Gennusa said he learned from experience what can happen when a brand grows too quickly. At Manhattan Bagel Company's peak, the concept boasted about 440 locations.
"That was a true American success story with not the greatest ending," Gennusa said.
The Manhattan Bagel Company was one of — if not the first — public bagel companies in the country. It also was the first bagel company to file for Chapter 11 bankruptcy.
"For me, it was a lesson beyond anything you could ever buy or go to school for," he said. "I'm fortunate enough to bring all of that experience into this business."
When Gennusa was growing Manhattan Bagel Company, he made the mistake of expanding the brand beyond the company's control.
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"In the past, I had opened as many as 10 stores per month, and that's pretty good growth for a small chain. I'm not looking to do that here," he said. "My goal here is at the end of five years to have the 10 or 20 locations that we open, in 10 or 20 years, still be open."
From the center
One common mistake young fast-casual franchisors make is overextending their brand to markets they can't easily support.
"The ideal situation is keeping everything in your back yard," said Tony Walker, chief operating officer of Denver-based Spicy Pickle.
Spicy Pickle was founded in 1999 and has built a solid presence in the Denver and surrounding region. The company recently signed a franchise agreement for three locations in Los Angeles, bringing the number of units in development to 113.
Walker and others maintain the best way to grow a brand is to do so concentrically — from the center — focusing on markets closer to home for optimum growth potential.
"We get a lot of requests for franchising and a lot of requests outside of Chicago," said David Litchman, founder of Chicago-based Pockets. "We tell those perspective franchisees outside of the area it's not realistic. To open in a new market and to put a franchisee in Atlanta, the chances of him being successful are diminished."
Pockets has been around for 19 years, but Litchman only recently started to franchise the concept. Seven out of 10 orders are placed online and phone orders are taken via online interfaces.
Litchman said there are 12 franchise locations in the Pockets pipeline in and around the Chicago area. "Truthfully, we can do more, but why not focus on what we have here?" he said.
Just as difficult as finding the right franchisee is finding the right site location.
McAlister's developed a site-modeling program to help the company become more selective in the real-estate process. And companies such as Pitney Bowes are making it easier for brands to analyze and measure the best area for them.
Pitney Bowes MapInfo is a fully integrated data, software and research-services firm that provides predictive analytics. Restaurant practice leader Brian Hill said, in most instances, he agrees with the restaurant strategy of building locally.
"If they have the flexibility and ability to leverage support in various markets, it can be done," he said. "But startups don't have the same set of personnel and resources to manage a network from coast to coast."
Hill said chains should consider their locations based on demographic and psychographic indicators. "Define who your customer is and where do they exist," he said. "A QSR may encompass a trade area of five miles while a casual-dining chain may encompass 15 miles," he said.
Hill added restaurants are (or should be) driven by four key factors when looking to expand their brand:
1. Household populations
2. Worker populations (such as nearby office parks)
3. Shopping areas
4. Other sales drivers
"As well as other factors involved in the site," he said. "Are you a corner location or an end cap?"
A good pace of growth for a restaurant brand should be about 25 percent a year.
"Every concept has its own pace," McAlister's Friedman said. "Anyone growing 25 percent to 30 percent in a year, you're doing well. And as the numbers get bigger, you have to have a system and structure in place to support the numbers."
Power to the people
Restaurateurs struggle with finding the right kind of franchisee regardless of how long they've been in the business.
"As companies grow and have aggressive growth, there are a lot of mistakes in the fundamentals that get covered up because revenue is pouring in. As things slow down and business slows down, that's when a lot of sins come to the top," Froschheiser said.
"One of the first mistakes they make at the corporate level is not measuring the right thing at the store level. The second mistake is they assume their policies and procedures, and the rules they develop, are getting pushed down through the stores. But when you hire a lot of people, hiring practices start breaking and they stop hiring the right people."
In today's competitive restaurant environment, the majority of restaurant-brand
executives can't philosophically or financially afford to bring mismatched franchisees to the table.
"When you start bringing in new people who didn't grow up with you, you have to invest more time in training," Friedman said. "As the numbers get bigger, you have to have a system and structure in place to support the numbers. Just like everything else, there's not a good and bad, there's just the right fit."
Finding the right fit may sound easier than what it seems. A host of franchisee-selection tools offer restaurant executives an inside glimpse into the personality and financial characteristics of a potential operator. But while those tools are helpful, they're not always a "sure thing."
To help move their brands in the right direction, executives are increasingly focused on finding franchisees with solid restaurant-industry experience, and training managers to excel at the store-level.
"In today's workplace, you have to have quality. We're looking for people that have been in the business before or have worked in the business with somebody else in the foodservice environment. There again, it limits growth. But, it helps me control my future growth through quality operators and quality locations," Gennusa said.
Franchisees and managers with foodservice experience understand the operational and customer-service intricacies the industry represents. After all, it's the overall customer experience that keeps customers walking through the door.
Froschheiser says companies that create accountability separate who wants to do a good job and who doesn't.
"Results are the bad guy, not the person, which is why measures are so important," he said. "Accountability allows me to really create passion, to find out if I have right players on the team and to reinforce whatever I measure is going to get done. You can grow, have good controlled growth and still be very profitable and healthy as a company."
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