A company splits its original sales space in two and starts a successful offshoot business.
A company splits its original sales space in two and starts a successful offshoot business.
Wouldn't life be better if you could add a whole new market to the one you have?
It's a strange way of thinking about your business, we'll grant you, but if you had spent as much time locked in the nation's shopping malls as Steve Beninati has, you might come up with loopy analogies, too.
Beninati, 35, is president of Everything Yogurt Inc., a chain of 201 franchised fast-food restaurants, most of which are located in the "food courts" of America's shopping centers. And it is quite possible that spending 12-hour days in an enclosed environment in which all he hears is screaming toddlers and Muzak's version of "A Hard Day's Night," has started Beninati thinking differently.
How differently? Here's the way Beninati describes his operation: owning an Everything Yogurt shop is like being a space on a roulette wheel. "There are, on average, 14 food places in the mall, so the chances of a customer visiting your store are one in 14. Those are not terrific odds."
But Beninati's offbeat way of thinking about the problem has produced an equally offbeat -- and intriguing -- solution, one that he believes doubles his chances for success.
Beninati and his partner, chairman Richard Nicotra, have taken their 450- to 500-square-foot mall space and divided it in two. Part one still houses the Everything Yogurt shop. But in the remaining area the partners have built a second store, Bananas, which sells "frosty fruit shakes."
The result? Total sales for Everything Yogurt plus Bananas are 25% to 30% higher than they'd been in the yogurt store alone. Profits are up even more. Net margins in the combined store are about 250% greater than when Everything Yogurt stood alone.
Bob Zia has never been to an Everything Yogurt/Bananas, but he likes the idea. He should. Zia, chairman and president of Lee Myles Associates Corp., is about to do the same thing. From now on, potential investors in a Lee Myles Transmissions franchise will be offered the chance to buy a Tuffy Muffler outlet as well. The two will fit within the space that a single Lee Myles once occupied.
Call this two-in-one tactic the Doublemint strategy, after the ads for the gum of the same name. (You remember: the singing twins. "Double your pleasure/Double your fun. . . . ")
By squeezing an additional store into their existing space, both Zia and Beninati are obviously trying to boost sales per square foot, but this is more than a grab for increased revenues. It's also an attempt to boost margins. By operating two similar businesses side by side -- instead of across town from each other -- these chains are able to save on everything from signage to supplies. There is one manager, not two, for both operations. Beninati needs to buy only one refrigerator to house products for both his food stores. Zia needs only one parking lot.
And the complementary nature of the stores means the parking lot will be more crowded. People now have two reasons to visit the old location, not one. More visits, more money.
"We know this approach increases revenues, because once we were forced to open the two stores separately," says Beninati. "We wanted to be in the South Street Seaport [in lower Manhattan] and we couldn't put Everything Yogurt and Bananas in the same place. We opened them independently, and combined revenues were off by 20% to 30%."
But why do sales increase when you put complementary products in separate stores? Shouldn't revenues of an Everything Yogurt with a health shake on the menu be ex-actly the same as an Everything Yogurt sans shake but with Bananas? No matter how you add them, shouldn't one plus one always equal two, not two and a fraction?
In fact, wouldn't margins be higher if you didn't subdivide? If you just add a shake to your yogurt store, or mufflers to your transmission shop, you don't have to put up new signs. There's no new stationery to purchase, no subdividing costs to incur. Isn't that the better way to go? No, say Zia and Beninati.
Here's their reasoning. They start with the fact that the stores are specialized. Customers, they say, expect that people who just install mufflers for a living are going to do a better job of it than the local garage, which does not only mufflers, but brakes and tune-ups. (See "Two for the Price of One," below.)
Second, for stores that cater to impulse purchasers -- like fast-food restaurants -- there are a bunch of advantages that flow from simply giving people a choice.
"Some shoppers spend a lot of time at the mall. They might go someplace for lunch, and then three hours later come back for a snack," says Beninati. "Also, when a family goes to a mall, one might go to the cookie store for dessert, another to Bananas."
That kind of appeal is extremely attractive when you are fighting for consumers in a competitive environment. "A food court is going to produce only so many dollars, no matter how many stores are in it," says Beninati, whose business card reads "Stephen Beninati, Ph.D," although the doctorate is an honorary one from his alma mater, Saint John's.
"By having a second store," Beninati continues, "you give people more of a reason to come to you, instead of going to somebody else." In this case, the best defense really is a good offense. Stave off competitors by beating them to the punch.
On the surface at least, the numbers sure look like they'd produce a TKO. Consider Everything Yogurt's operation. Beninati is understandably reluctant to discuss sales and earnings of his privately owned franchisees. But an educated guess would have the numbers looking like this: without Bananas, an Everything Yogurt shop rings up about $233,000 a year in revenues. Pretax profits are about $14,000, or 6%. With Bananas, sales total about $300,000, up less than 30%, but pretax profits surge to $45,000, or 15%.
You can see the same thing happening at Lee Myles. "It costs me $160,000 to open a Lee Myles center that has four service bays," says Zia. "If I add two more bays, to house a Tuffy's, my costs go up just $20,000 more, to $180,000."
Those kind of numbers make it easier to attract franchisees. With predictions that up to half of all retail sales -- broadly defined to include businesses like car dealerships and supermarket chains -- will come from franchised operations by the year 2000, potential franchisees have no shortage of choices. And the Doublemint strategy gives Beninati and Zia a second card to play. Beninati offers not one fast-food opportunity, but two; Zia not just a transmission outlet, but a muffler business as well. And it is easier to manage one franchisee than two.
There are advantages for franchisees, too. They deal with just one franchisor, and they don't have to go searching for a second business. Perhaps most important, the two franchises combined sell for less than they would separately.
Both Zia and Beninati think the idea works so well that they are building on it. Beninati now offers three stores in one (the third being South Philly Steaks & Fries) to potential franchisees. And Zia is planning to parlay his two stores in one into a quadfecta. He will be offering a Zap Lube, which provides a 10-minute oil change and a car wash.
Obviously, the additional concepts will require more space, but both men say the increased revenues and cost savings will more than offset the higher overhead.
And if four stores work, why not six, or eight, or . . .
Today, a second concept. Tomorrow, the mall.
TWO FOR THE PRICE OF ONE
What to consider before opening an offshoot business
There is a lot to be said for keeping your sales operation tightly focused. Repetition makes your staff better at what they do. Inventory is limited. And most important, people know what you stand for. Want a hamburger quick? Visit McDonald's. Slinky lingerie? See the folks at Victoria's Secret.
Over time, specialization allows you to build up equity with consumers. And if you try to grab additional sales by adding to your line, you risk diluting that equity.
That said, the Doublemint strategy still makes sense. Here are five things to keep in mind if you're thinking of adopting it:
* Synergy. This may be one place where it actually exists. If you can't find ways to save on staff, signage, and supplies, you might as well open your second store across town.
* As in marriage, compatibility is key. Since the two stores will be side by side, they must be complementary. You don't want to put a mini-mart inside your body shop. Remember, the whole idea is to get customers who would normally visit your first store to check out your second one as well.
* Create real-life Doublemint twins: cross-train. In the best of all possible worlds, the peak times at shop one will be balanced by the ones at shop two. Everything Yogurt does its best business at mealtimes, while customers line up at Bananas for an afternoon snack. Winter is hard on transmis-sions, but most drivers replace their mufflers in the spring. If your employees are cross-trained so that they can work in both stores, you'll be able to shift them back and forth as needed.
* Be consistent. Even though you know you own both outlets, most customers won't. Make sure the stores look different from each other. But as you expand, store number one should always look like store number one. The same holds true for store two. Think about it this way: you are creating two separate chains.
* Focus. Just because you have added a second store doesn't mean it should be the catchall for your new ideas. Just like store one, it too should stand for something. If you want to add a third product line, open a third store. That's what Everything Yogurt Inc. and Lee Myles Associates Corp. have done.