Early Five Guys’ operator tries pizza niche
To take nothing away from Jeff Percey’s award-winning operations acumen, it was plainly good fortune to counsel the founders of Five Guys Burgers & Fries during his brief tenure at an Alexandria, Virginia-based franchise development firm. In 2003, he left to become the burger chain’s third franchisee.
The rest is history. Percey and his partners (including wife Deborah) were honored at the chain’s first franchise convention in 2008 for towering sales volumes. Later, Richmond Magazine included his Five Guys restaurants among its “Best of Richmond” issue.
“It was a fantastic 10 years,” Percey told me in a recent interview. He said their unit in a big-box retail center in White Marsh, Maryland, rang up $2.2 million annually. The Perceys sold the last of their restaurants in July 2014.
Meanwhile, they launched a Pie Five Pizza Co. franchise with a store in Innsbruck, Virginia. The couple’s second top-your-own-pizza unit opened in September, in Richmond, near Virginia Commonwealth University. A third opens this month at the city’s Willow Lawn shopping center.
Time is of the essence. “It’s funny how the curve is so much different,” mused Percey, who “stumbled onto” fast-casual pizza while reading a magazine article about it on an airplane. “I felt with Five Guys we had a five-year head start before the copycats came out of the woodwork. The curve will be a lot shorter with Pie Five.”
Still, he liked what he saw during Discovery Day in Dallas. “I saw operations efficiency, pricing and waste control strategies in play,” Percey recalled. He claimed Pie Five’s high-speed impinger oven has a key advantage over rivals’ brick ovens: “50 percent of our sales is pan pizza. Brick-oven concepts aren’t able to cook it. That gives us legs in any market.”
Pie Five’s franchise disclosure document says it costs from $343,500 to $479,500 to open a unit (excluding real estate). Percey and his wife, who have agreed to open 10, are combining their own funds with a loan from a regional bank to finance their first several Pie Fives.
Mike Haines had a career outside the industry before becoming a franchisee, though he had passing familiarity with foodservice as a digital advertising consultant to chains in the Southeast. “But none as an operator,” he admitted when we talked about his 10-unit deal with Tropical Smoothie Cafe. He figured the franchise model could quickly teach him how to run a small business after years of working for Microsoft and Facebook.
He recalled doing “a lot research” last year before signing on with the Atlanta-based brand. He discovered fresh, healthier-for-you restaurants were on-trend and growing. “That helped further narrow my search, and once I got into a handful of Tropical Smoothies, the brand rose to the top,” said Haines, who lives in an Atlanta suburb.
What’s more, TSC’s franchise agreement seemed less onerous than the others Haines examined with a lawyer; the brand’s backing from private equity firm BIP Opportunities Fund also influenced his decision. “Tropical Smoothie went through its growing pains three or four years ago. They’ve brought along deeper pockets and the necessary human capital,” he said.
Still, why would a novice agree to open 10 stores? “My starting point was five, and then I thought, I want to do significant development and carve out more opportunities,” he said, adding franchisee-fee incentives helped convince him. He was recruiting an operating partner when we spoke.
Most of Haines’ development will be in office-rich areas of Georgia’s Forsythe, Gwinnett and Fulton counties. A strong catering program is necessary for success. The franchisor has said its line of sandwiches, wraps and flatbreads accounts for more than 50 percent of sales.
Haines expected his first Tropical Smoothie to open in December, in affluent Suwannee (median household income $80,957). “It’s in a former dry cleaners, and we will have a drive-thru window,” he added. By the end of 2016, four units should be in operation, he added.
Like the Perceys, Haines is self-financing his initial growth to increase cash flow. Later, he’ll fund growth via conventional financing. “If this all unfolds the way I imagine it, Tropical Smoothie becomes my anchor brand in a multi-unit portfolio,” he declared.
Insight: KFC LA
I recently asked veteran KFC franchisee Eddie Sheldrake, current president of the SoCal KFC Franchisee Association, for insight into the beleaguered brand—which last year ranked last in Consumer Reports survey of best and worst fast-food eateries. The association comprises 250 stores among 44 franchisees. Sheldrake and his brother, Donald, operate 13. His remarks are slightly edited.
Advertising: “We’ve had an advertising association made up of Los Angeles-area franchisees for 40 years. Because our market is so much different than the average national market, we’ve always had a fund. We’ve gone from 4.5 percent of sales down today to $500 per store per year. We’d hire an agency, though we don’t have one now. We really don’t have the budget to do much.”
Facts: The association “had a carryover this year. So we spent $300,000 of that on an FSI,” free-standing advertising insert. “To get data, I hired a small ad agency to make a presentation of facts to franchisees at our September conference. The goal right now is to educate people in an unbiased way on what the facts are. The agency will show that same-store sales are up 3.5 percent even though we’re still losing share. Then it will show what an agency can do for you.”
AUV: “About 60 percent of our business is chicken-on-the bone. We’re just under a million bucks in average unit volumes. That’s about the national average.”
New units: “I would look where there is less competition. El Pollo Loco dominates this market. They are doing $1.7 million. Theirs is a grilled, non-fried product. I’m living off of fried chicken. It’s hard for me to do grilled because El Pollo Loco owns the grill.”
Demographics: “In the glory years, we did local TV and concentrated on Hispanics. Now, we are getting lots of Asian customers. Back then, we had more density of stores.“
David Farkas has covered the restaurant industry for 25 years as a reporter and food writer. Submit your company’s development agreements to him