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Chain Leader100unitsrt — How to Grow to 100 Units

Special Report: Peer Review
Operators discuss the best ways to grow to 100 units.

From brand development to recruiting to financing, growing chains must address a myriad of fundamental issues. And expansion is often fraught with missteps and lessons learned along the way. Chain Leader gathered nine chain operators from up-and-coming chains and established concepts to share the trials and tribulations of growth at a roundtable discussion called “How to Grow to 100 Units” Nov. 16, 2005, in Dallas.

According to the operators, delivering a clear and consistent brand message and experience to guests is vital to expansion. They said corporate must be vigilant about making sure units are complying with the chain’s systems daily.

Nothing Personal

But some admitted that it can be difficult to enforce compliance when working with franchisees, who may want to put their own stamp on the concept.

“People move into their cubicle at their office, the first thing you do is you put up all your stuff—you personalize it. And there’s a place for that. But when you’re trying to speak with one common brand voice and develop a chain of restaurants, there’s no need for personalization in that sense,” said Antonio Swad, founder and president of Dallas-based, 51-unit Pizza Patrón. “And if you grow through franchise distribution, you have to get that established up front—that you’re not going to have any of that. Otherwise you’re going to fragment the brand, and you’re going to weaken its brand voice, and it will be very difficult to get to the next level.” (View video clip.)

But before a chain starts expanding, it must invest in its infrastructure and ensure the system is sustainable, particularly when franchising. “That’s the real value to a prospective franchisee,” said John Scardapane, CEO of Conshohocken, Pa.-based Saladworks, a tossed-to-order-salad chain with 76 units. “They don’t want to come on board and have to develop the systems themselves and make the mistakes you’ve made over the past 20 years. All those mistakes that were very costly to us as a company, our franchisees benefit from that. They’re not going to make the same mistakes, and that’s the real value of becoming a Saladworks franchisee or any successful franchisee or franchisor.” (View video clip.)

Human Investments

Roundtable Participants
Steve LaMastra
Raving Brands
Eric Wolfe
Erbert & Gerbert’s
Billy Downs
bd’s Mongolian Barbeque
Antonio Swad
Pizza Patrón
John Anderson
John Scardapane
Nancy Roskin
3 Tomatoes & a Mozzarella
Bob Lin
Abuelo’s Mexican Food Embassy
Nick Vojnovic
Beef ‘O’ Brady’s
Moderated by Mary Chapman, Editor-in-Chief, Chain Leader

All the panelists agreed that a chain can’t grow successfully without investing in a human-resources department. It not only allows managers to concentrate on running the restaurants without having to worry about administrative issues like benefits and payments, but a human resources staff “picks the right people to bring into your concept—people that can grow and buy into what you’re trying to express to your customers,” said Bob Lin, president of Food Concepts International, the parent company of 29-unit Abuelo’s Mexican Food Embassy. (View video clip.)

Along with hiring the right employees, training is essential to 36-unit Erbert & Gerbert’s brand strategy, said Eric Wolfe, CEO of the Eau Claire, Wis.-based chain. The employees attend a five-week training program to learn how to tell customers the stories behind the sandwich concept’s unique origins and the quirky sandwiches such as Boney Billy and Halleys Comet, named after characters in a series of tales that founder Kevin Schippers’ made up.

Training is also an important when franchising because franchisors have a responsibility to help turn franchisees into entrepreneurs, said Steve LaMastra, COO of Raving Brands, a multiconcept operator of several fast-casual concepts, including Moe’s Southwest Grill and Planet Smoothie. The company has a training program called Raving Brands University that covers general business management such as human resources and financial management. (View video clip.)

“In franchise operations people forget you also have to make a great effort to develop your franchisees as businesspeople so that these men and woman can go out there and develop their business,” LaMastra said. “There’s nothing that they look to us for more than leadership in how to develop their business. That’s why they’ve come to us, and that’s why they’re seeking that stability and the consistency in the brand you offer.”

While franchisees expect guidance and a proven system from the franchisor, they should also be involved in decisions affecting the chain, according to the panelists. For example, both Tampa, Fla.-based Beef ‘O’ Brady’s, a 180-unit family-sports-pub chain, and Saladworks have franchise advisory committees that meet regularly with their chain’s executives to discuss issues such as purchasing, menu items and marketing.

“Typically all [franchisees] hear is the end result of your decision. They don’t get the opportunity to see all the growth and the process of how you came to that conclusion,” Scardapane said. “If they’re made a part of that, it’s a lot easier for them to understand it and accept, and then you can implement it into the entire system.” (View video clip.)

Cashing In

Once the concept and system have been proven, most of the operators at the roundtable recommended funding initial growth with cash flow by focusing on profitable unit economics and not expanding too fast.

“Keep your growth at a rate that you don’t have to give any of the equity away or bring in any investors that are going to put such strict covenants on you for expansion that you’re going to start expanding at the expense of the investor and start taking bad locations on real estate and sending franchisees into your system that shouldn’t be in there,” Scardapane said.

However, according to LaMastra, once a chain has enough units to realistically grow nationally, it has to consider “creative” financing alternatives. For example, with more than 260 units and 500 more in development, Moe’s plans to go national and is looking into private equity and senior debt facilities to help the chain expand. (View video clip.)

Handing Over the Reins

Expansion also means concept creators may have to turn over their responsibilities to more experienced restaurant executives. But many at the roundtable cautioned that founders should stay involved in the company to protect the concept’s original vision and interests. For example, Billy Downs, president and CEO of Ferndale, Mich.-based bd’s Mongolian Barbeque, recently hired COO Deb Fratrik to help grow the create-your-own-stir fry chain from 27 units to 100.

“I’m asking for help and so I brought her in to help guide us through this past she’s been through before. I felt that I was going through uncharted waters,” he said. “At the same time, I love the business and want to stay involved. So it’s a balance between managing culture and then giving up the reins.” (View video clip.)

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