Small towns work for Qdoba owner; brothers find success in Jersey Mike’s
Illustration by Jonathan Hankin
Sometimes negative things happen unexpectedly to growth-oriented franchisees. Case in point: Qdoba franchisee Matt Herridge, who two years ago acquired a third outlet from a franchisee in Columbus, Ohio. Herridge, who also franchises nine Burger Kings in West Virginia and Ohio, had never shuttered a restaurant because of poor sales.
Then again, he’d never opened one in a large city. Columbus, the state capital, boasts 892,533 people, the U.S. Census Bureau reports.
So, transfer made, lease signed—and Herridge discovers his entire staff is undocumented. “They admitted it to us. They were nice people, and I felt really bad” about firing them. “We had to reset and start with all new employees,” he recalled.
That’s when things really went sideways. Workers were not only hard to find but dangerous when found. “One guy was threatening to ‘murt’—I guess that means murder—another guy,” Herridge said. “I had to bring in the police.” He wound up paying off the lease and closing the restaurant, no buyers in sight.
“We went back to what we know, which is small town America,” he sighed.
His Qdoba in Athens, Ohio (population 25,214), for example, set the second-highest opening sales record in the brand’s history when it debuted ahead of the Columbus debacle. “We did $63,000 the first week. The record is $68,000,” Herridge said.
The San Diego-based brand’s franchise disclosure document shows it costs from $754,000 to $1,566,000 to open a Qdoba. Fees include $30,000 per single unit plus $10,000 for development. Combined, monthly royalty and marketing fees total 6.25 percent. The average unit volume for the 385 franchised restaurants in the system is $1,038,238, the FDD notes. The company operated another 389 outlets at the end 2018.
Herridge’s investment in his Marietta, Ohio, Qdoba (his first) was near the top of the investment scale because of flood-proofing requirements. Although the city (population 13,604) sits 614 feet above sea level, it is bordered by the Ohio River, where the flood stage is 35 feet.
The Marietta site paid off nonetheless, he said. It’s near Marietta College, a small, private school. “You certainly want to target a Qdoba to a younger and more affluent population,” Herridge told me, adding his two Qdobas ring up an average $1.3 million each.
Herridge, meanwhile, controls the nine Burger Kings with his wife and brother-in-law as franchisees of record. These outlets are what remain of a 24-unit franchise once owned by his now-retired in-laws. Five years ago, the family sold 15 of them, using a portion of the proceeds to buy into Qdoba.
“We had a stash of cash,” Herridge recalled, “and we were in a place to ask: ‘Where is the future of fast food going?’”
The family has since closed a Burger King and opened a new one, in Belpre, Ohio (population 6,391). Why open another burger joint after recently getting rid of so many? RBI was “offering incentives for new growth, and the leadership said, ‘We really think you have opportunity for more restaurants in this area,’” Herridge said.
Brothers in subs
Domino’s Pizza is what brothers Jim and Peter Shipman had in common with Jersey Mike’s Subs. According to Jim, a number of Jersey Mike’s franchisees are former Domino’s franchisees, like him and Peter. “Which is very common. Someone knows someone and they like what’s happening, and that leads to eventually opening a store,” Jim told me.
The pair, both multi-unit operators, had not only been franchisees, with 10 units in the Chicagoland area to their credit, but Peter worked at Domino’s headquarters in Ann Arbor, Michigan. Jim, a builder, had also built corporate Domino’s. The Shipmans were even Ann Arbor natives. Yet after Peter’s stint as a Domino’s franchisee he resumed his corporate career, becoming a regional vice president for the pizza chain in the early ‘90s.
Still with me? Peter eventually left Domino’s, becoming a Qdoba franchisee with three units in his hometown by 2009.
Jim, meanwhile, operated his Windy City franchise until 2010, when he opened his first Jersey Mike’s. Peter followed suit two years later, opening his first sub sandwich shop in Ann Arbor. He also signed on as an area developer for the state of Michigan.
Today, Jim remains in Chicago, where he operates 10 Jersey Mike’s, with plans to open three more outlets. Peter franchises five units, all in southeastern Michigan and will open several more depending on availability of good sites. “My growth will be driven by real estate,” he said.
Jim, 59, had considered franchising other brands before deciding on Jersey Mike’s, in search of “anything that fit the parameters of what we did.” In the end, a trip to a Jersey Mike’s grand opening convinced him of the food quality and that the chain’s officials were committed to franchisee growth. “I said, ‘I’m going for it,” he recalled.
This year, the Manasquan, New Jersey-based chain ranked No. 93 on the Franchise Times Top 200+ list, with 1,494 units and systemwide sales of $1.15 billion in 2018. The franchise system, founded in 1986, has an $18,500 franchise fee and a $5,000 real estate and construction fee. All in, it costs $237,419 to $766,971 to open a single unit, according to the chain’s website.
The brothers now use franchise finance companies to obtain growth and operating capital, though earlier they borrowed from local banks to open their first Jersey Mike’s outlets.
“Banks don’t completely understand fast growth,” Peter, 62, explained, “whereas with these franchise finance companies, they’ve seen brands grow and know just how growth strengthens brands and improves their risk. It doesn’t spook them.”
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.