Fast and Serious
EXCLUSIVE: Franchise Times ranks the smartest-growing brands
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CEO Don Fox relies on a “rigorous” process to select franchisees, which starts with an introduction to the area representative. “If they don’t hit it off, quite simply the deal doesn’t go any further,” he says. “We’re in the business to sell franchises, but there are some more important things in life than that. If the area representative is going to wake up and half the people they’re calling on they dread, their life is pretty miserable.”
The next step is a day of discovery, which prospects attend before they’ve put down any deposit, because Fox doesn’t want financial commitments coloring the decision. Fox personally spends two or three hours with franchisee groups, every other week. “It’s primarily to tell them what the ingredients for success are, and to make it clear what the expectations are for their performance. I think it’s important they hear it from me,” he says.
In 2010, Firehouse Subs had 370 restaurants, and Fox wrote a strategic plan forecasting 2,000 restaurants by the year 2020. They’re closing in on 900 restaurants by the end of 2015, and he believes they can pick up the pace to make the ultimate goal because they’re now franchising in all 48 contiguous states. “That opens up the funnel wider,” he points out.
Fox believes in plenty of people to support the growth, and points to the company’s founders, two firefighters, who will fund an expensive structure. “You can have all the culture and all the philosophy that you want, but if you can’t support it adequately out in the field, then you’re really going to be fighting an uphill battle,” he says.
Founders Debra Shwetz and Dena Tripp started the franchise in Las Vegas in 1997, and now they’re debuting on our Fast and Serious list at No. 11, with 80 units and $52 million in revenue in 2013, up from 42 units and $22 million in revenue two years earlier. The focus is on cakes to give as gifts, made in Bundt pans and sold in four sizes, from Bundtinis about the size of a cupcake, up to 10-inch sizes.
Jersey Mike’s looks to existing franchisees to grow units, along with new, multi-brand, multi-unit franchisees. In 2014 the brand saw 20 percent unit growth, opening 155 new locations, and 50 percent of that growth came from existing franchisees.
Once those franchisees are signed, Jersey Mike’s focuses on training, extensively before store openings, and continuing once the restaurant is open. “We train our teams to make an authentic sub and we want them to be authentic behind the counter, too, in the way they interact with customers,” says President Hoyt Jones. “From the beginning, our founder and CEO Peter Cancro has said that we are a training company, and that is fueling our growth.”
Last April, Jersey Mike’s rolled outs its first branding campaign, called “A Sub Above,” and Hoyt believes it’s helping differentiate the brand in the marketplace. Their hope is to reframe the sub sandwich experience, “as has been done with coffee and Mexican food,” Hoyt says.
Real estate and franchisee selection are priorities at Sport Clips, where a customer gets a cut, above.
“We will not compromise” on the quality of franchisees nor the real estate locations selected, vows founder Gordon Logan, and the chain topped 1,200 units and $350 million in revenue at the end of 2013. Its unit growth clipped along above 38 percent, too, over the three-year period. One marketing effort that boosts the chain is its NASCAR and military veterans sponsorships. In 2014, for example, Sport Clips extended its partnership agreement with Darlington Raceway to sponsor the NASCAR VFW Sport Clips Help a Hero event through the 2016 season.
#14 The Egg and I
Breakfast and lunch restaurants
Another newcomer to our list is The Egg and I, topping 92 units and $77 million in sales in 2013. It’s defying an overall decline in family chains, mostly on the strength of breakfast. “Breakfast is the only category that’s growing in the restaurant industry today,” an Egg & I veep told Franchise Times last year. “My No. 1 competitor is home.” Taco Bell’s entry into breakfast actually helps The Egg & I, because Bell’s major ad campaigns for breakfast raise awareness for all.
More than 66 percent growth in unit count over three years, to 65, puts this Baja Coast-influenced restaurant up a notch on our list. At the beginning of this year, Costa Vida pushed into the Pacific Northwest, signing franchisees in Vancouver and Portland. Scott Dickinson, one of the franchisees, is a 29-year veteran with KFC who sold his KFC locations before signing on with Costa Vida.
Massage Envy Spa passed the 1,000-clinic milestone last year, and COO Joe Luongo says the brand is still on pace to add 100 units this year, or roughly two a week. Facials have been added to the brand, which he calls “wildly successful,” and a skincare line developed through a partnership with Murad is boosting revenue at individual units.
The brand has yet to open any international units, one of the key opportunities discussed when Roark Capital bought Massage Envy in 2012. “The question is not if, internationally, it’s when and how,” Luongo said. “It’s a complicated model in that when you’re looking at therapist supply and experience, it’s very different across the world. We are going to go with smart, focused growth.”
He sees plenty of opportunity in the United States; they’re in every state except Wyoming, although Luongo acknowledges there aren’t many people there.
On the other hand, they’ve just opened their first three clinics in New York City, where he sees promise despite a crowded field. “Where there’s competition there’s usually opportunity,” he says.
The key will be keeping up the quality franchisees and locations as they push toward 2,000. “We have a very clean, detailed process for how we look at growth,” he says. “We don’t just award locations to award locations. We have to go through a process that says, does it make sense, will it be profitable revenue growth?”
“The bigger we get, the smaller we need to act is a philosophy we live by,” says CEO Charlie Morrison. “We’ve had 10 years of same-store sales growth and the only way we keep that momentum going is to stay focused on delicious food, solid operations and open communication with our franchisees.”
Morrison also points to investments in social and digital media, which have driven increased revenue through upgraded online ordering tools. He cites a “low closure rate” that makes the system attractive to banks.
Wingstop is courting bankers of its own these days, as it has signed with a new investor relations firm in a possible run-up to go public. The Wall Street Journal reported in October Wingstop is talking with underwriters for an initial public offering that could raise $100 million. The chain, founded in 1994, has more than 660 locations across the U.S., Mexico, Russia, Singapore and beyond.
Yogurtland sees a “vast world” for growth outside the United States.
“Fast growth or marketing gimmicks to intercept traffic can hide a lot of inefficiencies in the short run,” says Craig Takiguchi, Yogurtland’s VP of brand management. “But we believe the only sustainable way to grow is over time and by adding real value.”
The frozen-yogurt industry is evolving, he says, moving from what was a destination purchase. “Today, we are seeing customers who want to integrate their purchase in their day-to-day activities,” so they’re shifting to a convenience model and looking at non-traditional locations.
He also is eying a “vast world” outside of the U.S. The total market for yogurt consumption is almost $70 billion, and frozen yogurt is “maybe” only 15 percent of that. “Finding the delicate balance between localizing the product and maintaining our brand identity will be our focus in the coming years,” he says. The brand had 275 units at the end of 2013 and $143 million in revenue.
Noodles & Company is finding the public markets to be bruising, after its initial public offering in September 2013. The stock price last fall was down 58 percent over the past year, and in the first quarter of last year Noodles reported a 1.6 percent decline in comparable restaurant sales, blaming the dip on the cold weather. Unit count topped 380 in 2013 and $409 million in sales and the company moved up a few notches, to 19 from 22, but the Street has been unforgiving.
Elements, one of two concepts for WellBiz Brands along with Fitness Together, has reached enough critical mass three years in a row to make our list: From 83 units in 2011 and $38 million in revenue, to 167 units and $59 million in revenue in 2013.
“We lead with brand, we lead with heart, we lead with emotion,” declares Jeff Sinelli, founder of Which Wich, about how he views growing his franchise. “But with all the soft stuff, the hard stuff has to be there. You have to have a model that will attract investors.”
Sinelli cites a “seed and spread” strategy, which he says many criticize as not the way to go. (Others prefer waiting to open a market until you have five or six stores, at least.) “The problem with franchising is, that’s not always an option. One is very capital intensive,” he says about opening many stores at once.
“The other one is smart, because you start little and grow, instead of start big and start spending, spending, spending.”
Which Wich counts 328 stores today, and Sinelli is trying non-traditional locations, such as convenience stores, drive-thrus and airports. He’s also testing four branded kiosks, located in office lobbies, where workers can order sandwiches, then walk a couple of blocks to pick them up, ready to go.
CEO Sally Smith believes in setting ambitious and concrete targets for growth.
When Buffalo Wild Wings went public, in 2003 with fewer than 300 restaurants, CEO Sally Smith set a goal to hit 1,000 restaurants in 10 years. “We missed it by one month,” she declares, reaching that milestone in January 2014. Now she’s set a new goal: 1,700 Buffalo Wild Wings restaurants across North American in the next 10 years.
“We see tremendous opportunity in California, and certainly in New England and Florida,” she says. International expansion, too, is ahead, with additional restaurants set for Canada and Mexico, plus forays further afield in the Middle East and the Philippines. “Our long-term strategic vision is to be a company of 3,000 units with multiple brands,” she says.
She believes in setting a specific and measurable target, not so much to please Wall Street, which she claims is not her focus, but rather to motivate her entire team. When employees see the company is expanding, they know opportunities for promotions will expand as well.
She is also pursuing her strategy to invest in emerging franchises, both to help others learn from her experience—Buffalo Wild Wings learned a lot of lessons the hard way, she says—and to offer franchisees alternative brands to purchase. That’s already happened with PizzaRev, in which the franchise invested in 2013, followed by Rusty Taco in 2014.
Right at Home moves up four spots this year, to No. 23, with 381 units in 2013 and $266 million in revenue. That compares with 286 units in 2012 and 244 in 2011, and reflects continued growth in the home healthcare segment. This February, Harvard Medical School announced a new partnership with Right at Home to help determine how home care can improve senior health and reduce costs by preventing hospitalizations.
A newcomer to the list, Estrella Insurance qualifies for the first time this year, having appeared on our Franchise Times Top 200 for three years running, and reaching 70 units and $168 million in sales in 2013. Estrella offers auto, commercial, business and boat insurance, among others, and has a new feature on its website: a button urging customers to avoid the Obamacare penalty, and apply for health insurance.
“I think it’s a progression of steps,” says Chris Newcomb, CEO, when asked to explain the tipping point when a franchise starts to attract multi-unit franchisees and accelerate its growth rate. “You get a stamp of approval when the private equity group comes in,” he says, referring to Sentinel Capital’s purchase of a 55 percent stake in the brand last year.
That in turn allowed Newk’s to attract Jim Greco as COO, the former boss of Bruegger’s and Sbarro’s, and Chris Cheek, another well-known franchise development executive. The beefing up of management goes deep at Newk’s, he says, from construction management to real estate to marketing.
For Newcomb, though, brand success starts with the food, and these days he’s touting the sushi-grade Ahi tuna salad as one of its limited-time offers. He believes such fare gives Newk’s a shot at gaining ground on Panera.
Last year Newk’s added 11 restaurants to its 66 on the books in 2013; this year they’ll add 29, he predicts. “We’re really going to give fast-casual a run for the money,” he says.
He closes with a philosophy: “In life if you do the good deed and do the good job and keep your head down and persevere, at the end of the day you’ll get to where you want to be in life.”
The Learning Experience makes its second appearance on our Fast and Serious list, with 126 units in 2013 and $125 million in revenue. It’s the only child education franchise in the smartest-growing 40, which is notable given the fast overall growth in the sector.
GolfTEC will analyze your swing and compare it to pros.
A big focus on proprietary technology is a main driver behind GolfTEC’s recent growth—the golf instruction franchise opened 103 units in 2014, adding to 182 total the year before. “We have a nine-person software department that powers our business,” says CEO Joe Assell.
He’s talking about GolfTEC’s motion analysis software, which works like this: Two sensors go on your body and measure your movement as you hit a golf ball. Then your swing is compared with 150 PGA tour players. “So we have a model golf swing based on research. That’s a big deal in our business, because besides us, all of golf instruction is individual golf pros with individual theories about your swing,” he says.
A new mobile app, unveiled about 18 months ago, also allows people to video their swing on the course and send it in for analysis by their golf instructor.
When people see their swing compared to the pros, they’re often amazed, and not in a good way. “People have no idea what their swing looks like until they see it on video, and they say, ‘that’s not me,’” Assell says with a laugh.
Another move fueling growth is a switch in ad spending. GolfTEC changed its national ad fund from 2 percent to 4 percent of sales, and reduced its local spending requirements. “We pooled what everybody was spending locally into a national fund, which allowed us to increase our commitment, primarily to the Golf Channel.
“Our brand awareness has gone through the roof here,” he says, after spending $4 million on marketing last year. This fall, GolfTEC was at 65 percent brand awareness, and 27 percent first mention without prompting. That’s up from 26 percent and 5 percent, respectively, seven years ago, he says.
Like its much bigger brother, Massage Heights has added a “body + face” tagline to get into the facial business, too. That includes chemical peels and other heavy-duty treatments. Co-founder and COO Shane Evans took a spin through the celebrity mill last year on the CBS reality series “Undercover Boss.” The brand opened its 100th unit, which it now calls “retreats,” in December 2013, and had 30 franchises in development and plans for 75 licenses in 2014.
Lily Sarafan, CEO, has led Home Care Assistance for nearly 10 years. But it was only in the last few that growth started picking up. That’s after she was inspired by an advisory board member, a former executive of Starbucks, Howard Behar, who wrote a book called “It’s Not About the Coffee.”
“Based on his advice and counsel, we decided to put our company on a path of hiring really amazing, brilliant people who were excited to come to work each day, beyond anything else,” she says.
“It all came as a result of really talented people to have the space and approval to move these projects forward without too much bureaucracy.”
One example: a new cognitive therapeutics program, developed through a scientific division at the franchise that employs neuro-psychologists to create therapies that can help reduce the incidence of dementia in patients.
One of Home Care’s employees was looking at the data, and had a revelation, Sarafan says. “Approximately 40 percent of seniors have dementia, and yet the homecare people are only helping them understand the symptoms. They’re not contributing to the reduction in the rate of decline.
“We can contribute to humanity by developing interventions,” she says, a motivating mission for corporate staff, franchisees and caregivers alike.
“We’re probably the only franchise that spends more on our development and support than we bring in in franchise sales and royalties all together,” she says.
“So you would imagine, wouldn’t the company go bankrupt? What we did early on is open our own stores, so those stores are a profit center for our company that allow us to go above and beyond.” Home Care Assistance passed its 100-unit mark last year.
Sometime in the next year or so, Corner Bakery Café will have about the same number of corporate-owned and franchisee-owned stores, a shift for the restaurant chain that only began franchising a handful of years ago. That has made CEO Mike Hislop even more of a believer in one key to growth: choosing the right franchisee.
“Guiding a company through that, it changes a little bit of where you’re going to concentrate,” he says about starting to franchise. “And you know what? We’re early. I have learned so much from them,” he adds about the large franchisee groups that have signed with the brand. “They are part of the strategy moving forward. They’ve been doing this for years and I haven’t.
“My No. 1 goal as CEO is to make sure I make the right franchisee partner decisions,” he says. Prospects come into discovery days and visit a prototype restaurant, and the brand’s first employee demonstrates all the food items. “They get through almost all the items. They get full,” Hislop says.
“We found out that we need someone who will come out here and learn. We have three dayparts, and we have well over 20 percent catering. So even if you’ve been in Applebee’s or Chili’s or a fast-food concept, you need to come in and understand the brand,” he says. “When you’re watching them, do they really get the food?” he wants to know.
Corner Bakery, with 159 units in 2013 and $354 million in revenue, spent the last year signing some major franchisee groups, adding 27 new cafes in seven new markets. Among those are PhaseNext Hospitality, Four M Bakery, Parikh Network, Neo Fourno and NW Ventures.
Topping 1,500 units in 2013, Auntie Anne’s Pretzels also turned in a three-year unit growth rate over 27 percent. International has been a hot spot, and the brand passed the 400th global location milestone late in 2013. In May last year, a master franchise agreement in Canada was signed, in which Canadian Pretzel will open 40 locations in our neighbor to the north by 2023. Veteran operators in the United States—a group including Phillip and Matthew Patinkin and John Desjardins, who own 77 Auntie Anne’s in 12 states, will lead that charge.
Cinnabon took a dive on our list this year, from No. 5 last year to No. 32, with unit count topping 1,294 in 2013. A much slower growth rate in both units and revenue from 2012-13 was the reason: 3.5 percent sales growth compared with 28.8 percent one year earlier; and 12.1 percent unit growth vs. 24 percent.
This February, Cinnabon announced a leadership change, with Kat Cole, president for four years and the engineer of rapid growth, taking a larger, global role with the parent company as group president, FOCUS Brands. Joe Guith, COO, becomes president of Cinnabon.
Panera is far and away the leader in the bakery-café chain, with more than 1,777 units and $4.28 billion in annual revenue in 2013. But it started this year with negative news: its first down year for shareholders since 2007. The chain’s stock price fell about one percent in 2014 after an almost fivefold rise in the prior six years, and had Bloomberg speculating it was giving an opening for activist investors to demand change.
Some find promise in Panera 2.0, its effort to go digital with online ordering, mobile pay and iPad kiosks. That costs $125,000 per restaurant, though, which other critics say is too expensive.
A grand-opening team that has “fine-tuned the countdown process” is one tactic used by Moe’s Southwest Grill to boost store count. President Paul Damico says the team takes franchisees step by step through the process, from signing the deal to opening their restaurant doors.
“This team is a cross-functional, well-oiled machine,” he says, and includes representatives from development, training, operations and marketing departments. The approach “creates enormous efficiencies that allow us to successfully open more restaurants year after year. ”
And they’re doing plenty of those openings. Moe’s Southwest ended 2013 with 533 units and $500 million in revenue.
Plato’s Closet sells used-clothing to teens and 20-somethings, a notoriously fickle group that changes on a whim. So reaction speed is key to the brand’s success. “We’re buying from our customer every day,” says Steve Murphy, president of franchising. “So if we see they’re turning off of a brand like Abercrombie, and turning toward fast-fashion-oriented brands like Forever 21, we then can react to what we buy as well.”
Recently franchisees and corporate-employed trend-spotters saw a shift to athletic-leisure wear and away from denim, for example. “Our stores can literally change on the spot and begin to make those changes.
“We don’t have a 90-day lead time coming across the water,” from a manufacturer overseas. “So as those styles are changing, we can literally be buying them on the spot.”
Murphy attributes the roots of Plato’s success to being the first to franchise, back in 1999, and trying to keep ahead of the rest since then. “We have had a lot of me-too competitors that have tried to come into this space,” he says. “We don’t focus on the competitors, but we’ve found the focus is internally on how do we wake up every day and improve what we do.”
Plato’s Closet had 397 stores at the end of 2013, and $387 million in sales.
Food costs are a key focus at Hurricane Grill & Wings.
Unit economics is Hurricane’s focus “first and foremost,” says CEO John Metz, who is also a Denny’s, Dairy Queen and Marriott franchisee and who bought the brand six years ago with partners. “I don’t know what I was thinking,” when he bought it, he jokes. “It’s really different” from being a franchisee. “I know so much more about being a franchisor than six years ago.”
Food costs is one item he keeps a laser eye on, and because they own 10 corporate stores, he feels those rises just as the franchisees do. Hurricane prints menus only twice a year, but in between can make adjustments by offering limited-time offers.
“We just recently introduced rice bowls,” he gives as an example. “I was really suspect of putting rice bowls on our menu. I thought, who’s going to order a rice bowl?” But when he tasted it, he thought they were delicious but didn’t look like the picture. “So we had to change the way the vegetables are cooked.
We had to fresh cook instead of steam cook.” The bowls are selling well and they’ve got a lower food cost than many items.
Another tactic is to “trick” the diner, by switching pictures on the menu from the high food cost items, like beef, to the lower food cost items. “Because people tend to eat with their eyes,” he notes.
On the labor side, they’re looking to save costs with two primary tactics. They’ve rolled out Ziosk, a table device where you can order appetizers, re-order drinks and pay at the table. That last feature, in particular, takes about five minutes off an average guest table and allows a reduction in server counts.
Second is an automated kitchen display system that sends orders to the kitchen electronically. “It’s much easier for the cooks and it makes the kitchens much less confusing, and there are fewer re-cooks and mistakes,” he says. “We’re able to reduce our kitchen cook times by, say, one to two minutes per ticket, which is huge. But more importantly, we’re making less mistakes so we have less waste.”
When he and partners bought the chain in 2008 there were 28 units, and at the end of 2013 they topped 57. Current franchisees are taking note, with several legacy franchisees adding a second store.
Black Bear Diner has a lodge-like atmosphere in its 67 restaurants.
Bruce Dean, co-founder of Black Bear Diner, believes in small steps, every day, to keep improving his system. “Are we a great organization, are we a good one, are we an average one?” he asks people at all levels all the time. “I ask our own people, our franchisees, our field consultants—what do you see as our weak points?” And then he chooses common themes to tackle.
The current hot button is training, identified by many as an area of weakness. “Sometimes a franchisee, for example, will lose a manager and not have someone trained to back them up. Those are things we face every day, so then how do we handle a situation like that?”
Black Bear Diner has 67 restaurants today, with 8 to 10 in the pipeline for 2015 and “probably” an equal amount in 2016. It debuts on our list this year.
Dean has been in the restaurant business since age 15, when he worked as a dishwasher at Sambo’s, and paid his way through college and partway through grad school, cooking in restaurants. He still likes getting his hands dirty when he visits his stores. “Sometimes I go back and help the guys who wash dishes.
I like getting to the restaurant level. I like working with people. It’s a good message” to send, when the CEO rolls up his sleeves.
Plus he’s eager to hear their suggestions for improvement.
With units topping 2,946 in 2013 and $136 million in revenue, Vanguard is keeping a decent growth pace, although it descended to No. 38 from No. 21 last year. Revenue growth from 2012 to 2013 was 8.8 percent, down from 19 percent the prior year.
A new service, mobile device repair, is the big news for Batteries Plus Bulbs, which a few years ago added light bulbs to its original model as a batteries retailer. They can now repair smartphones and tablets at more than 620 stores nationwide.
“This service is very synergistic for us as we have thousands of these types of devices in our hands every month installing replacement batteries for our customers,” says CEO Russ Reynolds.
Results of the move aren’t reflected in this year’s Fast and Serious list, which reports numbers through 2013, when Batteries Plus Bulbs had 602 units and $452 million in revenue. Reynolds calls those investments crucial. “We’re continuously reinvesting in our business to stay relevant, and to protect our brand position,” he says.
CEO Mike Rotondo keeps his eye on two key metrics constantly: first, the number of existing franchisees who add another unit or two. Of 101 franchisee agreements signed last year, 65 percent of those were with existing franchisees. “And I think our biggest deal was a five-pack,” he says, meaning there were no giant development deals that boost the numbers but often fail to materialize.
That proves to him, he says, “OK, this isn’t a one-night stand, this is long-term,” he says.
The second metric is sales growth, particularly the source of the growth. “We’re 11.4 percent up in comp sales, and 95 percent of that increase is coming from traffic” rather than price increases. “We didn’t increase our prices; the average ticket has been in the $8 range for the past four or five years.
“I don’t have an 11 percent increase because I took price. I have an 11 percent increase because we put products out there that our consumers wanted.”
Popular products include a spinach and kale smoothie, recently introduced, that Rotondo insists is delicious. “The real key is, it has to taste good. It has to hit on more than one category; it can’t just be healthy, it can’t just be trendy,” he says.
“Sometimes people rush things to market and all it is is trendy,” he adds.
Rotondo says he reviews every application from franchisees, and will walk down to challenge his franchise development team if someone doesn’t seem like a match.
“We walked away from a big, multi-unit deal last year, and they were dumbfounded,” he says about the prospect. “They were franchisees of other brands, so they got those other brands to make concessions to them, and that doesn’t work for us.”
Tropical Smoothie had 376 units in 2013 and $170 million in revenue.
Franchise Times worked to create a formula to identify fast-growing franchise systems that also have staying power, as an antidote to multiple other rankings that include too many one-year wonders. Controller Matt Haskin developed a proprietary 10-point formula, including percentage sales growth, percentage unit growth, dollar sales growth and numerical unit growth over the past three years, with more weight given to acceleration in years two and three.
The database for the project is the Franchise Times Top 200 plus 300, our annual ranking published in October of the largest franchise systems by revenue.
Haskin identified 397 companies that submitted information all three years for that project, and then selected for analysis 331 with systemwide sales above $40 million, the floor for consideration for Franchise Times Fast and Serious.
Franchise Times begins its research in March for this year’s Top 200 list. To participate, email Abbi Nawrocki, firstname.lastname@example.org, beginning March 1, to fill out a survey, or visit www.franchisetimes.com to complete a survey online. If your company participated in the FT Top 200 last year, you will receive an email from us in April, but let us know before then if your contact info changed.