Three operators who are cleaning up
Illustration by Jonathan Hankin
When Bill Wolfe’s partner was transfered by his company from Phoenix to Seattle, Wolfe picked up where he left off. But it’s tough for a real estate broker to break into a new town. A job selling tax software didn’t pan out, either.
Meanwhile he and his partner, Andrew Held, installed a commercial-sized washtub in their basement to bathe their dogs. There wasn’t a pet shop/dog-wash service like the one they’d used in Phoenix near their Queen Anne neighborhood. In fact, there wasn’t a Wag N Wash in the Pacific Northwest.
That struck them as odd given the city’s plethora of pet owners. Seattle, by the way, is very dog-friendly; canines are welcome in many businesses, including restaurants. Dogs reportedly even outnumber children. Sensing opportunity, Wolfe and Held began researching pet care businesses.
Last year the couple agreed to open three Wag N Wash, an all-natural pet shop that features an in-store dog bakery. “We’re in the process of getting an SBA loan and a revolving line of credit,” says Wolfe, the managing partner. The cost to open a Wag N Wash runs from $383,539 to $522,630.
The first opens early next year in a mixed residential/commercial property in affluent Queen Anne. Initially, the property’s asset manger wasn’t impressed with Wag N Wash, which she hadn’t heard of. Restaurants and an urgent-care center were bidding for the 3,500 square-foot space.
Coincidentally, she lived in Denver, where Wag N Wash is headquartered. Wolfe convinced her to visit a local outlet. “After she had seen the product, the difference in her attitude was night and day,” he reports. “We lucked out.”
Wolfe says the rent is $13,000 a month, or $156,000 a year. Considering Wag N Wash’s average gross sales at franchise locations was $1.3 million in 2014 (according to the franchise disclosure documents), Wolfe’s rent may exceed a risky 10 percent of sales. Yet he believes the Queen Anne store will ring up $2 million, becoming the highest volume in the system. Wolfe and Held also plan to open units in the West Seattle and Green Lake districts of Seattle.
Music, software, newspapers, retailing, travel and broadcast industries have all been disrupted by startup competitors. Now it’s dry-cleaning’s turn.
At least from a pricing perspective, that is. A 40-unit chain called ZIPS Dry Cleaners charges a mere $2.29 to clean any item of clothing. Larger items, like comforters, cost about $20. The low prices set ZIPS apart from competitors, which often price according to an item’s type, material and size.
To be sure, other disrupters have also jumped into the $11-billion industry. A startup called Washio has created an Uber-like app allowing customers to have clothing picked up and returned in a relatively short period of time. After a private equity firm invested $10.5 million two years ago, Washio has expanded to a half-dozen large cities. Washio, however, requires a $30 minimum and a $5.99 delivery fee. Pricing is “market standard,” its website says.
R&R Global Partners, a Philadelphia-based private equity firm, approached Baltimore-based ZIPS differently. It agreed to open more than 100 franchised units over the next half-dozen years or so.
“Pricing has been all over the map. There’s been no consistency in terms of price in any region,” declares Managing Partner Kevin Graff, who estimates ZIPS pricing is roughly 40 percent less than traditional dry cleaners.
Graff says the concept’s in-by-9-out-by-5 service and pay at drop-off also attracted the partners. A fast turnaround appeals to customers and the upfront payment improves cash management. To accomplish such quick service, each ZIPS includes its own dry-cleaning plant. Many businesses send clothing to a third-party dry cleaner.
Yet ZIPS’ biggest attraction is the fact it can be “plugged into” a piece of real estate R&R already owns — and possibly alongside a Planet Fitness, which the firm also franchises as a master partner. “We do multi-unit development and rollout and we have a pretty active portfolio real estate fund,” he says.
Graff won’t disclose unit economics or a royalty fee, saying only the stores provide a healthy return on investment. “ZIPS is attractive from its ability to drive top line, yet let’s us drive productivity within the system,” he explains. The franchisor’s Item 19, meanwhile, offers top line average of $1.1 million with cost of goods sold at $116,190 for 35 franchised units during calendar 2014.
Cleaning inside out
Veteran Subway franchisee Gagan Batta credits his brother for introducing him to 56-unit Nékter Juice Bar. “My brother has been a diehard fan since 2013,” he says.”He was a big guy and lost a lot of weight by cleansing, juicing and exercising.”
Meanwhile Batta wanted to diversify after 12 years of operating sandwich shops, which now totaled 12. His brother, who is one of his partners, suggested Nékter. Yet the Santa Ana, California-based chain wasn’t franchising at the time. Batta, who liked beverage concepts, contacted several others, receiving “aggressive” proposals from two, he claims.
Yet Nékter had the highest sales of the group, even if margins were not the best. The founders eventually relented and he signed a five-unit agreement for San Bernardino and Riverside counties last year. The second of five outposts opened in March in Rancho Cucamonga. The remainder will open by the end of this year.
The juice bar markets itself as helping customers to improve their health. The menu, for example, features Toxin Flush (“will help your body to naturally rid itself of toxins in the blood and liver”) and Green Apple Detox (“provides a perfect balance of purifying and energizing ingredients!”) smoothies. It also sells juice cleanses and acai bowls.
Batta adds these products neatly fit the demographic profile of the Inland Empire. “The income and education criteria the brand needs to meet sales-volume goals is here and that means substantial growth,” Batta declares.
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.