In February 2004, Aaron Kennedy, founder of restaurant chain Noodles & Co., based in Boulder, Colorado, faced a vexing question: To franchise or not to franchise?
Kennedy founded Noodles & Co.--a quick casual restaurant serving noodle dishes from around the world--in 1995. By 2003, the chain boasted 79 company-owned locations in nine states and $68 million in annual sales. But new competitors were appearing, and Kennedy was eager to ramp up growth to maintain his chain's position as category leader. A study commissioned by Noodles & Co. concluded that the business could open 250 restaurants in less than five years using a franchise model in conjunction with company-owned stores. Kennedy was worried about losing control of his brand, but he decided that franchising could work if he formed true partnerships between headquarters and franchisees. In 2004, he signed up five franchisees, each with a substantial background in restaurant operations, and implemented an intense immersion training program for managers.
What The Experts Said
Doug Ducey, CEO of ice cream shop franchise Cold Stone Creamery, said that Kennedy's plan could work as long as everyone thinks they are part of the same team. "You don't want your franchisees to feel like second-class citizens," he said. Robert Justis, director of the International Franchise Forum at Louisiana State University, warned that franchising would be a whole different ball game. "Can you replicate your food with outside owners?" he asked. "How much territory are you going to grant franchisees?"
What's Happened Since
It took a year for Noodles & Co. to develop uniform menus and pricing. Each location, except for those in Washington, D.C., now charges $3.95 for small dishes and $5.25 for larger ones and groups food by geographical regions. Each manager spends three months learning the ropes in an existing location, which has helped them "understand the soul of Noodles & Co.," Kennedy says. "We are the franchisees' partners and parents, reinforcing good behavior while establishing guardrails." So far, the approach appears to have been a success. In the past two years, Noodles & Co. has opened 63 restaurants in new markets such as Portland, Oregon, and Columbus, Ohio. The chain now has 142 locations, 22 of which are franchises. Since 2003, Noodles & Co.'s annual revenue has almost doubled, to $120 million.
Kennedy plans to open restaurants at a slow, steady pace, which he hopes will allow him to devote sufficient resources to each one. He plans to open 35 locations in 2007, split evenly between company-owned operations and franchises, and to reach the 500-restaurant mark in 2010.