Franchisees strive for success as new franchisors of Bagger Dave's, 32 Degrees

After having spent many years as franchisees of other restaurants, Michael Ansley and Jeff Pizitz are drawing upon their experience to recruit the right operators and grow in the optimal markets as first-time franchisors of proprietary brands.

Both men continue to lead franchise organizations: Ansley’s Diversified Restaurant Holdings runs 22 Buffalo Wild Wings units, while Pizitz Management Group is the largest franchisee of Great American Cookies, with 38 locations. Both also branched out and created their own restaurant concepts a few years ago, with Ansley developing Bagger Dave’s Legendary Burger Tavern and Pizitz founding frozen-yogurt brand 32 Degrees.

Now both operators have begun to expand their proprietary brands through franchising, and although the better burger and frozen yogurt segments explode with franchised-unit growth all around them, Ansley and Pizitz both plan to build their upstart chains as prudently as they did their first businesses. They spoke with Nation’s Restaurant News about how their years as franchisees would help them find ideal operators and real estate sites.

Bagger Dave’s: Understanding their operators

Southfield, Mich.-based Diversified Restaurant Holdings opened the first Bagger Dave’s in 2006 after deciding to compete with “better burger” chains with a new concept rather than become a franchisee of Five Guys Burgers and Fries.

Diversified grew the brand to 10 locations in Michigan, and last week the first franchised Bagger Dave’s opened in Cape Girardeau, Mo. The franchise partners, Bill Zellmer and Lonnie Griggs, also operate Buffalo Wild Wings units like Diversified does. Ansley said that made him confident that they could help grow Bagger Dave’s, which incorporates a full bar into its burger-focused concept.

“We are very understanding of what our franchisees go through, and we want to hold them to an even higher standard than Buffalo Wild Wings holds us to today,” Diversified’s founder and chief executive said. “The type of operator we’re picking are those who are experienced serving alcohol and running a full-service restaurant, and because they got that side of things, it made this easier.”

Diversified will open four company-owned Bagger Dave’s locations this year and probably eight next year, Ansley said, while Zellmer and Griggs will look to open their next franchised Bagger Dave’s in 2013, in Paducah, Ky.

“We want to pick the right operators, and we’re not a typical franchisor that really needs the money to get started,” Ansley said. “We’re still opening company stores, and we’ll open more next year. Franchising may only be 30 percent or 40 percent of our business, which means we can take our time.”

While Diversified may not need franchisees to open dozens of units at a breakneck pace, the company still would like to attract serious players, so it has put several development incentives into place, he said.

Zellmer and Griggs qualify for a 12-month royalty abatement, provided they open their agreed-upon six locations in five years. But despite that growth incentive, Bagger Dave’s is not in a hurry to expand beyond its 11 locations, Ansley reiterated.

“Some franchisees are still waiting things out because the economy is still tricky and the need to get a liquor license makes the barrier to entry a little higher,” he said. “But we’re fine with that.”

32 Degrees: Finding partners for the right locales

Pizitz said his company felt the urgency to bring the frozen-yogurt chain 32 Degrees to market in 2010 after decades as a successful Great American Cookies franchisee. But now that he is looking to franchise 32 Degrees after building the brand to 16 company-owned stores, he will take his time to find not only the right partners but also the right real estate.

“We wanted to rely on individuals who could market their stores better than we could from 300 miles away,” Pizitz said. “To distinguish our stores from all the others around we have to get involved in the local community, and somebody local does that far better than we can. We’re going to support the franchisees with regional advertising and a strong graphics package.”

The focus on prime real estate came from Pizitz Management Group’s growth of its Great American Cookies franchise slowing down as a result of limited development of enclosed malls, where its stores operated throughout the South and Southeast.

“With our Great American Cookies stores, our potential for growth other than through acquisition became limited,” Pizitz said. “We looked into other food businesses, and these self-serve yogurt stores were packed. There are similarities [with our cookie stores], but the beauty of the yogurt business is that we had a chance to expand in strip centers, where there are lots and lots of opportunities for us.”

After seeing Pinkberry, Red Mango and dozens of other chains franchising rapidly, Pizitz realized he needed to get into the frozen yogurt business as quickly as possible in order to be competitive. "We weren’t the first people in this segment and couldn’t afford to wait,” he said.

Finding the dairy and equipment suppliers to get into the frozen yogurt segment were not difficult, he added, letting 32 Degrees focus its resources on development and design.

But like Bagger Dave’s CEO Ansley, Pizitz does not see the need to be the biggest, fastest-growing franchisor in his segment. The frozen yogurt sector is approaching the point where it is getting overbuilt, he said, meaning 32 Degrees’ opportunity is to open in as many excellent real estate sites that are left and then improve unit economics to grow revenue.

“There are probably three or four years left of good growth, with some leveling out and major consolidation of the industry coming,” he said. “But if you plan well and have strong financials, your people can definitely prosper.”

Contact Mark Brandau at mark.brandau@penton.com.
Follow him on Twitter: @Mark_from_NRN