Our food prices fluctuate. We do not base our price on anything but margins. We raise our prices to reflect whatever our food costs are. So if the mayonnaise guy triples his price, we pay triple for the mayonnaise! And then we'll increase the price of our product. About five years ago, hurricanes killed the tomato crop in Florida, and prices went from $17 to $50 a case. So a few of my franchisees called and said, "We're not using tomatoes. The prices are too high." I suggested using one slice instead of two. My kids were furious: "It should be two! Always!" They were right -- it's too easy to start slipping down that slope. We stuck with two slices, and so did our franchisees.
My kids wanted to franchise from the start, because we couldn't get the money to expand on our own. Opening a store costs $300,000 to $400,000. Banks won't help. They thought we were crazy going up against Burger King, McDonald's.
I was dead set against franchising. I didn't think we'd be able to control the quality. That worried the heck out of me. They pulled me into it kicking and screaming. At that point, we had five stores in the northern Virginia region.
When we started to sell franchises in 2002, Virginia went in three days. We accept only financially sound franchisees who can weather the storms without the help of banks.
We make 6 percent of sales on the franchises. All franchises work the same way: People say they want to sell your product. So you give them a Franchise Development Agreement that explains all the ways we can beat them down. I don't know if I would ever sign it. We can get out of the deal a million ways, but they are stuck.
Still, we have never had a franchisee go legal on us. I think that's because we have an independent franchise committee that meets once a quarter. People said, "Don't do it! They'll form a union!" But we thought, If someone comes in with a wacky idea, instead of the Murrells putting it down, the other franchisees would say, "That's a dumb idea."
Franchisees are opening four new stores a week. But we always wanted to run more than our franchisees, so we can say, "Look, we are doing it." We own 90 stores -- Chicago, San Diego, Phoenix, a bunch in North Carolina and Virginia. We don't do any less than five stores per franchisee. We have one in California that just signed up for 400 stores.
Before we agree to work with a franchisee, Ben and I sit down and talk about our marketing plan. A lot of companies put 3 percent of their revenue toward marketing or advertising -- we collect 1.5 percent from all our franchisees and give bonuses to the crews that score the highest on our weekly audits.
We have two third-party audits in each store every week. One is called a secret shopper -- folks pretend they're customers and rate the crews on bathroom cleanliness, courtesy, and food preparation. Then we have safety audits -- they identify themselves and check all the kitchen equipment. The crews make about $8 or $9 an hour. If they get a good score, they will split another $1,000 among them, usually five or six people per crew. A press release goes out to every store announcing the winners. Right now, it's the top 200 stores. Last year, we paid out between $7 million and $8 million; this year, it will be $11 million or $12 million.
We try to make the kids feel ownership in the company. Boys hate to smile. It's not macho. And it's definitely not macho to clean a bathroom. But if the auditor walks in and the bathroom isn't clean, that crew just lost money. Next thing he knows, the guy who was supposed to clean the bathroom has toilet paper all over his car and a potato in his tailpipe.
To grow this fast, we had to come up with some big bucks -- we got a $30 million loan from GE and used that to move into a 20,000-square-foot office space in Lorton, Virginia. That's where 80 of our 200 corporate employees work.
We've had many of the same vendors since 1986. And they're not the cheapest by a long shot. We stick with what we like. One day, our purchasing guy said he wanted us to switch to a frozen burger product. But we all picked the fresh one in a blind test and stuck with that. We taste-tested 16 different types of mayonnaise to find the right one.
We make the same bun we started with. We hired the old guy who used to bake our bread for the first store, and one of his partners. They work in the Virginia bakery. We have 10 bakeries scattered around the nation. Our bread is baked daily, picked up by 3 p.m., and put on truck or plane so every store gets fresh bread every morning, even if they are 400 miles away from the nearest bakery.
When we got pulled to Florida, I didn't want to go! Too far. I didn't want to go to Canada -- we're there now. Two princes came from the Middle East. They want us to go over there. We have another group that says, "Anywhere you want to go, we'll fund it." We've also had a few companies that want to come in and buy us. They say they would let us run it, but I don't think they would. Why would they put up with fresh bread and taste-testing 16 different mayonnaises?
This article has been revised to reflect the following correction: Jerry Murrell attended the University of Michigan, not Michigan State University.
