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Uncle Maddio's on franchisee failure: Lessons learned drive growth forward

When you build a brand, you are taking a chance on new franchisees. There will be failures, shares Uncle Maddio's. The trick is to turn those failures into successful strategy moving forward.

October 17, 2016 by Cherryh Cansler — Editor, FastCasual.com

Launching any business is a gamble, and taking a restaurant concept from one unit to 43 in six years is as risky as it gets but a challenge Matt Andrew, CEO of Uncle Maddio's, was ready to undertake.

By year's end the fast casual pizza concept will have nearly 45 units operating with a total of 300 in development. But such growth doesn't come without some failures, with the chain closing a total of eight units over the past six years. Those closures may have drawn some negative press, but Andrew and his chief operation officer, Scott Goodrich, view the business as stronger than ever. The shuttered units, they said, are part of the growth and development process and proof of how important it is to partner with the right franchisees.

"The (agreement) between the franchisee and Uncle Maddio's didn't always go as planned," said Andrew, who is also co-founder of Moe's Southwest Grill. "The franchisees sometimes don't live up to what they promised, and that's not uncommon. They weren't able to live up to what they thought they could deliver in running a restaurant business."

New franchisees often bite off more than they can chew, added Andrew, who helped Moe's get to 375 units in six years. He has big plans for Uncle Maddio's as well.

"When we are sitting across the table from (franchisees), they will tell us, 'We are gonna quit our day job,' but then sometimes they don't," Andrew said. "The brand suffers because of that, but it's part of this business."

Goodrich, who worked for Five Guys for over a decade, agreed, noting the successful burger chain saw 200 closures when it was developing.

"No one knows about that, but the point is early on we had the same problem," he said. "When you build a brand, you are taking a chance on (new franchisees)."

The brand, Goodrich said, is not the problem.

"We have very successful franchisees and we have average franchisees," he said. "The brand obviously works. When it doesn't, often the group isn't well capitalized, so they run out of money, or — and we'll own this together — the location wasn't the best.

"When you get a below average location, and you get a good operator you can make that work, but when you combine a poor operator with a poor location that's not going to work."

Another contributing factor to failed franchisees is nepotism, Goodrich explained, giving an example of a failed husband-and-wife team and a brother-sister team that were successful but didn't get along as operators.

"They weren't losing money; they were making money, but the sister didn't like how he was running it," he said.

That unit closed.

A receipt for success: Finding the right franchisees

Now that Uncle Maddio's has proven it's scalable, it can be pickier when it comes to selecting franchisees.

Jenelle Brown, the brand's VP of learning and development and human resources, has developed a franchisee filtering process she called "extremely disciplined" to ensure the chain selects only franchisees who best fit the brand.

The chain has also implemented a process to select the best real estate options. Those processes, combined with impressive sales numbers — 50 percent of franchise owners open for at least one year are reporting average gross sales of $918,874 — has allowed the chain to partner with larger franchise groups already running other successful brands, including McDonald's and Jimmy John's.

"That speaks volumes," said Goodrich. "You just get a higher caliber people who can help grow your brand."

The chain's past failed franchisees, for example, wouldn't make the cut using today's filtering system, Brown noted.

"We've done some triage," she said. "We feel like we got a good handle on it."

In order to become an Uncle Maddio's franchisee, partners must:

Have $100,000 liquid assets; $450,000 net worth.
Understand it takes $400,000 to $730,000 to open a location and the franchise fee is $30,000 per store. Royalties are 5 percent net sales.
Serve as the owner/operator and be involved in the day-to-day operations of the restaurant.
Have experience in fast casual or have an operating manager with such experience.
Have a real passion for the brand.
Align with core values/Served with Love™ culture.
Have a passion for servant leadership: good old-fashioned hard work and respect.
Have a humble attitude and take specific, detailed and disciplined direction extremely well.

The vetting process is working, considering 90 percent of the chain's franchisees have multi-unit development agreements and many big names, including the S&S Investment Group, have invested in the brand. Rutherford Seydel, attorney and business investor, has also acquired a minority share.

Uncle Maddio's, said Andrew, is just getting started and there are big things ahead.

"We've got a lot of exciting things in the works," he said. "We've had a great year and aren't slowing down. I'm thankful for our franchise system and how hard everyone works daily."

Franchising

About Cherryh Cansler

Cherryh Cansler is VP of Events for Networld Media Group and publisher of FastCasual.com. She has been covering the restaurant industry since 2012. Her byline has appeared in Forbes, The Kansas City Star and American Fitness magazine, among many others.

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