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Charley's Grilled Subs

Built on a Philadelphia tradition.

August 26, 2007

If not for a wrong turn, Charley's Grilled Subs might not exist.

Charley's founder, Charley Shin, was introduced to the Philly cheesesteak during a family vacation to New York while Shin was a high school student in Columbus, Ohio. During the trip, the family took a wrong turn and ended up in Philadelphia.

"I saw a little place with a line out front, so I stopped and got a sandwich," Shin said. "It was very good. That was my first encounter with the cheesesteak."

Shin was a 22-year old student when he opened his first restaurant in 1986 near the Ohio State University campus in Columbus. He launched the restaurant mainly out of necessity, he said.

"I was finishing college, my mother had sold her restaurant, and we weren't sure what we were going to do," Shin said. "I needed to make some money."

That location, which is still open today, was christened Charley's and included a line on the sign that said "Philly-style sandwiches." Although the restaurant was successful, it wasn't a barn-burner, Shin said.

"Once we changed signs and changed the name to Charley's Steakery, we saw a 50-percent increase in business," Shin said. "That made me understand the value of a customer's perception."

Choosing a path for growth Shin opened the second Charley's in 1988, followed by a third shortly thereafter. After he opened the third location, he began to think seriously about the path the company would take.

The restaurant's menu focuses mainly on the cheesesteak and variations thereof. Sandwiches on Charley's menu include a Philly Chicken, a Turkey Cheddar Melt and a Philly Veggie, along with the traditional Philly CheeseSteak. After Shin opened his third location, he decided that the restaurant's future lay in franchising rather than opening company-owned stores.

"I was 25 at the time and, as a 25-year-old, opening one or two restaurants a year didn't sound too great," he said. "Ten years down the line I would have 10 or 20locations, where with franchising, I could see a lot better opportunity for expansion."

The company began franchising in 1991, although 20 locations are company-owned. The bulk of Charley's earlier locations were malls and airports.

Charley's second location was in a mall in Lancaster, Ohio; the third was located inside a convention center and the fourth at a mall. At the time, the company wasn't ready to take on the unknown risks of locating in a strip center, so Shin signed a deal in 1999 with the Army and Air Force Exchange Service to open locations on military bases around the world.More than 70 Charley's outlets are located on military bases.

"We are very much of a captive-audience concept," Shin said. "Going to AAFES was a very natural progression of growth for us."

Charley's has been opening restaurants at the rate of about 50-60 per year and hopes to step that pace up to about 70 new locations per year, Shin said. But to increase growth, the company plans to shift its focus from opening locations in malls and airports to opening in strip centers.

"Now we have 326 restaurants and a lot more opening, we have enough experience and confidence and the tools to be successful (in strip centers)," he said. "We have a lot better understanding of the customer base outside of a captive audience."

Shin hopes eventually to open 3,000 units, he said, although growing the number of units isn't his primary focus.

"In all honesty, the growth numbers are important, but I believe that if we make every franchise partner successful the growth will happen," Shin said. "We are not too concerned with opening a certain number of units. I think we will grow naturally."

Boosting dinner business

Charley's franchisee Jim Novak opened his first location July 2001 in Phoenix.

Although the restaurant was Novak's first Charley's location, it wasn't the first Charley's in the Phoenix area. Another franchisee had opened a successful Charley's location several years earlier.

"The reason I didn't want to jump on right away is that so many companies have come to Phoenix and flopped," Novak said. "I didn't want a short-term business venture."

Charley's startup costs and royalties are what originally attracted him to the operation, Novak said. Besides that, Shin is a nice guy to work with, he said, and his employees look forward to having Shin come to Phoenix and check out the stores.

"A lot of times, employees are afraid when the big boss comes out, but my people love it when Charley comes in," Novak said. "He's not intimidating at all."

Novak recently opened his second Charley's in the Phoenix area and is in negotiations to open a third in the Tucson, Ariz., area, and hopes to add one or two more restaurants to his portfolio over the next few years, he said.

Shin is eyeing fast-growing markets with a large population of young professionals, such as Phoenix, as expansion possibilities, along with filling out markets where the company already operates.

Key to growing the business, Shin says, is growing dinner sales. Currently, about 70 percent of Charley's business comes from the lunch crowd. To further that goal, Charley's parent, Gosh Enterprises Inc., bought the 12-unit ice-cream chain Wholly Cow in 2005. The company is experimenting with side-by-side Charley's/Wholly Cow locations. The company has four co-branded locations in operation and, so far, the results are mixed.

Shin said if the test proves successful, the company will expand the dual-brand format.

"We have some units that are doing really well and we have some that didn't perform quite as well as expected," he said. "We are going to wrap up the test soon and decide which direction we are going in."