Sponsored Section: Food Businesses
Food and franchising have gone together like peanut butter and jelly at least since 1935, when Howard Dearing Johnson franchised his first restaurant featuring ice cream, fried clams and hot dogs under an iconic orange roof. Though today only a handful of HoJo restaurants survive, food-related concepts are still some of the most popular and enduring in franchising.
"It starts with the fact that everybody eats," says Darren Tristano, executive vice president at Chicago food consulting firm Technomic, Inc. "So it's a strong market even when the economy is up and down." Many restaurant franchisees have equally sturdy emotional attachments to nostalgic growing-up memories of food and family, he adds.
Franchisees also often are consumers turned entrepreneurs, motivated from their experiences as restaurant patrons. "They are not happy with what they eat when they go out to eat," Tristano explains. "A number of these franchisees feel they can do better."
Finally, many potential franchisees are steered toward food-related business ownership because they are familiar with it through their past experiences as employees of similar operations. "After the US government, the food service industry employs the second-largest number of people," Tristano notes. "As a result many people have touched upon restaurant operations as a server, chef or manager. They can see that a restaurant operation is not rocket science."
Past industry experience is, in fact, a requirement for some restaurant franchise opportunities due to the sophistication of their operations. Bojangles' Restaurants, for instance, serves breakfast all day long as part of a menu featuring such demanding culinary offerings as fresh, never-frozen chicken and biscuits made from scratch every 20 minutes.
"We're a complex, made-from-scratch concept with a high quality food with breakfast served all day," says Eric Newman executive vice president of the Charlotte, N.C.-based chain of quick service eateries. "It's really important that the person running that show is able and capable, and well-trained in food."
Quality and freshness cultivate exceptionally high customer loyalty, Newman says. That's helped Bojangles' grow to almost 500 locations, mostly in the Carolinas, Georgia, Tennessee and Virginia. "I'd expect over the next 12 months to grow at the rate of about 40 restaurants," Newman says. In addition to core markets, Bojangles' is targeting Alabama; Jacksonville and Orlando, Fla.; and Washington, D.C.
The core appeal of a Tasti D-Lite franchise is as simple as others are complex. Basically, it's a healthier treat. "Tasti D-Lite is a celebration of life, health and happiness," says Jim Amos, CEO and chairman of the Franklin, Tennessee, franchiser of frozen treat purveyors. "Because Tasti D-Lite is lower in calories, carbohydrates, sugar and cholesterol than both ice cream and leading brands of frozen yogurt, it is the smart choice for a great tasting indulgence."
The appeal that works on consumers also helps the company add new locations even during troubled times. "While 2009 was a year of maximum uncertainty Tasti D-Lite was still able to generate interest that resulted in our putting 300 new units in the queue," Amos says. "And 2010 appears to be generating even greater traction in that we are experiencing continued growth in single units, multiple store unit developers and area developers." One hopeful development Amos reports is greater interest among financial institutions in assisting qualified candidates.
Finance is a central element drawing franchisees to Hurricane Grill & Wings. "The advantage to franchisees is Hurricane Grill & Wings' relatively low initial investment and an opportunity for great return on investment," says Dan Collins, vice president of franchise development for the West Palm Beach, Florida-based island themed casual restaurant concept. A key to keeping costs down, Collins says, is emphasizing the use of second-generation restaurant locations.
To consumers, the restaurants emphasize their 30-plus sauces and rubs, along with a varied menu and robust list of craft beers, wines and, in some locations, full liquor services. Hurricane Grill & Wings currently has 34 locations in Florida, New York, Ohio, Michigan, and Arizona. "By the end of 2010 we plan to have 45 restaurants open, with commitments for 25 new stores in 2011, and additional franchise development agreements currently being finalized," Collins says.
Checkers Drive-In Restaurants spurs commitments from potential hamburger restaurant franchisees by emphasizing its combination of a robust brand name and wide-open opportunities for development,says Lynette McKee, vice president of development for the Tampa-based franchiser. "We have what we call in our industry white space," McKee says. "If you want to be in QSR [quick service restaurants] hamburger, there are few brands that have been around like we have, have the name recognition we do and have the opportunity for growth."
Checkers currently has a few more than 800 locations, mostly east of the Mississippi River. "However, we are also in California, Nevada and Arizona," McKee notes. Plans for the immediate future include expanding in the markets where they have presence. Over the next 12 months, McKee expects to open 40 to 50 new locations. "After that," she says, "We'll be a little more aggressive."
Aggressively emphasizing the nutritional component of its frozen treats is always on the business menu at Red Mango. "The biggest attraction from franchisees who are interested in the Red Mango concept has been our commitment to health and healthy eating," Daniel Kim, founder of the Dallas-based franchiser.
Red Mango's products are all-natural, use fresh rather than frozen fruit and include functional ingredients such as probiotics. "It's not just frozen yogurt," Kim says. "It's 100-percent natural, nonfat frozen yogurt with probiotics."
Simplicity is a second important feature Red Mango offers franchisees. "We've been able to keep the business simple and streamlined, which makes it easy for operators to set up and expand," he says. In three years of franchising, Red Mango has grown to 75 stores, mostly in Dallas, Chicago and on the East and West Coasts. While Kim expects to focus near-term growth in these areas, he's ready to consider any domestic market for expansion.
When it comes to healthy and high-quality hamburgers, Elevation Burger considers only the most exceptional ingredients. "We use organic grass-fed beef and we cook our fresh fries in heart-healthy olive oil," says Hans Hess, founder and CEO of the Arlington, Va.-based franchiser of upscale burger restaurants. These qualities appeal to both franchisees and guests, Hess says. "They're also barriers to entry," he adds. "Getting the supply chain for organic grass-fed beef is not simple."
After two years of franchising, Elevation Burger has eight open locations in and around Washington, D.C.; Philadelphia; Austin, Texas; New Jersey and Florida. Target areas for growth include these markets plus Colorado and California. "By the end of this year, we'll have 13 and in 2011 we'll open up between 15 and 20 stores," he says.
Among specialty restaurants, Zoup! Stands out for its menu centered on a dozen soups, each chosen and made daily from a cache of hundreds of recipes. Eric Ersher, founder and managing partner of Zoup! Fresh Soup Company in Southfield, Mich., says that difference is one of the chain's strongest attractions for potential franchisees.
"While the unit economics are strong, we believe that numbers follow, they don't lead. What attracts folks to Zoup! is that it's different," he says. Another draw: The operating formula is comparatively simple. "It is less food-intensive than many other food service concepts, which allows us to focus on front-ofhouse as opposed to food prep and kitchen," Ersher says.
Twenty-five Zoup! locations currently serve patrons, and Ersher expects to have 50 open by the end of 2011. "We're targeting the upper half of the United States," he says. "The most density is in the mid west and east, and we're moving west."
Charley's Grilled Subs currently has opportunities for franchisees with minimal barriers to entry, says James Pa, vice president of brand for the franchiser of sandwich shops specializing in freshly grilled Philly Steak sandwiches. A primary driver of the low cost of entry is the availability of location conversion opportunities as a result of the tougher economy.
The 23-year-old Columbus, Ohio, company has 410 locations in 16 countries, mostly in captive and non-traditional sites such as shopping mall food courts and military installations. "This year we'll open somewhere in the neighborhood of 42 units, mainly in the captive audience setting," Pa says.
When it comes to the restaurant franchising industry as a whole, consultant Tristano expects the next year to feature many large chains placing greater emphasis on franchising compared to company-owned locations. "Larger restaurant chains that franchise are shifting toward a more heavily leveraged number of franchised restaurants," he says.
Tristano also sees more franchiser interest in master franchising agreements. "These restaurants companies have realized that it's far easier to manage one franchise with 10 restaurants than 10 franchisees with one restaurant," he says. Master agreements also appeal to franchisees who want to lock up expansion rights in territories they have invested in to develop.
While franchisees and franchisers explore new ways to relate, restaurants are exploring new ways to serve customers. Off-site sales is one area where Tristano sees continuing growth. "Restaurants don't have to be just dining rooms any more," he says. "They can be grab-and-go. We see a higher percent of sales off-site through delivery and take out than we have in the past and the number is increasing."
Although some restaurants have suffered during the economic downturn and some have closed their doors, Tristano doesn't expect the total number of locations to decline. A soft real estate market may be hard on real estate owners, but it's good for restaurant franchisers looking for low-cost opportunities to get in business. Concepts may come and go, Tristano says, but restaurant locations tend to remain restaurant locations. "Generally when I see a restaurant close," he says, "another one opens in six months." After all, everybody has to eat.