What is in this article?:
- Lessons on landing the big franchisee
- Searching for systems
Emerging brands stress systems, values, exclusivity to attract multiunit partners
Bar Louie recently signed a franchise operator of more than two dozen Subway locations to open six Bar Louie restaurants in the Chicago area.
Two big selling points of a relationship with any new significant other — shared values and exclusivity — have loomed large with emerging restaurant chains that recently signed their first major, multiunit franchise partners, operators said.
One franchisee used to being courted, Kesh Aggarwal of Houston-based KK Group, admitted that flashier parts of Atlanta-based Wing Zone were attractive, such as its limited-service chicken wing segment or returns on invested capital. But the reason the operator of 51 Subway locations inked an eight-unit development deal with nearly 100-unit Wing Zone was because Aggarwal sensed the brand had the infrastructure as well as the temperament to support a large, sophisticated operator.
“We’re trying to get into the wing competition and dominate it by picking good real estate and marketing it right,” Aggarwal said. “The product is really good, but so is the passion from the co-founders. My business is family-owned and -operated, and we brought a lot of the same values as Wing Zone. It wasn’t just, ‘Here’s your license, go build.’ They spent a lot of time down here looking at all our real estate together.”
Aggarwal’s group is not even the only major player in Houston to sign with a new brand. In May, Michael Knobelock, owner of 47 Church’s Chicken and 21 Little Caesars outlets, agreed to buy two Captain D’s locations and build four more in Houston. Elsewhere, 600-unit Rita’s Italian Ice announced July 15 its largest area development deal in its history, a 75-store agreement with East Bay Ice Empire Inc., which includes as a partner Misty Young, owner of the Squeeze In diner chain in Nevada and author of “From Rags to Restaurants.”
According to the recently released Monitor 200 report from Restaurant Finance Monitor, big franchisees are getting bigger, often diversifying into new brands to achieve their growth. In 2013, the average franchisee among the report’s 200 largest operators reported $143.5 million in total revenue from 109 locations, both of which were up approximately 30 percent from their averages of $109 million and 84 locations in the 2009 report.
“This period of consolidation among restaurant franchisees is almost unprecedented,” said Jonathan Maze, editor of Restaurant Finance Monitor, in a statement. “A number of these companies operate more units or have more revenue than most restaurant brands.”
Exclusive markets, mutual benefits
Wing Zone chief executive Matt Friedman, one of the brand’s co-founders, said recruiting a large franchisee like Aggarwal’s KK Group involves more than the requisite brand differentiation and profitable business model to be an attractive opportunity. Often, those multiunit, multi-concept operators are looking for the chance to have a market — or most of one — to themselves.
“No. 1 for us was a protected and exclusive territory,” Friedman said. “Then [those franchisees] are looking for systems in place and buying power [in commodities markets], good design and good décor. They absolutely want that, and it’s crucial because they come from a systems-generated brand already.”
Wing Zone is staying proactive, recruiting multiunit operators from large franchise systems like Dunkin’ Donuts or Subway, he said. Friedman added that Wing Zone’s largest franchisee is a nontraditional operator, the Army and Air Force Exchange Service, an 800-unit operator of military base restaurants that runs 10 Wing Zone units and has an agreement for 10 more.
For even more established restaurant chains, refranchising has been the way to bring in new and large franchise partners, most notably with Wendy’s recently completed sell-off of 425 company-owned units. Its first transaction in that effort was a $9.3 million sale of 24 restaurants in June 2013 to NPC International, which has acquired 146 total Wendy’s restaurants to date.
Dallas-based Bar Louie has carved out regions of the country exclusively for franchised growth, but the brand will also continue to expand with company-owned stores, at a rate of one-third franchising to two-thirds corporate growth, said chief executive John Neitzel.
“We spent a lot of time trying to size the potential footprint of Bar Louie across America in a conservative way,” he said. “We were astounded when we saw 450 potential locations, and we said, ‘Hell, we can’t do that many by ourselves.’ We want somebody able to run five Bar Louies and be efficient, but not be in five different states.”