Article

Putting the Pedal to the Metal: 13 tips for accelerating franchise growth

Growth doesn't come overnight or by magic; brands must consider a variety of issues in order to find success.

February 16, 2016

By Tom Wells, VP, BIP Capital & BIP Franchise Accelerator

The fast casual market has gained popularity since the last recession and is forecasted to continue strengthening over the next 20 years as millennials and younger generations increase their purchasing power. 

As a result, many emerging franchisors are asking themselves, "How do we take advantage of this boom?  How do we go from a few restaurants to becoming the next big national brand?"

Case study: Tropical Smoothie Café 

Those are some of the questions Tropical Smoothie Café was asking five years ago. After 10 years in operation, the company boasted 200 franchised locations, but it was struggling to accelerate growth because of under-performing unit economics. Average unit volume was only $400,000, and development costs were high — a difficult business model to sell to prospective multi-unit franchisees.

What Tropical Smoothie did have was a brand that stood out in an increasingly crowded space of smoothie shops and juice bars because of its expansive menu of gourmet wraps, flatbreads and salads. Consumer demand for healthier options was on the rise. Tropical Smoothie had the right concept and incredible growth potential, but it also needed expertise and strategies to help accelerate its growth.

The company's founders recognized this and five years after forming a  partnership with a franchise accelerator, Tropical Smoothie has grown from 200 locations to over 450. Additionally, the company is on track to sign over 180 franchise agreements this year, compared to just 30 deals in 2010. 

"Our franchise-focused initiatives have really driven AUV," said CEO Mike Rotondo. "Tropical Smoothie is now reporting an all-time high AUV of more than $578,000 — 44-percent growth from 2010."

This type of growth doesn't come overnight or by magic. Brands looking for the type of success Tropical Smoothie has achieved must consider the following areas:

• Focus first and foremost on the customer.  For a franchisor, this means both franchisees and the consumer.  Making sure both are getting good value from the brand is crucial to any success.  If the franchisee is doing well, the franchisor will do well.
• The team is crucial: hire the best talent to drive growth.
• Ensure that operational infrastructure is in place to support franchisee growth, including training, additional franchise support staff and improved franchisee communication.
• Utilize technology to improve franchisee inventory control, store operations and customer experience.
• Develop a marketing plan to support the brand locally at first, with national support to follow.
• Ensure that the menu and store design remain on trend. 
• Invest in franchise development to develop multiple lead-generation sources.

Growing capital

For many franchisors, growth means raising capital.  The economy is currently healthy with limited unemployment and rising wages. Everyone in the restaurant industry is experiencing the challenges of hiring and retaining good employees.  Valuations are high as investors chase growth, which makes it a great time to raise capital. In particular, capital is available for high-growth, larger brands or small, hot concepts that investors hope could be the next Chipotle.  The current market is tougher for concepts in the 25-50 unit range that have shown slow growth.

While capital may be easily available, it’s critical to determine what type of investor you’re looking for.  Many private equity firms provide capital and take a board seat, which may be all you need if everything is going well.  Many emerging brands need more than just capital. These brands often are asking questions like: How do we ignite franchise development, open more locations, grow unit sales and put our brand on the map?

In this situation, brands are better off partnering with a firm that provides operational and strategic guidance in addition to capital. These firms often have partners with direct experience in the industry that can work alongside the entrepreneur.

As much as you’re selling potential investors on your concept, make sure you do your due diligence on potential investors.  By taking on a partner for your business, you’re entering into a relationship that will last for many years. If you need help with certain areas of expertise, speak with the management teams of other companies that have worked with the investor to ensure you’ll get this support.

In addition, entrepreneurs should hire a lawyer with experience structuring this type of transaction.

When preparing for that all-important meeting with a potential investor, here are some do's and don'ts to keep in mind:

• Do explain how your brand is different from competitors and why you (the entrepreneur) are the right person to build the brand.  Show your passion for the brand.
• Do understand your unit level economics.  If your franchisees are able to make money and the brand is unique, there will be strong interest from potential franchisees.
• Do have a strong grasp on how much capital you need and what it will be used for. It’s important to know what milestones you expect to hit with this round of funding and the timeline for hitting these milestones.
• Don't show up unprepared. Practice your pitch in front of colleagues, friends and family – you don’t want to read your slides or sound like you lack passion. Research the investors, their past deals and their backgrounds.
• Don't pretend to know what you don’t know.There are many unknowns early in a business' life, so it’s fine to have unanswered questions.
• Don't avoid questions or ramble on too long. Investors want their questions to be answered directly or followed up on after the meeting if additional research needs to be done.

After preparing the brand for franchisees and finding investors, it’s time to roll up your sleeves and get to work. Hopefully, your investors will be right beside you, offering proven strategies and a detailed plan to drive growth. You'll be well on your way to putting your brand on the map.