Restaurant chains to drive growth through nontraditional locations

Since typical real estate opportunities are at a premium, development executives for some restaurant franchisors are investing in nontraditional partnerships with retailers, convenience stores and travel centers to drive growth in 2013.

Checkers Drive-In, Fazoli’s and Huddle House officials disclosed plans to pursue growth of their standard restaurant footprints this year, but they also expressed optimism that nontraditional expansion would let them reach more customers and better serve their franchisees.

For example, this year Checkers opened two slimmed-down units in Walmart stores, including a franchised location at a new Super Walmart in Haymarket, Va., and a company-owned unit that replaced a McDonald’s restaurant in a Walmart in Oldsmar, Fla. The company is exploring many more Walmart locations for 488-unit Checkers and sibling brand Rally’s, which has 290 locations, next year.

Jennifer Durham, vice president of franchise development for Checkers and Rally’s, said that restaurant operators need to consider the right fit when opening an onsite store within another retailer’s box. “It has to be the right type of partnership,” she said. “With Checkers and Rally’s being the most value-relevant brands in QSR and Walmart being the most value-relevant retailer, it made sense to join forces. We wouldn’t go into a Nieman-Marcus, because that’s not where our consumers live.”

New partners, new opportunities

Walmart and other big-box retailers like Target long have opened franchised units of large quick-service chains like McDonald’s, Subway and Starbucks within their stores, and more rapidly expanding restaurant brands are getting into the game. In addition to Checkers, Philly Pretzel Factory also opened its first Walmart location this year, though officials have not yet determined how many nontraditional units will open in 2013.

Caribou Coffee signed a multilocation deal this year with Jewel-Osco , the largest chain of grocery stores in the Chicago market. Officials said during a recent earnings call that on-site restaurants in the grocery stores should reinforce sales of 610-unit Caribou’s packaged coffee in the aisles of Jewel.

Huddle House, the chain of 395 family-dining restaurants, opened three company-owned locations in Oklahoma and franchised another two new stores in Kansas in its previous fiscal year by partnering with Pilot Flying J to put restaurants in its highway travel centers. Most recently, Huddle House entered new states like North Dakota and Pennsylvania via Pilot travel centers, said director of development Brian Kendrick.

“That’s really helping us expand,” he said. “We may not have been able to do that without the help of Pilot.”

Huddle House remains an enthusiastic partner with Pilot because the company is reinvesting in its travel centers and upgrading the facilities to be a destination for travelers, Kendrick said. If more people take to the road in 2013 as they are projected to do then Huddle House stands to benefit, he said.

“As the economy improves, there’s going to be more and more commerce, especially with professional drivers going back and forth across the country,” he said. “We want to partner with the leaders of the travel industry, and the fact that Pilot is putting so much capital into these locations — who wouldn’t want to get that exposure in a fully upgraded center?”

Craig Sherwood, vice president of franchise development for Fazoli’s, agreed, saying that convenience store operators tell him constantly that they need popular restaurant brands in their buildings because the C-store industry is so competitive.

“If gas prices are the same as the guy across the street, what differentiates C-stores are the offerings inside,” Sherwood said. “The opportunity for us to differentiate a convenience store with our offering, as opposed to typical sandwiches, is we can really go after that meal replacement piece that’s becoming more important.”

The chain of 220 quick-service Italian restaurants opened its second travel center restaurant this month, partnering with multibrand franchisee Chintu Patel to put a Fazoli’s into a new station off Interstate 74 in Shelbyville, Ind., 25 miles outside Indianapolis.