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.
- Founded: 1962
- HQ: Overland Park, Kansas
- CEO/Senior Executives: James K. Schwartz, President/CEO/COO; Troy D. Cook, Executive Vice President– Finance/ CFO
- Concepts: Pizza Hut
- Annual Revenues: $602 million
- Total Units: 816
- AUV: $706,000
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.
- Founded: 1960
- HQ: Syracuse, New York
- CEO/Senior Executives: Alan Vituli, Chairman/CEO; Daniel Accordino, COO/President; Paul Flanders, Vice President/CFO; Joseph Zirkman, Vice President/General Counsel
- Concepts: Burger King, Pollo Tropical, Taco Cabana
- Revenues: $751 million
- Total Units: Burger King—327; Pollo Tropical—77 owned, 27 franchised; Taco Cabana—141 owned, 2 franchised
- AUV: Burger King—$1.1 million; Pollo Tropical—$2.14 million; Taco Cabana—$1.65 million
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
- Founded: 1966
- HQ: Los Altos, California
- CEO/Senior Executives: James D. Olson, CEO; James B. Jackson, CFO
- Concepts: KFC, YUM! co-branded units
- Revenues: $425 million1
- Total Units: 183 KFC,
- 144 YUM! co-branded units2
- AUV: N/A
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.
Boddie-Noell Enterprises, Inc.
- Founded: 1962
- HQ: Rocky Mount, North Carolina
- CEO/Senior Executives: Mayo Boddie, Senior Chairman; Nick Boddie, Vice Chairman; Bill Boddie, President/CEO; Mike Boddie, President– Restaurant Operations
- Concepts: Hardee’s, Moe’s Southwest Grill, Café Carolina and Bakery, Texas Steakhouse & Saloon
- Revenues: $320 million1
- Total Units: Hardee’s—308; Moe’s Southwest Grill—8; Café Carolina and Bakery—6; Texas Steakhouse & Saloon—32
- AUV: N/A
For family-owned Boddie-Noell Enterprises, the largest franchise operator of Hardee’s restaurants in the U.S., the Southeast is home.
The company owns 308 Hardee’s franchises in North Carolina, South Carolina, Kentucky, and Virginia, controlling as much as 99 percent of the market for the chain in that state. Its holdings also include eight Moe’s Southwest Grill franchises in North Carolina and Virginia, and six of its own Café Carolina and Bakery specialty café concepts in North Carolina.
“We’re very comfortable in the Southeast,” says Mike Boddie, president of restaurant operations.
And Boddie-Noell plans to continue settling into its home territory, setting up to build at least eight more Hardee’s and five Moe’s Southwest Grill restaurants in 2007. Boddie says the company initially signed on to build 25 Moe’s locations, and when they’ve reached that mark they hope to keep rolling.
“We want to be able to grow this thing,” he says.
But despite the company’s aspirations for Moe’s Southwest Grill and its other concepts, Boddie says Hardee’s is their bread and butter.
“Our flagship is Hardee’s, it always has been,” he says.
To maintain that focus, Boddie-Noell plans to concentrate on a bit of housekeeping for the brand. Boddie says CKE is coming out with a new remodel program his company will implement in a number of its stores. They are also testing self-service ordering kiosks in at least three Hardee’s locations in an effort to set their restaurants apart through innovation.
“You’ve got to be different from the guy down the street to be successful these days,” Boddie says.
Mason-Harrison-Ratliff Enterprises, LLC
- Founded: 1974
- HQ: Oklahoma City
- CEO/Senior Executives: Ralph Mason, CEO/Senior Partner; Chuck Harrison, Vice President/Director of Operations/Partner; Reeder Ratliff, Vice President/ General Counsel/Partner
- Concepts: Sonic Drive-In
- Revenues: $337.2 million
- Total Units: 266
- AUV: $1.26 million
Mason-Harrison-Ratliff Enterprises, the Sonic Drive-In franchisee group formerly known as Mason-Harrison-Jarrard, knows how to go with the flow. The company has steadily built its base of 266 restaurants—mostly in the South and Southwest—over the course of 43 years, but CEO Ralph Mason says their strategy is more about taking advantage of opportunities at hand than adhering to a master plan.
Over the past few years, the company sold both its San Antonio, and Tulsa, Oklahoma, markets to Sonic Industries—moves Mason says were the results of offers his company simply couldn’t refuse.
“We’re really not that conscious of store numbers,” he says. “We just had an opportunity we couldn’t turn down.”
That opportunistic strategy that has worked well in the past continues to be the company’s plan of action.
“We’re expanding into all markets as opportunities arise with good locations and people,” Mason says.
And for Mason-Harrison-Ratliff, people are a large part of the equation. The company, which is Sonic’s largest franchisee group with multiple owners, co-owns many of its franchises with operators and other key partners, some of whom have been with the company for as long as 35 years.
“Whatever success that we have is really due to our partners in the field,” Mason says. “Our real backbone, long-term, is people who have been here a long time.”
Mason says his company has also maintained success by fostering a strong relationship with its franchisor, an assertion seconded by Nancy Love Robertson, senior vice president of franchise people development for Sonic Industries, Inc.
“They’re one of the longest standing franchisees, and certainly our most successful,” she says.
Heartland Food Corp.
- Founded: 2003
- HQ: Downers Grove, Illinois
- CEO/Senior Executives: Steve Wiborg, President/ CEO; Dave Dixon, COO; Joel Aaseby, CFO
- Concepts: Burger King
- Revenues: >$270 million
- Total Units: 258
- AUV: N/A
Heartland Food Corp. made headlines in December 2003 when the company, then owned by Core Value Partners, purchased 120 Chicago-area Burger King restaurants from floundering franchisee AmeriKing, Inc. Within five weeks the restaurants, which had been operating in the red for four years, were back in the black.
Heartland continued to acquire troubled franchises in the chain over the next couple years, boasting growth rates of 30 percent and 40 percent for 2004 and 2005, respectively. The growth slowed to 11 percent in 2006, when the company was sold to hedge fund GSO Capital Partners, but CEO Steve Wiborg says his company is back on track. With the purchase of as many as 20 stores by this past June, the company’s growth rate should again approach 30–40 percent for 2007.
While Heartland’s growth was previously based on acquiring faltering restaurants from other franchisees, Wiborg says the future will see the company building more stores of its own.
“Most of our growth rate going forward will be in new store development,” he says, adding that Heartland is ramping up to add around 6–8 new stores per year.
But don’t expect to see Heartland Burger Kings popping up in your neighborhood unless you’re located in their established territories of Michigan, Wisconsin, Illinois, Indiana, North Carolina, and South Carolina. Wiborg says the company plans to continue growing in existing markets, with primary focus on the Carolinas.
Pilot Travel Centers, LLC
- Founded: 20013
- HQ: Knoxville, Tennessee
- CEO/Senior Executives: Jimmy Haslam, President; Mitch Steenrod, CFO2
- Concepts: Subway, Arby’s
- Revenues: >$240 million
- Total Units: Subway—1235; Arby’s—43
- AUV: N/A
With more than 281 travel centers in 40 states coast to coast, Pilot Travel Centers is the undisputed king of convenience on the road.
The Knoxville, Tennessee-based company began with one family-owned gas station in 1958, built its first convenience store in 1981, and opened its first travel center—a kind of gas-station-convenience-store-truck-stop hybrid—in 1981. In 1988 Pilot again reinvented itself, opening a travel center housing a quick-service restaurant concept to give hungry travelers a true one-stop shop for all their needs on the road. Now every Pilot Travel Center contains at least one restaurant, according to the company’s Web site.
Today Pilot boasts a base of at least 262 restaurants, including franchises of Arby’s and Subway. And that base continues to grow. Pilot doubled the size of its operations by acquiring Williams Travel Centers, another chain of highway convenience stations, in 2003, and the company recently extended its reach internationally, opening a travel center in Ontario, Canada, in 2006. According to Pilot Corporation’s Web site, two more are slated to open soon.
While for many franchisees rising gas prices have been a major complaint, pain at the pump might not hurt so badly for Pilot, which is co-owned by Marathon Petroleum Company, the nation’s fifth-largest oil refiner. Pilot Travel Centers reported at least $11.6 billion in revenue from 2006, including more than $240 million from restaurant sales.
Strategic Restaurants Acquisition Corp.
- Founded: 2005
- HQ: San Ramon, California
- CEO/Senior Executives: Jerry Comstock Jr., CEO; Glen Helton, President/ COO
- Concepts: Burger King, invested in Bear Rock Café
- Revenues: $226.4 million4
- Total Units: 238
- AUV: $1.05 million
Many franchisee groups start small and build their operations restaurant by restaurant over a number of years. Strategic Restaurants Acquisition Corp. (SRAC), a fairly new player in the quick-service franchisee world, started at the top.
SRAC purchased 226 restaurants from troubled Burger King franchisee The Sydran Group in 2005, making it the second-largest franchisee of the brand in one fell swoop. The goal, said SRAC CEO Jerry Comstock in a press release at the time, was to “marry the significant size and talent base in this franchise group with [SRAC’s] financial resources.”
And those financial resources are substantial. Cerberus Capital Management, a private equity firm recently in the news for acquiring the struggling Chrysler auto manufacturer, controls SRAC. Myrna Schultz, vice president of marketing and development for SRAC, says the company is completely debt-free, and with that kind of capital backing what could slow it down?
The answer came in August 2005, when Hurricane Katrina damaged and destroyed a number of the company’s restaurants on the Gulf Coast, including as many as 54 Burger King restaurants in the New Orleans metropolitan area. SRAC is still dealing with issues of rebuilding, repair, and hiring in the region.
Even so, that won’t stop SRAC, Schultz says.
“It didn’t deviate from our goals,” she says. “It just added to it.”
While Schultz says SRAC has no established growth strategy, the company, which has also invested in quick-casual brand Bear Rock Café, hopes to continue its growth in existing markets, which include Kansas City and areas of Florida, Alabama, Arkansas, California, Louisiana, and Michigan.
“Along with Burger King, we will continue to seek out development opportunities,” Schultz says.
Quality Dining Inc.
- Founded: 1967
- HQ: Mishawaka, Indiana
- CEO/Senior Executives: Daniel Fitzpatrick, Chairman/ President/CEO; John C. Firth, President/ General Counsel/Secretary
- Concepts: Burger King, Chili’s, Papa Vino’s Italian Kitchen, Porterhouse Steaks & Seafood
- 2006 Revenues: $221 million6
- Total Units: Burger King—122; Chili’s—42; Papa Vino’s Italian Kitchen—9; Porterhouse Steaks & Seafood—1
- AUV: N/A
Quality Dining, Inc. (QDI) is bucking the trend of IPOs in the quick-service world. Instead, this Burger King franchisee took a step in the other direction, going from a public to a private company in 2005.
QDI CEO Daniel Fitzpatrick and a group of shareholders made the decision in June 2004 and announced their intentions to the board of directors in a letter outlining the downside of the company’s public nature.
“The company’s stock suffers from minimal public float and trading volume, a lack of research by analysts and the negative perception associated with being a restaurant franchisee,” Fitzpatrick wrote in the letter.
The going-private transaction was completed in 2005, and since its exit from the market QDI has issued little information about its goings on. Technomic estimates show a 4.7-percent decrease in the company’s Burger King units from 2005 to 2006.
United States Beef Corporation
- HQ: Tulsa, Oklahoma
- CEO/Senior Executives: Jeff Davis, CEO; John Davis, President; Brett Pratt, CFO
- Concepts: Arby’s, Taco Bueno
- 2006 Revenues: $250 million
- Total Units: Arby’s—259; Taco Bueno—4
- AUV: Arby’s—$980,000 Taco Bueno—$1.4 million
One thing that sets United States Beef Corporation apart from other franchisees is the fact that the company owns most of its own restaurants and the land they are built on.
“Throughout the ups and downs of the business, having that land has always been a good asset base to get us through the bad times,” CEO Jeff Davis says. “But buying the bricks and mortar is the easy part; operating [the restaurants] is the tough part.”
To make that a little easier, U.S. Beef, the world’s largest Arby’s franchisee, recently completed an 8,000-square-foot operations and training center across from its headquarters in Tulsa. The center is equipped with distance learning capabilities to pipe training to managers and area directors in the company’s major markets throughout Oklahoma, Arkansas, Kansas, Missouri, and parts of Illinois. In the future, U.S. Beef also hopes to partner with universities in the company’s home state of Oklahoma to help employees get their degrees.
Davis explains this new emphasis on ongoing education within his company.
“We all try to provide the best health care and those kind of benefits to our employees, but I feel continued education is also important,” he says. “When people are learning new things, they’re more excited about their jobs. That gives me bench strength for our continued growth.”
Davis says the company plans to add around 60 new Arby’s units in the next five years, with particular focus on its Kansas City and St. Louis markets. It also has five more units to go before completing a nine-unit development agreement with Taco Bueno, signed in 2005. Beyond that, Davis says, the strategy is to continue adding and remodeling Arby’s locations in the company’s established areas.
“We’re continuously penetrating our markets so we can afford radio and television advertising 12 months out of the year,” he says.
Covelli EnterprisesHQ: Warren, Ohio
|Sam Covelli, President;|
Bob Fiorino, CFO
|Covelli projects it will add 119 Panera Bread units by the end of 2007.|
DavCo Restaurants, Inc.HQ: Crofton, Maryland Founded: 1976
|Harvey Rothstein, Chairman/CEO;|
Joe Cunnane, President/COO
|DavCo has the exclusive right to develop Wendy’s restaurants in its franchise territory until December 31, 2015.|
Kazi Management VI, LLCHQ: United States Virgin Islands
|Zubair Kazi, CEO; Brian Burr, President;|
Michael J. Cook, CFO
KFC /Taco Bell–21
KFC/Long John Silvers–5
Long John Silvers–4
|Kazi Management has acquired and assimilated 101 new stores in three geographically diverse markets (U.S. Virgin Islands, New York/New Jersey, Michigan) since March 2006.|
B.S. Companies, LLCHQ: Louisville, Kentucky
|Junior Bridgeman, CEO/President;|
Paul Thompson, COO;
Troy Hanke, CFO
|B.S. Companies has developed 30 Wendy’s units in the past five years. The company plans to continue developing in all its markets.|
Doherty Enterprises, Inc.HQ: Allendale, New Jersey
|Edward W. Doherty, President/CEO;||Applebee’s–51|
Chevys Fresh Mex–3
Shannon Rose Irish Pub–1
El Pollo Loco–recently acquired franchise rights
|Doherty Enterprises acquired the rights to develop 20 El Pollo Loco restaurants throughout northern and central New Jersey in January 2007. The company also plans to open six additional Panera Bread units by May 2008.|
1 QSR Estimate, 2 Source: Restaurant Finance Monitor, June 19, 2006, 3 Projected for 2007