CARDIN'S GUIDE
Or, How to Create Your Own Perfect Franchise
It took almost two years, but eventually Rick Cardin, consultant, delivered to Rick Cardin, client, a four-page, 18-point treatise entitled "Ideal Characteristics of a Franchise Business." Want to invent the perfect fast-growth, born-to-be-big franchise concept? Navigate by these attributes. That's what Cardin did.
Below is just part of the list. "Ideal characteristics" are in bold, followed by how Cardin thinks O! Deli reflects them.
The ideal franchise would be:
* A stable, nonfad concept. "American" sandwiches in a variety of tastes at low prices are "everyday foods," encouraging repeat business -- 60% of O! Deli customers return three times a week.
* Recession proof. People will always eat. Moderate prices always appeal. People buy franchises in good times (they have money) and bad (they need jobs).
* A limited risk. Delis are among the easiest businesses to resell; lots of people feel confident they can run one. An O! Deli is inexpensive enough that there are many potential buyers, including those looking to purchase a job.
* In a rapidly growing segment of rapidly growing industry. The percentage of restaurant sales captured by franchises has more than doubled since 1970, to more than 43%. Sandwiches are the fastest-growing category of franchised restaurant sales, in percentage terms, yet they still account for only 2% of the total market.
* A cash business. O! Deli has minimal cash needs, inventory requirements, or receivables problems.
* Potentially number one in a national niche. The number-one position is still open for a chain serving a broad line of sandwiches, salads, breakfasts, and desserts at fast-food prices. Rarely has the market-segment leader been overtaken in franchising.
* An enjoyable place to own, manage, or work. Food is fun and interesting; everyone has experience with it. O! Deli is a people business largely catering to regulars who enjoy what they buy. O! Deli's hours -- 7 a.m. to 5 p.m., Monday-Friday -- provide the fun of the restaurant business without its typically exhausting schedule.
* Competitive with major chains from start. O! Deli doesn't seek the suburban corner lot most chains want, and it exploits locations unsuitable for many: small, odd spaces; high-rise offices that won't permit cooking but want food service. O! Deli can market effectively without expensive TV or print ads -- its customers are nearby working people who can be reached directly through coupons and free promotions.
* Proud of its product. O! Deli delivers quality and value in healthy food. Everything about O! Deli says, "We respect our customers."
* Able to generate publicly traded franchises. The history of fast-food franchisees taking a modest number of units public provides O! Deli franchisees with the possibility of earning substantial returns on their equity and effort and of funding rapid unit growth.
* A chance for franchisor to give real value to franchisee. O! Deli can provide many valuable services to individuals in the food business: enhanced appeal to landlords; expertise in commercial lease negotiation; equipment and purchasing discounts; equipment-selection advice; operating and administrative systems; and the combined operational lessons of a number of units.
WHAT THE EXPERTS SAY
COMPETITOR
RON SHAICH
Co-chairman, Au Bon Pain Co., Boston, a bakery cafe selling sandwiches and baked goods at 43 company-owned and-operated and 16 franchised units across the country
I think what O! Deli has done is take a concept that's very interesting and, unfortunately, position the company so the concept won't be allowed to develop. They've guaranteed themselves trouble in three specific ways: by being public; by deciding to franchise and even sub-franchise; and by pushing for such extraordinarily rapid growth.
The public companies that succeed in this business are mature, stable companies, not ones like O! Deli, which I guarantee will change. The market doesn't deal with change particularly positively, so Cardin and his team have put pressure on themselves from the start.
Another pressure they've brought on themselves comes from franchising. I'm basically negative on franchising, but particularly for them -- because it will make altering and controlling their stores more difficult. The food business, no matter how they cut it, is a manufacturing business. It's not about a better concept; it's about 1,000 little details that make the concept work. You succeed or fail depending on how well you can execute at the point of sale -- how well your franchisees can execute.
When you franchise you lose control -- the control you need to change things. And O! Deli is even going into subfranchising, which doubles the risk. Think of it this way: with subfranchisors, you're three levels removed from the customers buying your food. How much control do you think you have?
It's true that franchising is easy to sell, and they have a wonderful story. The question is whether they can deliver. But there will be bumps along the road, and being franchised will make it more difficult to iron out those bumps.
Their growth expectations won't help, either. The wisest people in the food business say you don't grow a company more than 30% to 40% a year. More than that, and you just can't execute. And out of every 100 great concepts, 99 fail because of bad execution.
I'm afraid Cardin is in this to grow a business, not to operate restaurants. And that doesn't work. As an operator, I've seen any number of people try it, and almost all of them fall by the wayside -- because this is ultimately a business of running restaurants.
The probability of their meeting their business plan is minimal.
COMPETITOR
FRED DeLUCA
President and founder, Subway Sandwiches & Salads, Milford, Conn., a franchised sandwich-shop
