There’s no doubt that franchising in a post-coronavirus world will be different than before the pandemic. A close relationship between franchisee and franchisor will be even more important; the leadership and consistency provided by the franchisor will be paramount to attracting potential franchisees; and a range of incentives will be necessary to support franchisees through volatile times.
Of course, at Jersey Mike’s Subs, things will probably just look the same. The sandwich brand has grown to nearly 2,000 locations across the U.S. through strong financials, efficient store operations, and a dedicated company culture, and has weathered the pandemic season better than most for those reasons; as of mid-June, the company’s year-over-year sales growth was flat, compared with many other brands that were down double-digit percentages. Founder and CEO Peter Cancro—who acquired Mike’s Subs in 1975 when he was just 17—has only doubled down on his commitment to franchisees in the last several months, all while donating millions of free sandwiches to communities in need during the crisis.
Earlier this year it was revealed that Jersey Mike’s had pledged to pay for all franchisees’ upcoming retrofits—at $75,000 per store, roughly a $150 million investment in its system. The company also introduced the Coach Rod Smith Ownership Program; named after Cancro’s youth football coach (and a local bank executive) who gave him a $125,000 loan to purchase Mike’s Subs, the program gives managers throughout the Jersey Mike’s system an opportunity to become store owners with financial and training support.
Cancro spoke with QSR about the company’s commitment to its franchisees and how its investments in the system are helping the brand get through the coronavirus relatively unscathed. (Below is a condensed version of the interview. To listen to the whole conversation, stream the podcast above.)
How would you describe your franchise partners and who you’re looking for in that partnership?
I think in the beginning you’re looking for people that you knew and who were customers and came into the store. You look for the type of operator that was similar to ourselves. We kind of knew who would succeed and who wouldn’t based on their energy or how outgoing they were, because … you have to interact with customers nonstop and right in front of them, 3 feet away from them. It’s relationships and sharing your life with the customer. So that’s the kind of person that we look for in the beginning, and still do.
I’ve got to tell you, we have about 475 owners now throughout the country and have personal relationships with every single owner. It’s something that I think is unique for our franchise company. We really are a group of operators and really care about the relationship we have with our owners. I don’t call them franchisees. I call them owners.
If I’m doing the math right, each one of your owners has just a handful of stores. Was that intentional and why?
Yeah. We love the individual owner-operator. We had a couple in from Ohio that opened up and just really did a great job, and now they’re going for a second. But no, we’re not afraid of going after the multiunit operators, as well, that could own hundreds of units of Little Caesars or Burger King. As long as they are a fit with our culture and you talk to them and you feel like it could work.
We have a broad range of mom-and-pops, but also multiunit people with other concepts coming on board, where their area is built out with that one concept and they want to add us in. They have the people, they have the marketing, they have the infrastructure, so it works well. And again, because we are so hands-on with support and service, the people with the other brands just cannot believe what we do for them and with them.
This $150 million investment in your system for retrofits is unprecedented, I think, in the foodservice industry. How did that come about?
Ever since we started franchising, we’ve been committing to owners, and we feel it’s a true partnership. I think we have a unique approach with franchising; we feel like they’re corporate stores. We feel like the owners are part of our team. In franchising, a lot of people have that view of, “Oh, they’ve got to do what we tell them in a contract.” And our approach has been the opposite.
The last retrofit we did in 2009, 2010, 2011, we refreshed our look and really turned our company around. And we primarily paid for the majority of that. Of course, the whole expense then was like $15 million, so costs have gone up.
Then we went out toward the end of October last year and November and December, and did a 25-city tour. And we went everywhere around the country and we met probably an average group of about 250 people in each group. It was owners and managers and assistant managers, and a lot of the crew there as well. We talked about how any time you put money into your business, it comes back to you. People see a fresh look. You see all the new brands coming in and opening; you’ve got to stay fresh. You’ve got to stay relevant.
We told them we’re going to retrofit and we think the cost is going to be about an average of $75,000 unit. We’re going to get new tables and chairs, new backline tile, new counters, new floor, new wall graphics, basically gut the inside of the front of the restaurant, and it’s going to be brand new. It’s a little bit more upscale. A little bit more contemporary, but still us. I looked at everybody and said, “We talk about putting others first before ourselves and talk about raising up together. We talk about pulling people along, not pushing. Our whole company mantra is giving, making a difference in someone’s life. If I’m going to stand up here and say that we’ve got to be all in, we’re paying for the retrofits.”
I’ve got to tell you, we got a standing ovation, people are in tears, hugging each other, and it’s just so emotional. Then I turned to the crew. I said, “Now that the owners are happy … I had an opportunity that someone gave me and I want to give you an opportunity. Long story short, who wants to own their own restaurant?” And that’s where that Coach Rod Smith Ownership Program came in.
What are the details of that program?
After that announcement about the retrofits was a perfect time [to announce it]. I was 17. I had no thought in my mind ever to buy the store when [the previous owner] put it up for sale until one night, my mother, believe it or not, said, “Why don’t you buy it? I heard it was for sale.” And I went upstairs and then the light went on, and I went out to try and raise the money. Somebody wanted to be partners with me, and I said, “No, not going to do it. I don’t want a partner. It’s too much work.” And then I got the money [from Coach Rod Smith] and was able to close.
We’re going to start a program and you’ve got to go through several things; you’ve got to know about inventory and scheduling and labor and managing the store. The final criteria is you’ve got to come to the training center and slice some subs with me. We hoped to have about 25 this year, but maybe now a lot more sites are going to be available, so we’ll be able to achieve that.
What you’re doing with your franchisees, and giving these ownership opportunities to people, is also an investment—an investment in people, right? What’s the return you expect to see?
One of my mentors is [founder] Tom Monaghan of Domino’s Pizza. One of the ideas that he did back in ’84 is, they opened 1,000 stores in one year, and all from people from within the company. You had to manage and run a store for over a year, and so they got really certified, strong operators, and that’s kind of the same plan that we’re doing.
You look behind the counter of the store you go in and you could see a couple of kids who are really dynamic, and those are the people that we want to grab hold of and sponsor. And we put up all the money and sign the lease, because years ago, you could sign a lease, but today you can’t. Landlords won’t take you unless you’re qualified enough. So we do everything, put them in business five years. That’s aggressive principal and interest payback. We handle the books, and then the owners that sponsor these people, they will get 3 percent, so half the royalties for three years—basically they get like $100,000. They’re engaged, they want to see them succeed and check on them and help them open. We think it’s a really, really great plan. You’ve got to have people that know what they’re doing behind the counter and execute the speed of service down the line.
Now, more than ever, this high level of execution is necessary, considering the coronavirus utbreak. How has Jersey Mike’s pivoted to get through this?
For us, we were one of the fortunate few companies that were able to continue to be open and serve. Most of our business historically has been takeout because we have very limited seating; our average unit space is about 1,200–1,400 square feet. Right away, we set up safe zones—tables in front of the counters so people are ordering like 8 feet away. A lot of owners put plastic wrap from the ceiling to the counter to protect the employees. They feel it’s a safe environment. Customers love it. We have the stanchions on the floor to keep people away.
Being mostly takeout [with] our digital platforms, we’re really a technology company. We have tremendous POS and digital opportunities set up. So now our online app, which we had years and years ago but now updated, has been incredible. We’re at, like, 25 percent now where they order online, they come and pick it up, plus 10 [via mobile] with the app. So that’s 35 percent, and third party is like 15, so 50 percent of the sales are out the door, curbside or third-party delivery. But before that, I would say, 65 percent, 70 percent was takeout. … So putting away our tables and chairs wasn’t really an issue for us.
Online orders where they pick it up in the bag already packaged is great. People love that. With all the retrofits, we’re going to have a back-line counter. We have the main slicer, and then right behind you is going to be a back-line counter similar to what Chipotle has, a separate station for pickup. So you order a couple of regular subs online, or third-party delivery, and our back line makes it.
Has the coronavirus affected your plans for the retrofit at all?
Before it started, we were going after that online-order pickup. So they come to the tower, pick up their bags with their name on it. We are positioned pretty well for the future coming in: [We’re] efficient, takeout mostly, limited seating, fresh product made right in front of people. Right now, to order your sub, you’re about 4 feet away from the customer. We’ll probably build another couple of feet on the counter, make some 6 feet away, keep them away just a little bit further. So maybe that’s one little change. But otherwise, not many changes with what’s happened.
No franchise company ever pays for the retrofits like we are doing, and everybody’s getting new templates, new register, new customer-facing terminal. The whole thing was $150 million in our budget on the whole project. And I just got off the phone with my head of construction, Rodney. And he said, “We’re doing about 20 a week.” So people through the coronavirus said, “Peter, don’t you want to stop? Don’t you want to slow down?” And I go, “No, because the contractors are safe, they’re in the stores, it’s only like three people, it’s a small crew, our restaurants are only like 1,000 [square feet], and actually the front restaurant space is only like 700–800 square foot.” We feel we’re going to be done by July of 2021 and have a brand new unbelievable look nationwide. We’re full-court-pressing it still; we haven’t stopped.
Are there any ways that this season could be an opportunity for Jersey Mike’s?
I’ve been in business since 1975 and have seen a lot of recessions come and go, and shake outs. And obviously this is not a recession. This is a pandemic. This is unbelievable, hopefully once in our history. But yes, what happens from this is a very, very severe recession, and what you always see is a lot more availability to sites. Construction costs come down. Real estate comes down a little—not as much as you would think; good sites are good sites. In this market, it’s been very, very difficult to find locations that are available. Now we see that becoming more and more available.
So with construction costs, contractors were saying, “Here, I’ll build your store. But here’s my price.” It was really getting just ridiculous. I think our turnkey on the store is about $375,000 hard costs and soft costs, and that’s up from, like, $325,000 a handful of years ago, and I think it was creeping up to like $425,000. We’re hoping to get it back to $375,000.
How do you think this season will help your owners in the long run?
It’s been a wake-up call for everybody, in their entire lives and how they live and act with everything. They’ll come back. I think they’re going to care more about their people, they’re going to care more about what they have to be thankful for, what they have, and appreciate things a lot more, and maybe just being happier with their business. Not that we have people who complain or anything, but I think that they’re going to feel a lot more fortunate, a little bit more blessed to have a successful business.