A&W owner plans 15th store; Canada is sweet spot for Johnny Rockets
Illustration by Jonathan Hankin
A&W Restaurants franchisees Jim Brajdic and Barb Gretzinger are about to debut their 15th outpost, in a gas station near Winneconne, Wisconsin, a town with fewer than 3,000 people. The area is, however, a hotbed for bass fishing, with tournaments galore. Who could blame boaters needing a fill up for stopping at pumps with the burgers and root beer floats?
A&W’s franchise disclosure document estimates the cost for a gas station/convenience location is $416,000 to $827,000. Median sales for the 59 domestic outlets fitting that description is $571,277.
“It’s a brand-new location,” Brajdic tells me by phone in mid-February. He sounds excited; after all, it’s the first ground-up restaurant he’s opened since the mid-aughts. That’s when Yum Brands still owned A&W and, recognizing Brajdic’s operational skills, financed the construction of four “3-D” units (those combining drive-in, dine-in and drive-thru options) for his franchise operation—which then consisted of just one location.
That one unit, in Fond Du Lac, had been his parents’ franchise for years. Brajdic, 48, began working there full time about a year after graduating from the University of Wisconsin-Stout with a degree in restaurant management. By the time Yum arrived at his doorstep, he was overseeing a thriving and remodeled restaurant. Comparable sales were growing at 7 percent annually.
“That caught their attention—and they were wondering how we were doing it. So, they flew in,” he recalls.
Yum then began mentoring the young franchisee for a multi-unit future, dispatching him to industry conferences and companies like Harman Management, then a large KFC operator, to witness how the big boys did things. He also rubbed elbows with then-CEO David Novak and then-Taco Bell boss Greg Creed.
“They put me through a lot of stuff,” he remembers, adding Yum also helped him find Gretzinger, an experienced multi-unit operator who’d worked for Hardee’s and A&W.
Business, though, sank during the Great Recession. His franchisor stepped in to help the partners survive. “It got very scary, to say the least,” Brajdic says of a time that still shapes his and Gretzinger’s thinking when it comes to growth.
The partners, for example, do not use bank financing. On a two-year-old deal that netted the partners six A&Ws in Green Bay, for instance, they put down 30 percent with the remainder financed by the seller. “We’re trying to get rid of debt as soon as possible, using cash flow to pay for everything,” he says.
Although Brajdic doesn’t reveal the multiple he paid for the restaurants, he says single unit A&Ws command multiples of 3.5x to 5x EBITDA, or cash flow.
He also has no plans to diversify despite being an accomplished operator. “I go to multi-unit conventions and see all these new opportunities,” he says. “But to make that next step would be difficult because I have a lot of passion for A&W. I have root beer running in my veins.”
Johnny Rockets in Canada
“I know that Canadians love Americana,” declares Lew Gelmon, who in 2015 became Johnny Rockets’ master franchisee for Canada. Given the number of Canadians visiting the U.S. annually—approximately 21 million—he’s probably right.
“It’s the number one tourist destination and Las Vegas is the number one city,” he adds. True. “Canadian visitors have been the most important international tourist group in Vegas for the past 10 years,” reports CBC/Radio Canada. Sin City, not incidentally, boasts the most Johnny Rockets—nine— in the U.S.
But what’s that got to do with operating the retro burger chain in Canada? For one thing, says Gelmon, who’s headquartered in Victoria, British Columbia, gobs of Canadians are familiar with the brand. For another, it’s a high-quality operation in a fast-casual format.
“Canada does not have a solid, fast-casual burger chain that has grown effectively across the country. I looked at Johnny Rockets as a disrupter,” he explains. “And Canadians eat burgers en masse.”
A 2017 study by Technomic showed Canadian burger consumption rising reportedly due to the emerging fast-casual burger market. However, a 2018 study from Dalhousie University in Nova Scotia suggested that 6.4 million Canadians have trimmed their meat consumption. The population of Canada is just 38.5 million.
Gelmon’s agreement requires his company to open nine restaurants before seeking sub-franchisees. So far, he’s opened four Johnny Rockets, two in Victoria and two in Vancouver. He says the future looks rosy in terms of unit economics.
“When we translate our P&L for existing operations into what we think an actual franchise might do, the numbers look promising,” says Gelmon, who was also the master franchisee for Domino’s Pizza in Canada in the 1990s. “We are targeting a 20 percent ROI.”
Asked about his strategy to get to get to nine units, Gelmon intends to acquire a small franchised chain, the name of which he declines to reveal. “It’s pretty straightforward,” he says. “We look for opportunity where the franchisor controls the real estate. We don’t want to force franchisees to convert” to Johnny Rockets. “So we will step in as the franchisor and support a competing chain.”
Gelmon, meanwhile, will then seek candidates to replace existing franchisees. “There are those who may want to continue with the original brand and that’s fine. When their contract expires, we will exit them out,” he says.
Interestingly, one of Gelmon’s financial backers is a family office whose late patriarch, Thomas Kremer, licensed the rights to the Rubik’s Cube in the 1980s. The iconic toy became one of the world’s most popular games.
Says Gelmon: “The family was looking for ethical investments, and they liked me and my take on Johnny Rockets in Canada.”
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.