TGI Fridays operator takes new tack
About a year ago Elie Khoury appeared in this column detailing the efforts his New Orleans-based company was making to incorporate 20 TGI Fridays across five states. He admitted the process was “very difficult, especially when you’re doing it simultaneously, and you don’t have an existing footprint in any one area.”
Yet savvy business people always manage to find a silver lining, and Khoury’s Southeast Restaurant Group found one after agreeing last year to open 15 Newk’s Eateries in southern Louisiana and Houston. The first opened last month in Lake Charles, Louisiana.
Newk’s features a varied menu, including a dozen different pizzas, four kinds of mac ’n cheese and a bevy of soups and salads. “We have a lot of respect for the food. My family and I have tried it. I brought our senior guys there, and we thought it was an impressive operation. We like the product and the footprint,” Khoury says.
Franchisor and franchisees have so far opened about 100 units, nearly all in the Southeast. The franchisor claims the concept works just about anywhere, in strip malls, lifestyle centers, downtowns, suburbs and non-traditional sites. Newk’s, by the way, is the brainchild of McAlister’s Deli co-founder Don Newcomb.
Back to the silver lining. Part of it is proximity to Newk’s headquarters. Jackson is less than a 200-mile drive from New Orleans. Khoury, a former restaurant chain president himself, knows the management team, which includes veteran industry execs COO Jim Greco (Bruegger’s, Sbarro) and CFO Bob Nygren (Yum Brands, NPC International, DineEquity).
Even better, the Newk’s Gulfport, Louisiana, outpost sits near one of Khoury’s Fridays. That offered his team a long look at operations. Khoury mentions average unit volumes of $2 million and a 4,500-square-feet footprint. “You don’t have to do a lot of math for that to make sense,” he says, adding the cost to build is roughly $1.1- to $3 million depending on landlord contribution.
SRG will open the restaurants throughout Southern Louisiana and Houston, where—no surprise—they already operate restaurants. “The fact we have a geographic footprint helps a lot. We don’t have to play the dating game to get to know all the sites,” Khoury says, adding Newk’s site-selection program is also helpful. “It’s way more sophisticated than chains of similar size.”
Landlords can be tough negotiators, especially for ‘A’ sites. “We are really trying to protect ourselves. In general, you can’t negotiate too much on A sites,” says Khoury, referring to the exclusivity clause he wants concerning other fast-casuals. “With the big landlords, you can ask for it all you want, and they will say no.”
Khoury instead merely asks landlords to exclude major players—Jason’s Deli and Panera, for example. “They would agree because it’s not good for their business either,” he offers.
In 2011 Chris and Melissa McFarland weren’t considering owning a business. Their jobs—Chris worked as an electrician, Melissa as a nurse—and three small children kept them busy. So busy, in fact, they had little time to enjoy attending classes at a local gym. “With work and kids we hardly had any time,” Melissa says.
Then 9Round came to Melissa’s attention via Facebook. The kickboxing-themed fitness center bills itself as offering “a fun, high intensity, full-body workout in under 30 minutes.” No actual hitting or kicking an opponent is involved in the workout. And there are no classes. Members show up when they want, progress through nine stations guided by a personal trainer and leave 30 minutes later. Usually exhausted.
Within a year the enterprising couple attended a Discovery Day at company headquarters in South Carolina, figuring 9Round might be popular among time-strapped people like themselves. “We had no money and no intention of doing it, but we loved the 30-minute workout, and we knew lots of couples like us with very little time,” Melissa says, claiming they were $90,000 in debt at the venture’s outset.
The McFarlands used credit cards and a line of credit to open their first gym. Since paying off the debt, they have since employed a pay-as-you go strategy to open the other five units. “If we open something, we just pay for it,” Chris flatly states. 9Round’s franchise disclosure document estimates the total investment for a unit ranges from $57,514 to $93,014.
Today, the pair operate five 9Rounds, all of them clustered in the Northland, a suburban enclave of Kansas City, Missouri. By design, none of their gyms is more than a 30-minute drive from one another. “Members can use any of them,” Melissa says.
The couple employs 30 people, most part-time trainers who earn $10 to $12 an hour. They also receive a small commission for selling gym memberships. Chris, meanwhile, became an approved vendor after starting a company to manufacture the bag hangers that attach the heavy punching bags to the steel beams above them. New franchisees buy the device from him.
The McFarlands intend to open one more 9Round, in Smithville, less than a 10-minute drive from another unit. That may seem too close for comfort, but they worry a competitor could lease the roughly 1,400-square-feet space they need for their gyms. The couple in fact recently bought out a failing franchisee in a lifestyle center to keep it from rivals. “The gym business is hard,” Melissa insists.
Yet it’s rewarding, too. Chris and Melissa, who now work as full-time operators, have since doubled the size of their first unit. The former electrician renovated the sub-leased space himself. “That gym makes three times more than the other gyms,” Melissa boasts.
Chris has so far done all of the work on their five units, opening four from a vanilla shell in two weeks (“turnkey, done!”). Equipment, by the way, is minimal: bag hangers, floor mats and small weights.
Workouts, apparently, are anything but. Chris says people show up bragging that they do CrossFit. “After their workout here, they flat-out die,” he says half-jokingly.
David Farkas has covered the restaurant business for 25 years as a reporter and food writer, and writes about development deals in The Pipeline in each issue. Send your franchise’s development agreements to him at firstname.lastname@example.org.