Franchising | November 2010 | By Sam Oches
The Dirty Work
Some might say that the last three years have not been very, well, accommodating for the quick-service industry. With lenders and customers alike pulling their dollars off the table, the industry has been left to make due with the circumstances and struggle to stay afloat until the economic environment warms.
Although the recession created a fair share of hand wringing in quick-serve c-suites, the franchisees have been dealt the biggest blow; they’re the ones tasked with keeping the brand’s operational gears turning, and the slowing dollars, for them, means a slowing livelihood.
QSR spoke with five multiunit franchisees to find out where to find financing, how to compose a strong team of employees, how to comply with legal regulations, how to cut back on unnecessary spending, how to juggle the many responsibilities of being a multiunit franchisee, and how to expand in a down economy.
One of the biggest hurdles multiunit franchisees undoubtedly ran into face-first during the recession was financing. With dollars harder to come across, franchisees were left to either scramble for loans or stall expansion altogether.
Frank Bonanno, president of Las Vegas–based Fifth Avenue Restaurant Group, a franchise company that includes 11 Häagen-Dazs, 10 Nathan’s Famous, and three Johnny Rockets units, says financing new restaurants in the recession has taken a healthy dose of creativity.
“What we’ve done is we’ve used some of our own capital, but of course, you can never have enough to keep building,” Bonanno says. “We’ve done some traditional financing through banks, but not a whole lot. We’ve done some lending with companies that specialize in restaurant lending. But the biggest opportunity that we’ve found is using private-equity funds.”
Bonanno says the private sector is a good place to turn to for financing because “private people still have capital available.” For Fifth Avenue Restaurant Group, he says he utilized the company’s various business relationships to open several restaurants during the recession.
One multiunit franchisee with a 43-unit network of Moe’s Southwest Grill, Popeyes, Checkers, Rally’s, and Subway stores says financing today is difficult mostly if franchisees expect to get prerecession types of deals.
“There were deals that could have been had with no money down—very high levels of leverage, very low interest rates, and very loose covenants,” says Aziz Hashim, president and CEO of National Restaurant Development Inc. “That kind of financing is not available today and may not come back for a long time.”
Hashim says his company has had luck getting financing from regional banks because they’ve fared better through the recession. What it takes to get the financing, he says, is a strong, proven business model.
“Banks have to lend money—that’s their business model,” Hashim says. “The thing now is that they’re being very careful about who they lend it to, and those decisions are based on the underlying balance sheets and how strong the corporation is. If you have a healthy balance sheet, you can still get financing today.”
The success of a multiunit franchise hinges on the people surrounding the franchisee. Or so says Todd Bertagnole, a Casper, Wyoming–based franchisee of Subway and TCBY.
“Multiunit ownership is about great people,” he says. “You’ve got to have a good management structure in place, and you’ve got to have great people.”
Bertagnole owns eight Subway and two TCBY units in Wyoming, and is the first to admit that the growth of his company relies not on his brains and brawn alone. The fight for success, he says, means a franchisee’s ego must be checked at the door.
“For the most part, people like to surround themselves with people who are equal or less than them in skill sets,” he says. “That’s not necessarily the best thing. You should surround yourself with the best people, period. I like to have people smarter than me. I like to have people managing my stores that can do everything I can.”
Roz Mallet is the president and CEO of PhaseNext Hospitality, a franchise company that includes Smashburger, Corner Bakery, Buffalo Wild Wings, and Zao Noodle Bar in its portfolio. She agrees that a strong team of employees and store managers is important for a franchise company to grow, especially one with more than one brand.
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