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    The Case for Regional Franchise Growth

  • Brands are staying local for greater franchisee support, brand awareness, and sustainable success.

    Twisted Root
    Some brands, like Twisted Root Burger, deliberately franchise close to home for easier access and more hands-on management.

    Ask any franchise operator what her ultimate goal is, and many will say, “To achieve national—no, international—recognition. To see success on the scale of Chipotle and McDonald’s.” Other brands, however, are perfectly content to operate on a slightly smaller scale, focusing growth on one region before trying to make a name for themselves across the nation. Call it the “big fish in a small pond” philosophy of franchise expansion.

    “The average unit volume of a quick-service brand is probably $800,000–$1,600,000. If you’re not clustering those stores—even if you’re Chipotle—you really don’t get market penetration, and you have no economies of scale,” says Paul Samson, founder and president of The Franchise Edge, a franchise development firm that’s worked with brands like BurgerFi and Lenny’s Sub Shop. “It’s much more difficult to advertise and run those brands when you’re not clustering in a regional approach.”

    Ohio-based Rascal House, which serves pizza, burgers, and sandwiches at five units across the state, is just one of the many brands taking a regionalized approach. Its short-term growth strategy has targeted the five-state area of Ohio, Michigan, Indiana, West Virginia, and Pennsylvania, with plans to open 50–70 stores over the next five years.

    Rascal House president Niko Frangos says this strategy is largely spurred by the brand’s desire to provide a high level of corporate support to its new franchisees. “It makes more sense to stay regional because now our people who are opening stores can get wherever they want to in a day’s drive,” he says. “It reduces costs for the people that are coming into the system and allows them to stay close enough to our infrastructure to really benefit from it.”

    For Oklahoma City–based Coolgreens, which has five units in Oklahoma and several under development in neighboring Texas, keeping things close to home makes it simpler for franchisees to complete the rigorous training necessary for opening a new store. “We go above and beyond with our support, so franchisees will be in training with us for four weeks, and then we will be with them in their store for two weeks,” says Coolgreens CEO Robert Lee. “It makes it much easier for us to support them in that regional capacity,” he says, adding that proximity also allows the home office to quickly help out its partners in times of emergency or crisis.

    Being closer to franchisees also gives a brand owner more hands-on control over the end product of units when first building out a franchise program. After opening in Dallas in 2006, Texas-based burger brand Twisted Root has grown to 15 corporate stores, four franchise locations, and one licensed unit at Dallas-Fort Worth airport—all within the Texas and Louisiana market. “We’re trying to grow the franchise program slowly and keep it as contiguous as possible, just for the purpose of management and making sure franchisees are doing the right thing,” says owner Jason Boso.

    Aside from support, sticking to a single region rather than scattering all across the country allows restaurants to build stronger brand awareness within a defined space, often resulting in more bang for their buck when it comes to advertising. “If you’re doing a regional marketing push in Ohio, most of the same marketing spend you would do for Northeastern Ohio is going to impact cities like Columbus, Akron, and Toledo because they’re often in the same [designated marketing area],” Frangos says. “It’s not that much of a jump, so you’re not spending double.”

    This strong base of awareness is another attractive feature that draws franchisees to a growing brand, says John Tucker, cofounder of Salsa Fresca Mexican Grill, a 10-unit burrito brand based in the Northeast. “That awareness helps tremendously with new franchisees signing up in the next county over and beyond, rather than starting from scratch somewhere like Texas, where guests have no idea who Salsa Fresca is,” Tucker says.

    Staying regional also has advantages from a supply chain and distribution perspective, allowing brands to obtain more favorable food costs in their operating market. Tucker says his food distributors are happy Salsa Fresca is taking a regional approach because they can make daily deliveries to all of the brand’s stores in a particular area.

    Twisted Root is discovering just how easy distribution can be on a regional basis—and just how challenging it can prove when expanding outside of that zone. The brand is venturing out of its home market for the first time with a franchisee in Orlando, a project Boso admits is more challenging than previous store openings. Not only does Boso have to routinely travel to Florida, he also has to find a new meat supplier and a local bakery that can make the brand’s signature buns.

    Just as with any type of growth strategy, a regional approach has its own set of issues. Though Samson says regionalized expansion is the smartest way to start and scale a brand, there’s a point of inflection at which this geographical restraint becomes more of a con than a pro. “If a brand started in Texas, for example, and has grown to 50 or 60 units there, they have to start embarking on growth outside of this tight-knit region to avoid cannibalization,” he says.

    For some brands, staying too close to home prevents them from taking advantage of favorable regulations in states or cities that may be more business-friendly.Regional growth limits a brand’s capacity to fully expand on a national scale.

    That’s why many regional brands agree that, if and when the right franchisees come along, they won’t hesitate too much to venture outside of their operating bubble. “We wouldn’t give up the opportunity if a big franchise or restaurant group were to express interest in any other part of the country,” Tucker says. “We would certainly entertain that, but we’re not actively seeking those people.”