In his quest to build Yalla Mediterranean into a recognizable national name, Dave Wolfgram acknowledges he stands at the earliest of early stages.
Within months of Chicago-based Victory Park Capital’s acquisition of the 50-unit Daphne’s California Greek chain in mid-2014, Wolfgram, the concept’s newly appointed president and CEO, set the fast-casual chain’s revised course: Existing Daphne’s stores would sport a new name—Yalla Mediterranean—a fresh look, and a more encompassing Mediterranean menu. Even more, Wolfgram put growth back on the table for a concept that had reached upward of 80 units by 2010 before falling into bankruptcy and shuttering stores.
As Wolfgram leads Yalla’s renaissance, transforming existing Daphne’s locations into Yalla units and investigating new store openings, he hopes to propel
Yalla’s presence in California’s premier markets, including Los Angeles, the Bay Area, and San Diego, before shepherding the
concept’s growth beyond the state’s borders.
“But this is a long game, and we’ve got to make moves that make sense,” Wolfgram says.
As the cliché goes, though, that’s much easier said than done. For growth-minded quick serves, choosing the next spot to plant one’s flag is a momentous, potentially game-changing decision. Make the wrong move and a brand’s momentum could sink, swallowing money and resources that challenge leadership’s best-laid plans and weaken the concept’s public stature. Make the right move, however—one informed by the 3 Ps of people, place, and potential—and the brand continues chugging forward to a brighter, more robust future.
The first P:
In 2011, just two years after its debut in New York City, Luke’s Lobster invaded the nation’s capital, opening a storefront in Washington, D.C.’s Penn Quarter neighborhood. Luke’s Lobster cofounder Ben Conniff called the move to D.C. “the next natural step” for his seafood-peddling fast casual.
“Between New York and D.C., we saw a natural affinity between the type of food and the restaurants popular in each city, as well as a lot of people migrating back and forth between the two cities,” Conniff says.
There was, however, another crucial element. Cofounder Luke Holden’s brother, Bryan, was living in D.C. and was ready to ditch his corporate job for life on Luke’s frontlines.
“Having Bryan on the ground there was critically important because he was someone we could trust,” Conniff says. “That certainly made the move less daunting.”
Similarly, Hopdoddy Burger Bar, a five-year-old concept headquartered in Austin, Texas, moved into the Phoenix area in 2013, largely motivated by the fact that Guy Villavaso and Larry Foles—two of Hopdoddy’s original founders—and their Guy and Larry Restaurants group called Scottsdale, Arizona, home.
“We had boots on the ground and a pair of active founders who knew the market and had great intelligence they could share with us,” Hopdoddy CEO and president Dan Mesches says.
As Hopdoddy pursues expansion to markets across the southern half of the U.S., Mesches says, the ability to tap into industry colleagues with intimate knowledge of a given area continues to motivate its development decisions. “We don’t go to a place where we don’t know people,” he says.
It’s a sentiment that is doubly important for franchising brands, so many of whom lean on local franchisee groups, if not the owner-operator model, to drive growth.
For its 100 stores in Canada, Smoke’s Poutinerie founder Ryan Smolkin largely employed a single-unit development philosophy rooted in owner-operators present in the store and pushing the brand. Though Smolkin is shifting his strategy for growth in the U.S., selling territorial rights rather than single units in his quest to open as many as 800 U.S. stores over the next five years, the same truth holds: Smolkin needs well-positioned partners committed to growing with his upstart brand.
“That might mean we don’t enter a market for two weeks or two years,” Smolkin says. “In the meantime, though, we’ll focus on the partners we do have and growing the infrastructure around them rather than beating our heads against a wall and complaining about markets we’re not in.”
Phil Keiser, CEO and president of Culver’s, the 560-unit chain with outlets in nearly half of the nation’s 50 states, calls owner-operators with local ties necessary to his brand’s arrival in any new market. Having the right people in place always matters, Keiser says. Always.
“Great owner-operators are the trump card for us and what really makes [moving into a new market] go for us,” he says.
The Second P:
When investigating a new market, demographics and growth forecasts always play a key role. From disposable income and unemployment to age segmentation and, above all, population, hard data holds weight.
While Luke’s Lobster would be embraced in a mid-sized market, Conniff says, the company counters its high food costs with volume, which is why the 19-unit brand has limited its growth to densely populated urban markets like New York, Boston, and Chicago. “We need to sell a lot of lobster rolls, and that’s why sheer population is so important to us,” Conniff says.
For others, however, mid-sized and smaller markets make up for lower population counts with other sizable benefits, including slimmer costs of entry, less bureaucracy, and, particularly for brands with a distinct marketplace proposition, an opportunity to star in areas typically peppered with more traditional—and predictable—quick-service players.
“We absolutely like the smaller markets and have no qualms about entering these areas,” Keiser says, noting that Culver’s original restaurant sits in a Wisconsin town of 7,500 residents.
In Rockford, Illinois, a market of some 340,000 located just northwest of the Chicago metro area, Keiser says, Culver’s has enough stores in operation that it can afford to be on television and elevate the business to a point where it is advertising at an efficient and productive level. Furthermore, interstate locations around Rockford—and other strategically selected markets of a similar size—have helped reinforce the brand and spur interest in larger cities.
It’s a formula Culver’s has applied to other “next door” markets, such as Madison, Wisconsin, about 80 miles west of Milwaukee; South Bend, Indiana, which sits 90 miles east of Chicago; and Peoria and Bloomington, Illinois, two heartland markets that are about halfway between Chicago and St. Louis.
“We’re not afraid of smaller markets, and we really see some compelling advantages to them even if the population isn’t as dense,” Keiser says.
Growing limited-service brands are also increasingly investigating the issue of culture, aggressively questioning their concept’s fit in a particular marketplace.
With its expansion into the Philadelphia market, for instance, Luke’s Lobster not only capitalized on Philly’s natural position in between New York and D.C., Conniff says, but also on its vibrant food culture, one that embraces quality and sustainability, two hallmarks of the Luke’s Lobster brand.
“There are a lot of people in Philadelphia willing to go the extra block and pay the extra dollar,” Conniff says. “It’s not just some place off the highway.”
Whenever exploring entry into a new market, Conniff and his Luke’s Lobster colleagues examine its food culture, including residents’ treatment of new concepts and their dining habits. The numbers hold sway, he says, but so, too, does gut feel.
“If people simply want a cheap option next to their office, then that’s not exciting to us, and we’re going to look elsewhere,” Conniff says. “It’s always good to spend time in the market, talk with people about the restaurant scene, and understand what neighborhoods are up and coming.”
As so much of growth is about replicating success, Hopdoddy’s Mesches says, it makes sense to find markets with demographics and character that compare favorably to the company’s hometown. After opening its first unit in Austin, Texas, in 2010, for instance, Hopdoddy’s next move was three hours north to Dallas in 2012.
“Austin is our heritage market, but Texas is our heritage state,” Mesches says. “We felt comfortable we could do well in Dallas, another Texas metro thought of as a great place to live and work.”
And once in a while, brands simply have to pull the trigger, hustling into a new market when a compelling proposition arises.
Though Luke’s Lobster had no intentions of opening in Las Vegas, those plans changed when General Growth Properties (GGP), one of the nation’s leading commercial real estate firms, approached Conniff and his cohorts with a redevelopment opportunity. Rather than a site buried in one of Sin City’s expansive casino properties, GGP introduced a unique outdoor space along the Strip, one sitting at the entrance of the famed Fashion Show retail complex.
“We found a way to make it work because we might never have an opportunity in Vegas like this again,” Conniff says.
Smoke’s Poutinerie, meanwhile, first jumped into the Phoenix and Tampa markets by opening nontraditional locations at a pair of National Hockey League stadiums: the Gila River Arena in Glendale, Arizona, and Tampa’s Amalie Arena, both of which cater to fans of a game deeply rooted in Smoke’s homeland of Canada.
The third P:
People and place matter, but so, too, does a third P, one just a little more intangible: potential.
While Luke’s Lobster can make a given market work with one unit, Conniff acknowledges that “it’s always better to have multiple units in the market.”
“One unit is nice, but two, three, or four are better on a variety of levels,” he says, adding that Luke’s is looking to launch up to six units this year, which includes debuts in two new cities.
After opening its first store in Sauk City, Wisconsin, in 1984, Culver’s stayed in Wisconsin for its next 33 units. It wasn’t until 1995, in fact, with its 34th restaurant, that the ButterBurger and frozen custard chain moved beyond the Badger State’s borders, opening a store in Buffalo, Minnesota—near the Twin Cities and about 40 miles from the Wisconsin border.
In its subsequent growth outside of Wisconsin, Culver’s remained steadfast in its concentric circle development, sticking to the upper Midwest and markets across Illinois, Minnesota, and Iowa. That helped the company leverage marketing and supply chain benefits, namely the ability to provide the fresh ground beef and frozen custard central to its brand promise.
“How we get groceries there is always a consideration,” Keiser says. “We need to ensure that the trade areas we enter can work within our distribution guidelines.”
If the company can’t secure the desired concentration of units in a market, it simply bypasses expansion. “Even today, we’re still turning down opportunities,” Keiser says.
As the concentric circles consumed more and more geography, and the company’s store count mounted, however, Culver’s found itself veering—albeit strategically and conservatively—from its ultra-disciplined approach. For example, it initially leapfrogged Georgia as it expanded into Florida, where it enjoyed a hefty collection of willing and ready franchise partners. Now, with a growing number of franchise partners interested in opening Georgia units, the brand is circling back to Georgia and will open in Dawsonville on the outskirts of Atlanta later this year. It’s the first of many Culver’s stores planned for the Atlanta metro area and throughout Georgia.
“We had generated enough interest in Florida next door and had multiple operators interested in Georgia that we were confident we could get the growth we needed in short order in Georgia,” Keiser says.
As Hopdoddy readies the opening of its second Phoenix-area location this February, Mesches says his team is similarly focused on markets possessing strong growth potential, rationale that spurred Hopdoddy’s development in Denver and southern California.
As appealing as the sound of a Hopdoddy store might be in prominent U.S. markets like New York, D.C., or San Francisco, it doesn’t make sense to chase a location for ego, vanity, or brand awareness. The potential to open additional units with sense and strategy remains essential, Mesches says.
“We don’t want to go into a market unless we feel we can get four or five units there,” he adds. “The growth potential has to be there.”