Franchising | July 2013 | By Daniel P. Smith
2013 Best Franchise Deals
The Rising Stars
Established brands ready for the national spotlight.
Menchie’s Frozen Yogurt
Total U.S. Unit Count: 229 (228 franchised)
Franchise Fee: $25,000–$40,000
Total Start-Up Costs: $300,000–$320,000
Royalty: 6% of net sales
Renewal Fee: $20,000
Marketing Fee: 2% of net sales
Menchie’s mission statement sets a bold goal: to make every guest smile. With a $500,000 AUV,
the Encino, California–based brand gives its franchisees reason to smile, as well.
Using Menchie’s proprietary frozen-yogurt product, guests create their own mix from more than 100 rotating flavors, including the likes of cake batter and pomegranate raspberry tart. There are also 70 rotating toppings, ranging from hot fudge to fresh fruit and granola. Menchie’s hits on health by offering nonfat, gluten-free, vegan, dairy-free, no-sugar-added, kosher, and low-carb options.
For franchisees, ROI comes courtesy of a highly scalable operation with recognizable branding, operational simplicity, national purchasing power, and no hidden charges or product markups.
As Menchie’s CEO Amit Kleinberger says, “Happy franchisees make happy guests.”
An Outside Perspective: Simon says Menchie’s festive, group-drawing atmosphere creates higher ticket prices and increased referrals. But it’s the chain’s outstanding growth in a challenging economy that most impresses.
“Menchie’s has proven that a system focused on customers, product, and franchisees can dominate a highly competitive market by expanding from 38 units in 2010 to  today,” he says.
Total U.S. Unit Count: 29 (27 franchised)
Franchise Fee: $20,000
Total Start-Up Costs: $240,000–$400,000
Royalty: 5% of net sales
Renewal Fee: $2,000
Marketing Fee: 2% of net sales
Barberitos is making a splash in the fast-growing Mexican segment. In 2012, same-store sales jumped more than 10 percent from 2011 and AUV hovered near $700,000.
“Each year, the company profit grows, proving that our customers are loyal and willing to pay for our product,” Barberitos founder and CEO Downing Barber says.
As a Barberitos franchisee himself, Barber is personally affected by every corporate decision, a reality that connects him with the operators’ plight and ensures that corporate decisions drive store-level success. Barber, in fact, calls Athens, Georgia–based Barberitos a “profit-focused” system. The corporate office lends counsel to site selection, design and construction, marketing, and business management, alongside franchise support every six to nine weeks.
“Many franchises do not even operate any of their own [stores], so they don’t fully understand what franchisees have to do deal with,” Barber says. “But there’s no ivory-tower thinking here.”
An Outside Perspective: If handled correctly, McKee says, Barber’s status as CEO and franchisee can be a big plus for the Barberitos system, as it allows corporate leadership to better understand the daily grind and the external factors operators encounter.
“The communication between the CEO and his franchisees also takes on a different tone because the profitability of the franchisees is a top focus,” says McKee, who applauds Barberitos’ efforts to clearly define its franchisee profile and performance.
Freddy’s Frozen Custard & Steakburgers
Total U.S. Unit Count: 83 (74 franchised)
Franchise Fee: $25,000
Total Start-Up Costs: $461,000–$899,000
Royalty: 4.5% of net sales
Renewal Fee: 1/3 of then-current franchise fee
Marketing Fee: .25% of net sales
Kansas-based Freddy’s has earned growing national recognition—and a repeat appearance on this Best Franchise Deals list—for its premium steakburgers, fresh-made custard, and $1.4 million AUV.
Freddy’s COO Scott Redler says Freddy’s encourages innovation and entrepreneurial thinking among its franchisees, while also supplying the support that fosters expansion. A formal “Freducation” training program and ongoing franchisee coaching ensures consistency throughout the system. Freddy’s also prides itself on transparency with its franchise partners, handing its operators all product purchase incentives and rebates.
“We share the system’s purchasing power equitably and proportionately with the franchisees from day one,” Redler says.
Freddy’s, which today has outlets in 17 states, plans to add as many as 300 stores within the next five years.
An Outside Perspective: With the right systems and operations in place, including franchisee training and strong supplier relations, McKee says, Freddy’s could meet its ambitious growth goals.
“Freddy’s AUVs are strong and if the franchisee carefully monitors his or her costs of entry, this could be a repeat for QSR’s Best Franchise Deals again,” McKee says.
Penn Station East Coast Subs
Total U.S. Unit Count: 253 (252 franchised)
Franchise Fee: $25,000
Total Start-Up Costs: $320,798–$460,813
Royalty: 4–8% of net sales
Renewal Fee: $1,000
Marketing Fee: 1% of net sales
It could be because of its conservative growth approach, or its intense focus on operational simplicity and a customer-pleasing experience. But Penn Station’s record speaks for itself: only two closures in its 28-year history.
The Cincinnati, Ohio–based company, where AUV topped $600,000 in 2012, provides its franchisees with monthly financial comparisons and average income statements that allow operators to benchmark their performance against others in the system.
“Penn Station is a great franchise deal not only because of our strong systems and unit economics, but also our approach to franchisee profitability,” says Penn Station director of sales Jad Buckman.
Today, Penn Station is in 13 states, having added Georgia and the District of Columbia to its roster this year. Plans are to open at least 30 new units by year’s end.
An Outside Perspective: Simon says it’s refreshing to see a brand with a low closure rate and believes the monthly systemwide benchmarking allows operators to pinpoint areas in need of attention.
“Penn Station has taken a deep interest in its franchisees’ [profit and loss statements], leading to increased bottom lines and, in turn, lower closure rates,” Simon says.
Food & Beverage