Franchisees are the backbone of the quick-service restaurant industry. It’s their entrepreneurial spirit and support that gives chains the staying power and reach to compete across the country and beyond. Without them The Colonel might never have left Kentucky and Pizza Hut would be nothing but a hut. Here, in no particular order, is a look at some of the biggest movers and shakers in the franchisee world and where they’re headed.
Last year saw big changes at NPC International. A Merrill Lynch Global Private Equity-controlled company purchased the world’s largest Pizza Hut franchisee in a May 2006 deal that resulted in the departure of the company’s chairman and founder.
All the uproar seems to be taking a toll, with the company posting first-quarter 2007 net profits of only $2.4 million, compared with $15.4 million from first quarter 2006. A press release announcing the earnings report blamed the lagging profits on fallout from the sale of the company coupled with lower restaurant operating margins, which President and CEO Jim Schwartz says NPC is working to better.
“We are refocusing our efforts in that regard in an effort to improve store labor productivity and reduce unproductive discounting from our customer pricing equation,” he said in a recent press release.
On the upside, the company, which operates Pizza Hut restaurants and delivery units in at least 24 states, was able to increase comparable store sales by 0.7 percent while rolling over its most challenging comparable store sales growth quarter from 2006. A January 12, 2007 story in the Kansas City Business Journal also speculated that the acquisition by Merrill Lynch will provide NPC with more capital to finance its expansion. Already there is evidence that this is the case: The company acquired 39 Pizza Hut stores in and around Nashville, Tennessee, in October 2006 and added an additional 59 units in Idaho, Oregon, and Washington in March 2007.
NPC’s strategy has been to focus on non-metro locations and small cities, and it already has significant presence in the Midwest, South, and Southwest regions. Bolstered by its new heavyweight backer, look for NPC to continue adding territory.
Carrols Restaurant Group, Inc.
Perhaps taking a cue from franchisor Burger King, Carrols Restaurant Group, the chain’s largest franchisee, held an initial public offering in December 2006.
The IPO netted $68 million, and Carrols, which owns the Pollo Tropical and Taco Cabana quick-casual brands, seems to be hitting its stride. The company reported first-quarter 2007 total revenues of $188.2 million, up 3.1 percent over the same period in 2006.
While revenues for the company’s Burger King restaurants were essentially flat for the quarter, the Pollo Tropical and Taco Cabana concepts seem to be picking up the slack. Together the two quick-casual brands accounted for a 6.3-percent increase in revenue over the same quarter last year.
Carrols, no doubt, is taking note of those numbers. The prospectus preceding the IPO revealed plans to concentrate on growing the two Hispanic brands by expanding within established markets in Florida and Texas as well other areas of the country. One place to watch will be New York City, where the company opened two Pollo Tropical locations in 2006.
By the end of this year, Carrols expects to open between seven and 10 Pollo Tropical and between 10 and 12 Taco Cabana restaurants in all, according to the prospectus. At the same time, the company also stated the probability that at least four of its Burger King units will close. Carrols also plans to focus on increasing comparable restaurant sales in existing locations with added menu offerings and enhanced advertising.
Harman Management Corporation
Without Harman Management, the KFC brand wouldn’t be what it is today—literally. Not only did the franchisee group’s founder, Leon “Pete” Harman, open the chain’s first restaurant in 1952, he even coined the name.
Harman is also credited with starting the practice of serving meals in the brand’s famous buckets, and his original partnership with Colonel Harland Sanders built the base for what is today KFC’s largest domestic master franchise network. The company has more than 300 stores—including both KFC and YUM! co-branded units—in California, Utah, Colorado, and Washington.
Just as Pete Harman’s influence has had an impact on the KFC brand, Harman Management, too, carries the traits of his legacy. From the beginning, Harman felt an owner should be personally involved in his restaurants, so he would make the rounds to each of his locations every day. When the company acquired more units than were possible for one person to attend to, Harman’s solution was to bring in more owners. To this day, every manager in a Harman restaurant has the opportunity to own a 30-percent share of the store. As a result, managers have a vested interest in the restaurants they run.
As a private company, Harman Management Corp. declined to divulge any of its sales information, but estimates from research and consulting firm Technomic show the KFC giant experienced flat sales and a 2.7-percent decrease in units for 2006.
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