Special Report | July 2014 | By Daniel P. Smith

2014 Best Franchise Deals

The quick-service and fast-casual brands that offer the best bang for the franchisee’s buck.
Top fast food brands offer potential franchisees value in their growth.
Ohio-based barbecue concept Old Carolina Barbecue Company has an AUV of more than $1.4 million. Old Carolina Barbecue Company
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When it comes to developing a quick-service concept, Wingstop CEO Charlie Morrison understands that the economic model remains a large piece of the puzzle. In creating a strong franchise deal that fosters company growth, however, Morrison and many other quick-service leaders know that many other tiles complete the mosaic, including corporate support, marketplace differentiation, and sales momentum.

“To be successful, you need a solid value proposition,” Morrison says, well aware that a sound value proposition attracts new franchise partners and drives engagement with existing franchisees.

With that spirit in tow, QSR unveils its fifth-annual Best Franchise Deals report, a collection of upstart brands building a foundation for robust growth, emerging concepts clamoring for a spot on the national stage, and well-known names seeking deeper inroads into the American consciousness.

 

The Hungry Upstarts

Emerging concepts laying the groundwork for growth

Old Carolina Barbecue Company

TOTAL U.S. UNIT COUNT: 8 (3 franchised)

FRANCHISE FEE: $30,000

TOTAL START-UP COSTS: $300,000–$600,000

ROYALTY: 5% of net sales

RENEWAL FEE: 50% of then-current franchise fee

MARKETING FEE: 1.5% of net sales

Inspired by the Carolinas’ roadside barbecue shacks, Old Carolina dishes up pulled pork alongside beef brisket, ribs, pulled chicken, and turkey smoked up to 14 hours over hickory wood.

The menu also features other Southern classics, such as hush puppies, banana pudding, and Cheerwine.

Last year, the Ohio-based company’s AUV topped $1.4 million, a tally propelled by delivery and full-service catering programs that produced an additional 40 percent of revenue at each 3,000-square-foot location.

Already in 2014, the company has opened units in Michigan, Ohio, and Kentucky. Old Carolina cofounder and CEO Brian Bailey expects to open an additional four to six units by year’s end, while it also invests in new technologies aimed to drive sales growth, operational efficiencies, and guest satisfaction. This summer, Old Carolina will launch a redesigned website, a mobile-based loyalty program, and an online ordering system.

An Outside Perspective: Don Boroian, chairman of Francorp, an Illinois-based franchise development and consulting firm, calls Old Carolina’s unit sales and product “impressive,” while also noting that barbecue is one of the few quick-service niches with growth potential.

“[Old Carolina] should have a great shot at the market and at selling franchises,” Boroian says.

Burger 21

TOTAL U.S. UNIT COUNT: 10 (6 franchised)

FRANCHISE FEE: $40,000

TOTAL START-UP COSTS: $416,133–$833,895

ROYALTY: 5% of net sales

RENEWAL FEE: 25% of then-current franchise fee

MARKETING FEE: 0.75% of gross sales

Fast casual Burger 21’s chef-inspired burger creations, handcrafted milkshakes, and fresh salads sparked AUV of more than $1.75 million in 2013.

Dan Stone, vice president of franchise development for Front Burner Brands, Burger 21’s parent company and the management enterprise behind The Melting Pot restaurants, says the concept fills a void in a “beyond-the-better-burger” category by offering broad appeal that captures the “mom vote.”

“Twenty-five percent of burgers sold at Burger 21 are non-beef alternatives, and 56 percent of revenues come from non-beef items,” Stone says, adding that Front Burner holds a 30-plus-year track record of pushing franchisees’ success.

Since launching in 2011, Burger 21 has opened 12 locations in five eastern states. By the end of this year, Stone expects a total of 20 units serving customers, including an outlet in Scottsdale, Arizona, that will mark the concept’s first entry into the West.

An Outside Perspective: The better-burger space is a crowded, competitive field, says John Gordon, principal at Pacific Management Consulting Group. And while Burger 21 has compelling attributes, he says, the franchise strategy should be more geographically focused.

“It should be first developed in a lower number of markets to gain efficiencies and market knowledge,” Gordon says.

Tin Drum Asiacafé

TOTAL U.S. UNIT COUNT: 11 (5 franchised)

FRANCHISE FEE: $35,000

TOTAL START-UP COSTS: $286,000–$479,500

ROYALTY: 6% of net sales

RENEWAL FEE: 50% of then-current franchise fee

MARKETING FEE 1.5% of net sales

Landing on the Best Franchise Deals list for the second consecutive year, Tin Drum is riding high with street-inspired, Pan-Asian cuisine that is cooked fresh in a contemporary fast-casual setting.

The Atlanta-based concept’s diverse menu features more than 35 items made with Thai, Japanese, Chinese, Vietnamese, and Indian influences, thereby creating a dynamic and varied menu that addresses consumers’ growing interest in ethnic foods.

Long embracing a debt-free business strategy, Tin Drum has an upward trajectory that recently attracted a minority interest stake from BIP Opportunities Fund, a private-equity firm that will help Tin Drum founder and CEO Steven Chan advance the concept’s growth and infrastructure build-up, including the development of a new design prototype and simplified kitchen execution. The chain, which recorded an AUV of more than $1 million in 2013, will open three additional cafes in the Atlanta metro area this calendar year.

An Outside Perspective: Gordon says Tin Drum has some definite pluses, including its geographical location in the Southeast—away from upstart Pan-Asian rival Pick Up Stix—and the fact that its largest competitor, Pei Wei, does not franchise. But there’s still some foundation-building to be done at Tin Drum, Gordon says.

“Franchisees should look for that magic point of entry,” he says.

Teriyaki Madness

TOTAL U.S. UNIT COUNT: 10 (8 franchised)

FRANCHISE FEE: $40,000

TOTAL START-UP COSTS: $227,199–$441,850

ROYALTY: 6% of net sales

RENEWAL FEE: 10% of initial franchise fee

MARKETING FEE: 2% of net sales

Teriyaki Madness continues making headway in its mission to become a national chain.

The emerging fast casual has recorded three consecutive years of double-digit, same-store sales increases, including a 14 percent gain in 2013.

After seven years of testing and developing the concept in Las Vegas, Teriyaki Madness began its national franchise campaign in late 2012. Chairman Michael Haith says the concept has attracted interest from franchisees across the country and now has more than 60 units in development, including soon-to-debut units in California, Texas, Virginia, Nevada, and Florida. The Denver-based chain expects to have 30 units open by this year’s conclusion, and 100 locations by the end of 2015.

Haith points to the brand’s AUV of more than $970,000 in 2013 and its $243,000 operating profit as proof of the concept’s potential. “It’s a wide-open playing field for Teriyaki Madness,” he says.

An Outside Perspective: While Boroian wishes Teriyaki Madness had a more contemporary Asian look as opposed to its current austere dining-room environment, he credits the concept for having “a great presentation of a unique menu.” He says Teriyaki Madness should attract multiunit buyers given its strong margins and low build-out costs.

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