Franchising | July 2014 | By Nicole Duncan

The Franchise Formula

Small operators ready themselves for expansion through franchising.
Quick service brands leverage franchise system for strategic growth.
When Old Carolina Barbecue opened in 2006, its founders already knew the brand was prime for franchising. Old Carolina Barbecue
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For upstart quick-service restaurants considering the move to franchising, the path can precipitate a major shift in business model and operations. Beyond the economic investment in franchising, experts say, operators must ensure their brand will consistently deliver quality across all locations.

“They need to have a replicable model,” says Lynette McKee, managing partner of consulting firm McKeeCo Services. “If you have a vision of where you want your company to be at some point in the future, we can take that and back it up and understand all the parts and pieces you have to bring to the table to get you there.”

For quick serves operating under a small, informal system, franchising will require an examination of the minutiae of the business in greater detail. McKee recommends clients have a formal business plan complete with a profit and loss statement.

What small operators may lack in business acumen, she adds, they more than compensate for in zest.

“The common theme that I’ve seen, especially in the restaurant concept, is that many of them don’t understand the noneconomic investment that it’s going to take to make it a success,” says John Norling, an attorney at Jennings Strouss law firm who advises brands taking the first steps toward franchising.

Starting and maintaining a franchise should be treated as a separate business from the original restaurant, Norling says. Operators can build a team of specialists to divide the responsibilities and prevent burnout.

When Brian Bailey, CEO and cofounder of Canton, Ohio–based Ichor Restaurant Group, opened Old Carolina Barbecue, his company’s first quick serve, in 2006, he and his business partner Tim Hug already envisioned a restaurant group comprised of multiple restaurants and franchises.

“We hired a dedicated franchise support person who knew that franchising is a different business model,” Bailey says. “Being a sales and marketing person, I wasn’t opening a restaurant just to sell food. From the very beginning, we’ve always treated it that it was going to be a chain. Can everybody do that? No.”

Norling recalls a client who aspired to be the next Mrs. Fields, but because she baked cookies by taste rather than replicable recipes, the business could not expand beyond her own kitchen. “It’s a large leap from having a great idea and making that leap into a franchise-able concept,” Norling says.

To succeed, franchisors must create a prototype that will garner appeal beyond the original market, Bailey says. He and his partner conceptualized a brand that could travel from market to market without relying on market-specific branding. He adds that having franchising as a goal from the get-go was key.

In recent years, McKee says, she’s observed more operators planning to franchise from the very beginning. “It seems like their whole intent was, before they put the first shovel in the ground, they positioned this company to be franchised,” she says.

Operators who develop a replicable model from the onset might have an initial advantage, but it does not preclude those who decide to franchise at a later time.

When Amsterdam Falafelshop opened to positive consumer interest in a busy D.C. neighborhood, cofounder and CEO Arianne Bennett says, the company received many requests for franchising. Though that was never her plan, Bennett and her husband and co-owner Scott began documenting their procedures and policies with the intention of franchising within one year of opening the first unit. Franchisees now own three additional locations in Washington, D.C.; Annapolis, Maryland; and Boston. Bennett says the number of franchise inquiries skyrocketed following the company’s first franchisee opening.

“Once that store opens, everyone comes knocking,” she says. “They see the vision that we have. They see the happy franchisee and that kind of goes back to getting it right in the beginning.”

In addition to streamlining business operations, franchisors should take steps to protect and promote their brand, experts say.

Former “Top Chef” contestant Spike Mendelsohn opened the fast-casual burger concept Good Stuff Eatery with his family in Washington, D.C., in 2008 with the intention to franchise later down the road. He and his team began actively searching for franchisees in 2013, and the first Good Stuff Eatery franchise location is set to open in Chicago soon.

“We were able to keep the integrity of the design by keeping our same designer. However, we tailor it to the location so it feels more local,” says Catherine Mendelsohn, director of operations for Good Stuff Eatery and Spike’s mother. “There are certain things that are constant.”

Mendelsohn and her husband, Harvey, manage the business arm of the brand while Spike runs the kitchen. Essential to their franchising process was fostering a relationship with new business partners, she says. “We encourage them to be involved, because we want them to feel that it’s their restaurant and that they’re going to take pride in it as well.”

Those relationships can be easily fostered if a brand takes the time to find the right business partners, says Aziz Hashim, president and CEO of National Restaurant Development (NRD), a multibrand holdings company based in Atlanta. NRD partners with major players like Domino’s Pizza, as well as smaller franchisors.

“I think sometimes the emerging brands have a more open view. They almost think of their franchisees as a resource,” Hashim says. “They see the value in partnering with larger franchisees.”

These large franchisee groups can be ideal for a brand whose owners may not have a robust background in business or did not intend to get into franchising, he adds. However, for an operator who has the know-how, it can be beneficial to seek less-experienced franchisees. Ichor’s Bailey says the benefits of these individuals are their excitement for the business and willingness to learn.

“The one without [experience] became easier to work with, to be honest,” he says. “They wanted to learn from us.”

The size and professional background of potential business partners is a matter of personal preference, but experts and operators agree that a passion for the brand and genuine connection with the owners is the most important factor.

“You see in the last few years many, many new brands. Competition is as fierce as it’s ever been,” Hashim says. “Those brands that are succeeding today are the ones that have strong relationships with their franchisee.”