Freddy’s operator keeps kids close, while cappuccino fuels CC Holdings
Illustration by Jonathan Hankin
Some business-owning families band together out of necessity. Others, like the Youngs of Cedar Rapids, Iowa, do so to keep family together.
The franchise “was a great vehicle for my kids to help me grow a business—and to keep them close to home, selfishly speaking,” concedes dad Mike, a Freddy’s Frozen Custard & Steakburgers franchisee since 2014 “We are now the epitome of a family-owned business.”
He should know. After majoring in accounting, Young worked for his dad, an entrepreneur who has owned several businesses. After marriage, his father-in-law, another entrepreneur, convinced Mike to join his budding Panera Bakery & Cafe franchise. Designated as the future operating partner, he worked his way through unit and area management to corporate, where he now oversees accounting, marketing, operations and human resources for 22 Paneras.
Mike had his father-in-law’s blessing when he signed with Freddy’s. The family has so far opened four units, in Cedar Rapids, Ames, Dubuque and Waterloo. At least two more will open this year, both in Iowa. His 26-year-old son and 24-year-old daughter help Mike and his wife operate the franchise. A third son, a college sophomore majoring in accounting, also plans to join the family business.
“I’ve always wanted to do a burger, fries and frozen custard kind of restaurant,” Mike explains, adding he researched 20 brands before deciding on the Wichita, Kansas-based franchisor. “Freddy’s had, by far, the most craveable products and then you throw in frozen custard.”
But would it be a profitable venture? He checked with existing franchisees to find out. “It was apparent to me that margins, profits and volumes would be good, as long as we ran restaurants as they should be run.”
The family’s three 3,300-square-foot free-standers perform well on an investment of roughly $1.5 million (including furniture, fixtures and equipment in leased space), according to Mike. A single endcap cost about $900,000 to build. While the family likes to own land, they’ve had trouble purchasing it. “Landowners here are real proud of their land,” he says.
The Youngs believe there’s space for about 20 Freddy’s in their territory. “We are looking more for up-and-coming new trade areas,” Mike says. “We like to be near movie theaters and family venues like sports complexes.”
Yet the Youngs opened their latest unit, in December, in a spot in Ames with limited parking and surrounded by dozens of other eateries. That didn’t worry Mike. “It’s a three-block trade-area called Campustown, and it caters to 30,000 people who go to school there. We’re right across the street from the school,” he declares.
Where’s the cappuccino?
Kim Hendren franchises some two dozen businesses, including Copper Moon World Cafe, Nature’s Table and Au Bon Pain. Yet here’s what is different about her operation: She has no street-side business. “We have an Au Bon Pain that’s on Monument Circle,” she says, referring to the center of downtown Indianapolis. “But it’s not really street-side.”
Since its founding in 1992, upon filling a niche for craft coffee in Indiana’s capital, CC Holdings has grown by opening franchise units on college and business campuses, in government and medical buildings and in the Indianapolis airport. Today, the $17 million (sales) enterprise operates outlets in Indiana, Ohio and Kentucky.
The company is negotiating a master franchisee agreement with Nature’s Table, a healthful foods franchisor based in Orlando. “Our intent is to have a five-state radius to develop in and have the ability to sub-franchise under our umbrella,” says Hendren, owner and CEO.
Unlike street-side restaurants, Hendren’s “landlords” typically don’t have a dollars-per-square-foot mentality. They’re chiefly motivated instead to provide amenities to the people who work in their buildings—doctors and nurses in hospitals, employees in corporate settings, for example. “From an economic side,” she explains, “we can drive a more conducive deal in terms of rent structure, because a lot of things are sometimes built in, like parking, electricity and HVAC.”
She figures that alone saves her a couple of points on rent versus a street location, but she cautions that as a partner “we have to price compare,” that is, remain competitive with like brands. “We are always below Starbucks street prices,” Hendren says. Being perceived as a partner, however, also means the outlets must sometimes be responsive beyond keeping prices in line.
”They also want someone to be nimble to their needs,” she says.
That notion was tested three years ago when a powerful snowstorm closed city streets and businesses. Officials at Methodist Hospital & Physicians, where the company operates an Au Bon Pain, informed her the cafeteria could only feed patients, not staff. “They said, ‘We need you guys here to make sure you can feed” the staff. “We’re able to respond to that because we know that’s part of the deal going in,” Hendren recalls.
To finance growth, CC Holdings has recently begun using SBA loans via Bank of Geneva, in Geneva, Indiana. The company opened five stores—two Nature’s tables, two Au Bon Pains and a Copper Moon—within a couple months during its last growth spurt.
The Indiana native and her first husband launched the franchised operation after moving back to Indianapolis after residing in Seattle in the early 1990s. She recalls the couple shortly thereafter wanted to sip cappuccinos while mulling over what to do next.
“But there wasn’t a place to get one,” she says, “and we thought, ‘Maybe we should bring cappuccinos to Indy.’ I was, maybe, 25 years old, and that was my impetus.”
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.