The turnaround: A&W’s on the road again
“You can sexy up the brand all you want, but people gotta make money.” —Kevin Bazner, CEO of A&W
Nearly six years after A&W’s disgruntled and demoralized U.S. franchisee association banded together with its largest international franchisee and former President Kevin Bazner to purchase the brand from Yum, now-CEO Bazner is feeling confident as the nearly 100-year-old brand is back to growing sales and adding units.
In this year’s Top 200+, A&W jumps three spots to No. 188, with 960 locations across the globe and $339 million in systemwide sales. Last year, A&W ranked 191, with $323 million in sales and 941 units.
Rather than walking back into A&W’s headquarters in Lexington, Kentucky, with a “big, sexy plan” that many of his industry contacts suggested, Bazner and his leadership team have focused on what they call “blocking and tackling” and “value through quality.”
Kevin Bazner, CEO of A&W, in a store in Baldwin, Wisconsin, which features a painted mural.
His strategy is shorthand for spending money very judiciously to make meaningful improvements, playing off the brand’s unique positioning within the burger-focused QSR segment, and boosting unit-level economics so the brand’s franchisees are the ones pulling the brand forward, rather than a top-down strategy originating from the corporate office.
“We don’t believe the right way for our brand is to force development,” Bazner said. “It’s really to continue to work on the business model that makes people want to grow the business.”
After lying low for several years, while its leadership team racked up airline miles visiting A&W’s franchisees across the country and in four countries outside the U.S. to build enthusiasm for their slow-burn turnaround plan, Bazner is finally seeing results that bear out his slow-and-steady approach.
“This was a damaged brand,” the CEO said of A&W’s Yum-era days. There were a total of 1,175 A&Ws when Yum first acquired the brand in 2002. The brand’s store counts peaked in 2006 with 1,316 locations, which had dipped to 1,066 by the end of 2011 when the brand was sold to its current ownership group.
Randy Walker, a second-generation A&W franchisee in western Wisconsin who runs the family business with his son Anthony, said there were plenty of good initiatives during the Yum era, but the franchisor’s many requirements and rules were off-putting to many of its franchisees.
“Because of the uniqueness of the franchisees, you had some that said ‘No, this is ridiculous,’” he said. “There was a lot of pushback, a lot of them left, Yum cancelled them and said ‘You’re not going to do this or you’re done,’ and they said ‘fine.’”
Yum, based in Louisville, Kentucky, is the parent company of KFC, Pizza Hut, Taco Bell and WingStreet. The company didn’t respond to a request for comment.
At that time of the latest acquisition, Bazner said, the franchisee base was best described with one word: “apathy.” From that point on, the brand’s executive team focused on re-engaging franchisees, along with improving unit-level profitability.
Darlene, Randy and Anthony Walker—three generations of A&W ‘zees in Baldwin, Wisconsin.
“I had an awful lot of my colleagues in the industry that said you need to get a centralized POS system, you need to reimage the entire brand, you need to do this, you need to do that—I got a lot of advice, but this gets to the blocking and tackling, and the reality of what we acquired,” Bazner added.
Because its franchise partners now have an ownership stake in the brand, Bazner and company say their approach has a laser-focus on their priorities and challenges. Small but significant changes have included getting all stores back to mixing their own root beer, which accounts for 75 percent of the brand’s soft drink sales, gradual improvements to the menu—including much-improved chicken tenders—and using corporate resources to advise franchisees on how to stretch limited funds for the biggest customer-facing improvements.
As an example, Bazner shared a hypothetical interaction with a franchisee looking to freshen up their store with a small budget. Rather than putting $30,000 into a new seating package, he said, the company would advise that franchisee to do a less expensive recovering of existing furniture as part of a $30,000 investment into “all the consumer touchpoints.”
“As operators that are in control and lead this brand, it’s really just the common-sense approach,” he said. “It’s still a penny profit business, and we have excellent operators—I’d put them against any operators in any system anywhere in this industry. They will reinvest in the business if they see a future.”
Root beer re-tool
A telling recent example is the multi-year quest to return the entire portfolio to making root beer fresh in stores, with the ultimate goal of reintroducing draft arms for the traditional on-tap root beer experience. Because of its 640+ U.S. locations, A&W worked to find a system that didn’t require any custom pieces of equipment.
Making a fresh root beer batch.
Today its growth strategy is centered on boosting restaurant-level economics in the United States to once again make it cost effective for franchisees to build new stores. At the moment, this includes a continued expansion of convenience store locations, and a focus on more rural American markets that have much lower land prices.
So far, here in the U.S., 60 percent of the brand’s new builds have come from existing operators, including several previously hesitant franchisees who have now decided against exiting the business and are in the process of passing the business down to a younger generation.
One complicating factor is the system’s nearly 400 co-branded locations—with Long John Silver’s and KFC—that are lasting relics from the brand’s Yum days. While Bazner was quick to correct that such locations aren’t “baggage,” he said it is a notable example of why A&W needed a more nuanced playbook that wouldn’t apply to other QSR brands. While several co-branded locations have closed, he added he has no plans to close co-branded locations en masse and predicted they would remain part of the brand in perpetuity.
Asked if it makes him happy seeing a handful of co-branded locations that decided to become A&W-only locations, Bazner smiled and said, “I’d be lying if I said otherwise.”
Systemwide, Bazner estimates adding 50 new locations during 2017—approximately 20 in the U.S. with the remainder in its international markets that include Malaysia, Thailand and Okinawa, Japan.
The brand’s international portfolio differs from its U.S. business, as A&W’s international partners have rights to develop the entire country, with no sub-franchising allowed.
“With our core business growing same-store sales 30 percent over the last five years, that has begun to shift those economics,” he added. “At the end of the day, you can sexy up the brand all you want, but people gotta make money.”
Asked about returning to growth after his 30-year history with the concept, spread over two stints, Bazner said he’s enjoying the work more than anything else he’s done over his career.
“It is the most rewarding thing I’ve done in my life, right here, right now without question,” he said. “I am home, I am where I am supposed to be and I believe that to the core of my being—it is so rewarding.”