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Franchisors angle for investments at Finance & Growth Conference


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FT Finance Growth Conference

 C-level execs take the stage. 1. Giovanna Koning, CFO, TGI Fridays. 2. Jayson Tipp, CEO, Pincho. 3. Jennifer Tucker, COO, Homewatch Caregivers. 4. Matt Crumpton, CEO, D.P. Dough.


Urban Air Adventure Park

As he highlighted the attractions inside an Urban Air Adventure Park, from the indoor skydiving tunnel, go-kart tracks, obstacle course and Spin Zone bumper cars, CFO Scott Perry concluded that ultimately it’s the business results that matter—and Urban Air produces those results.

The Bedford, Texas-based franchise has more than doubled systemwide sales in each of the last two years, said Perry, with average sales of $2.9 million for its version 2.0 parks open more than a year and featuring the latest attractions. The brand’s EBITDA percentage sits at 29 percent, contrasted with a total development cost of about $2.5 million per park.

“We innovate, we create attractions that don’t exist, we patent attractions so other people can’t copy them,” said Perry. That innovation is what brings back Urban Air’s core customer base of kids under 14 and their parents. “And that demographic renews every year.”

A recently launched monthly membership program is another revenue stream for franchisees. “It will put people in parks,” said Perry, and those parks also feature cafes, some serving beer and wine and selling branded merchandise.

“It’s not just people paying you money when they walk in the front door,” he noted.

Urban Air has 85 locations and is opening about five parks each month, mainly through its network of existing franchisees who start with one unit. The brand heavily invested in its support team early on, said Perry, “with great returns on the back end.” —LM


Pincho Restaurants

Founded by a millennial trio, Pincho is now using its appeal to this consumer group to grow its franchise of Latin American street food restaurants.

“Our vision is to celebrate Latin American inspired cuisine and the bold flavors that it requires,” said CEO Jayson Tipp of the Miami-based concept that got its start in 2010 and is up to 12 Florida locations.

Calling it a millennial-oriented brand that uses viral marketing videos and Instagram to help cultivate a “cult-like following” around its offering of meat skewers, wraps, rice bowls and burgers, Pincho isn’t only a restaurant brand but also a digital brand, noted Tipp. Its polished, colorful, image-forward digital presence is much larger than expected given its size, said Tipp, and that’s used to highlight Pincho’s use of fresh chicken and steak for its skewers, the housemade sauces and even its own beer brand, 627.

“Millennials love us a lot,” Tipp continued as he pointed out the customer base for the fast-casual concept is almost evenly split between men and women. “And they’re willing to spend more for those authentic experiences that are differentiated.”

The numbers illustrate that love. Pincho’s average unit volume is $1.3 million, with an all-in new unit cost of about $500,000 for a 2,400-square-foot restaurant. The brand aims to grow via multi-unit franchise owners who not only have previous chain restaurant experience but also a desire to be part of a growth concept and, as Tipp said, “something that’s edgy.” —LM


UBreakiFix

Mitch Paull, chief financial officer of UbreakiFix with the accountant background to match, isn’t keen on using averages when sharing financial performance statistics of its franchisees.

To illustrate why, he told a hunting story, a new activity for him when a colleague recently took him out. His first shot was ahead of the duck. His second shot was behind the duck. “I said great, I’m done. On average I already killed the duck.”

That being said, he then rolled out some averages. Average store size is 1,000 square feet. Average sales in the second year in top stores is $684,200. Average net income the second year is $120,272.

He also shared a bad stat: “The worst stores in the system lose $2,000 a month. The operator makes a difference,” he said.

UBreakiFix is a young brand founded by young people, many of whom met each other while gaming. “I’m the oldest guy in the company,” he said, at age 61. “The guy who’s driving it is 32 years old. Most are in their 30s and 40s.” He joined two years ago as part of an effort by CEO Justin Wetherill to professionalize management for the next level of growth.

Ditto for more sophisticated operators now buying into the system. “They’re showing how these things can operate with a disciplined approach. It’s getting more complex, and the strategy and discipline are starting to feed each other.”

UbreakiFix had 10 stores open in 2010; by the end of 2019, 626 stores will be open, he projected, with $218 million in storefront revenue in 2019.

Regional town hall meetings are an effective tactic UbreakiFix uses to help operators improve, said Paull. “Picking the person who will put their P&L on the board and then they explain it is really, really healthy within the system, because everybody becomes their helper as well as their criticizer.” How did you do this, why didn’t you do that, are the types of questions fellow operators ask, all in the effort to improve the profit and loss statement—as well as those averages. —BE


Naomi Hancock

Naomi Hancock gives attendees a taste of Sub Zero’s dairy-free Italian ice.

Sub Zero Ice Cream

Sub Zero Ice Cream has a revised strategy based on the tsunami of dietary restrictions, both real and self imposed, washing over the food world. With a mix of shock value from a blast from the nitrogen tank and great on-stage banter, Sub Zero founders Jerry and Naomi Hancock presented a truly fresh take on their growing ice cream business.

I sat in the front row to receive the inevitable cool blasts from the nitrogen tanks that fuel Sub Zero’s business, and also substantially reduce energy costs and carbon footprint for its franchisees.

Naomi noted Sub Zero’s locations “can meet any dietary need” whether it’s a vegan diet, lactose intolerance or those avoiding sugar. Sub Zero has wisely adapted to differentiate its mix beyond full fat, full sugar and full dairy.

Touching on the carbon footprint benefits of the business, which includes reduced energy costs that most shops have due to the number of freezers, Sub Zero was one of only a handful of brands at the conference that mentioned efforts to improve the sustainability of its brand. I hope other presenters took note.

But there’s more to boosting franchisee sales than such noble topics. Jerry shared how he’s merged his background as a chemist with the ability to introduce new people into the Sub Zero client base. By going into schools and educating kids about the different states of matter, which its products so vividly display, the brand is able to do more outreach. There’s nothing like hooking them young, especially when the end products are science education and ice cream enjoyment.
Sub Zero has more than 60 stores in 18 states, mostly skipping the Upper Midwest. —TK


John Darwin

John Darwin, president of One Cannabis.

One Cannabis

All it takes is one stroll through downtown Denver or Las Vegas to smell the possibility of the marijuana industry, both for medical purposes and recreational use. As the City of Las Vegas clears the way for recreational lounges, marijuana is gaining both acceptance and legitimacy for this entirely new industry.

Getting the hot question out of the way, One Cannabis COO Mike Weinberger said he didn’t have samples for the audience, but offered to lead a weed crawl through several dispensaries near the Rio Hotel & Casino.

“We are the only franchisor in cannabis,” he said, noting several brands have lingo mentioning franchise efforts, but his one-on-one conversations with such brands showed many didn’t even know what a franchise disclosure document was, strongly suggesting One Cannabis will remain the only professionally franchised operation in the space—at least for the next few months in a budding national industry changing in real time.

Time-tested standard operating procedures, marketing muscle, site selection, access to funding and a robust legal team are a few of the brand’s major bullet points, which are being touted to the smaller dispensaries the Denver-based team is rolling up under its smoky umbrella.

While One Cannabis doesn’t have any operating franchise locations yet, its headquarters staff has swelled to nearly 90 employees as it prepares to expand its presence in the cultivation, production and retail sale of cannabis—whether that’s the “flower” or the many products like gummies and vape pens that are taking the category by storm.

Weinberger brought President John Darwin and VP of Franchise Development Justin Livingston to share their own focal areas at the company, and to collectively stress that their deep backgrounds in franchising should give comfort to financing partners, prospective franchisees and the independent dispensaries that the company has been acquiring to prepare One Cannabis for national expansion when law changes open up new territories.

“We don’t need a thousand units, we want the right 100, which means we need the right people, the right fit, true multi-unit teams already developed who understand the world of franchising,” Livingston said. “There is no brand in cannabis—the biggest ones in the world have about 30 locations open, that’s it.” —TK


TGI Fridays

TGI Fridays continues to pivot into its next phase with a slew of innovations, tests and changes. That phase is part modern and part reboot for the brand.

At the modern end, the company is pushing for more loyalty members. According to CFO Giovanna Koning, those customers are especially valuable.

“In the analysis we’ve done, those reward individuals come four times the average individual,” she said. “Our goal at the end of this year will be 10 million reward members.”

At the other end, a new marketing campaign plays on the literal stripes of the TGI Fridays iconic awnings. The marketing campaign shows employees and customers of “all stripes” enjoying the brand. It’s an invitation to anyone and everyone to come back and try Fridays again.

Another aspect of the campaign is showing the fun of working in a Fridays, a big push for the company as it strives to figure out labor along with everyone else. New practices are aimed at hiring and more importantly keeping quality staff in the restaurants. Part of it is just rewarding employees for doing a good job, said Koning.

“You want to catch people doing things right, not when it’s going wrong,” she said. “That was one of our missions from the global business conference, if you do that you get employees that want to stay.”

The most exciting thing for operators is the push for better sales and higher profitability. The big goal is adding $20,000 to top line sales to grow average unit volumes from the current $3.1 million to $3.12 million. Koning said she wants to help more of that flow down to the bottom line, too.

“We want to increase our profitability by 10 percent to the bottom line. How we’ll do that is by sales, employee management and standards,” said Koning.  

She said the company is “creating standards, not expectations” to take on those big goals. —NU


Short takes

With 218 studios and $1.1 million in average unit volume, Amazing Lash Studio is the fastest growing concept within WellBiz Brands. Its membership model brings predictable, recurring revenue, and Amazing Lash is also adding brow-shaping services, in addition to strip lashes and other products.

Broken Yolk Cafe uses targeted ads to build brand ambassadors, then invites them to soft openings on the condition of sharing an email address. “So we build in some loyalty early on—we start with a marketing ecosystem,” said Valerie McCartney, VP of franchise development.

At Chicken Salad Chick, the average check is $14.83, and 25 percent of business is takeout “quick chick,” containers sold by the pound, CEO Scott Deviney said. “What makes us unique is it’s lots of different taste profiles off the same recipe. No fryers, no grills, no mess from oil or grease.”

One way Conserva Irrigation wants to scale is through partnerships with national retailers, specifically those with a focus on environmental sustainability.

Merger alert. Calzone brand D.P. Dough merged with competitor Calios, a 13-unit chain out of New York. All Calios locations will convert to D.P. Dough, bringing its unit count to 39.

To help get its franchisees out of malls, Gloria Jean’s Coffee is waiving relocation fees and looking to the drive-thru to pivot customers of what CEO Sam Ferreira called the indulgent “dessert in a cup.”

Homewatch Caregivers started as a dog-sitting and house-checking business that morphed into people care when the founder was asked to check on grandma in the basement at the same time he was taking care of a pet. Now its average unit volumes are $1.5 million, with a 17 percent increase in gross revenue from 2017-2018.

Dogs deserve the Ritz Carlton treatment, said K-9 Resorts co-CEO Jason Parker. His dog daycare and boarding franchise is angling for its slice of the $70 billion that Americans spend on pets each year.

Naf Naf Grill is testing a smaller format 800-square-foot location in downtown Chicago that CEO Paul Damico said can do about $2,800 per hour in sales. “We feel like we’ve solved for every layout where we want to see our brand,” he added of site options for inline, endcap, food court, urban and suburban locations.

After a rough time at the end of 2017 for Noodles & Company, when same-store sales declined 1.6 percent in the third quarter, franchisee sales grew about 8 percent in the second and third quarters of 2018, and topped 5 percent in the fourth quarter.

“No food, no cash, no inventory and a single employee, that’s why we get franchise candidates,” said CEO Mark Hemmeter of Office Evolution, which offers temporary executive office and co-working spaces.

Primo Hoagies is getting “back on the growth wagon,” approaching 100 locations since CEO Rocco Fiorentino came on board in 2017.

Rave Restaurant Group is making the buffet last all day at Pizza Inn, slimming the size of the fast-casual Pie Five and shedding costs as it focuses on driving revenue via royalties.

“This is most definitely the least sexy business you will find out here,” said Restoration 1 CEO Gary Findley. But the brand is carving a niche out for professionals and franchisees who’d rather avoid working with heavy-handed insurance providers.

Senior Care Authority doesn’t actually provide the care. Its revenue streams are placement services, plus counseling services to assist families navigating the complex U.S. healthcare system.

At Smokin’ Oak Wood-Fired Pizza, that pile of wood isn’t just for show, it’s the core of the wood-fire pizza concept. The flavor touches everything from the house-roasted meat to the fermented dough with a kiss of hard oak smoke.

Wan Kim

CEO Wan Kim discusses Smoothie King’s efforts to boost AUVs to $700,000.

Smoothie King’s got some big goals. With an AUV of $498,000, CEO Wan Kim believes the brand can get that to $700,000 by 2020.

When Michael Bush gives his elevator pitch for Stretch Zone, it goes something like this: “Hey, you come in the store, we stretch you, you feel great and you pay us.” Of course there’s more to it, said CEO Bush as he explained the stretching methods developed by an exercise physiologist. Sixty locations are open, and “stretching has emerged as one of the highest growth opportunities in health and wellness,” he noted.

Some impressive stats from Walk-On’s Bistreaux & Bar: AUVs above $5 million; food sales over 70 percent of the total vs. beverages; lunch sales 40 percent with dinner at 60 percent.

Wendy’s is investing $25 million in digital platforms for mobile ordering and expects to expand delivery to 80 percent of the system by the end of 2019 through its partnership with DoorDash in the U.S.

Wings Over loves its late-night customers. The chicken wing concept’s AUV is $1.4 million and it does a significant amount of business between midnight and 3 a.m., CEO Dan Leyva said.

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