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South of the Border

Lee DiPrizito

Moe’s Southwest Grill franchisee Lee DiPrizito (middle) with some of his seasoned New York and New Jersey staff.

Winner: Moe’s Southwest Grill

Finalists: Costa Vida, Del Taco, Taco John’s

Few can say “no” to a good taco. Mexican food or Mexican-inspired food is always in the top five most-consumed food categories in the U.S. The segment also fits in with modern consumer desires for ethnic cuisine, deep customization and the option to keep it light or indulge with an overstuffed mega burrito.

Of course with that huge potential and widespread love comes a dizzying number of franchise concepts from large to small.

For smaller franchisees or operators looking to add one or two locations, some of the mega brands out there are going to prove difficult to enter. But there are plenty of growth brands with ample white space for new and expanding operators.

Moe's Southwest Grill

At the top of the pile for several reasons is Moe’s Southwest Grill, headquartered in Atlanta. As of year-end 2017, the company counted more than  700 locations across the country.

The first number most prospective franchisees are looking for is the investment range. At $446,035 to $997,212, it’s not the most expensive, nor is it the cheapest, but when paired with an average unit volume of $1.01 million it has a relatively quick cash-on-cash return. Royalties and marketing are pretty standard for the category at 5 percent royalty and a 4 percent marketing contribution split between the national fund and local marketing.

The company is also poised to evolve. Since joining in the very early days in 2003, eight-unit-and-counting franchisee Lee DiPrizito said he’s seen a lot of changes since the Wild West days.

“Back when I joined, they were cowboys. I think they were quick hitters selling as many as they could. I think their idea was to sell to a legitimate franchisor as quickly as they could,” said DiPrizito. “Today the brand is much better at giving you the numbers to be successful.”

Moe’s lives beneath the Focus Brands umbrella along with Jamba Juice, Schlotzsky’s, McAlister’s Deli, Auntie Anne’s and Carvel.

And Focus Brands lives beneath the Roark Capital umbrella, owners of many restaurant brands including the multi-brand franchisor Inspire Brands, Jimmy John’s and Naf Naf Grill. Essentially, the cowboys have moved on.

“The guys initially had a great concept, and that was the main thing that they had,” said Blake Webster, a five-unit franchisee based in South Florida.

“Thank goodness it has evolved from that point. It has gotten a whole lot more professional at Moe’s corporate. Now we’ve got a better team behind us that truly understand where we’re heading.”

Another perk for DiPrizito, who operates in New York City and New Jersey, is further alignment with consumer demands for technology and extreme convenience.

“My Manhattan store is 30 percent off-premises sales, the rest of the stores are 11 to 18 percent. All my growth forecasted this year is coming from off-premises,” said DiPrizito, as he noted that means newer, faster and smarter technology.

“The key part of that is that I’m bullish on Moe’s and technology and investments because I think Moe’s has the legs to get through this. Some of the newer entrants are going to be the ones that will struggle.”

Moe's Southwest Grill

Moe's Southwest Grill

Moe’s during a rush is busy, but delivery and off-premises sales are growing significantly.

When that kind of technology is combined with a food that travels well, it hits a sweet spot for the convenience-craving consumer. DiPrizito said most of his growth will come from off-premises sales, and he’s invested in a small fleet of delivery vehicles to push delivery profits further.

There are some things to remember when it comes to operating in the Moe’s system. With an AUV of $1.01 million, it’s a healthy income with a single unit—an average of $160,692 in earnings before interest, tax, depreciation and amortization (EBITDA). It’s a quality “buy yourself a job” kind of franchise for single-unit operators.

DiPrizito and Webster said because of limited brand awareness when they started, it did take about two years to get to the full sales seen in the franchise disclosure document. That’s less of an issue now, but something to consider in pioneer markets without any Moe’s locations.

And while it’s a healthy AUV, savvy operators find a little more value with a few more locations.

“I think it depends on the market. I think there are single units that are working well for certain people. I think it just depends where you are, what your population is,” said Webster. “But if you can get into a town where you can have two, three, five, you’ll be better off.”

At that level, said Webster, the operation becomes much more profitable, to the point a franchisee can afford another layer of quality management and get out from behind the make line once in a while. It also helps insulate the operator from ongoing pressures of rising labor costs as well as potential bumps in food, rent or update costs or other investments.

That said, Webster still spends plenty of time in the stores, but with a few more stores DiPrizito said he has a layer of trusted management there while he works mostly in the company office on finance and strategy projects.

Bottom line, both Webster and DiPrizito said they would do it all again. “It’s the same thing that excited me at the beginning,” said Webster. “It was different and irreverent and had some personality, that’s what we’re seeing in the future, too.”

ApplePie Capital

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