Emerging brands live by data, more or less
Tara Gilad is founder and COO of Vitality Bowls, a healthy fast-casual chain that features such options as organic acai, goji berries and bee pollen—and you’ve guessed it, food costs, too, at her California-based chain rise above the standard.
“Food costs should be on average right around the 27 to 30 percent range” of sales, she says about Vitality Bowls. “We’re dealing with superfoods, much more expensive ingredients. There are many fast food places that can get it under 20 percent.”
Her solution: a daily walk-through by each store owner of invoice logs, which provide a snapshot of every transaction for that day.
“We can see if an employee double-discounted. We can see if an employee is ringing them up wrong. If employees are giving away food, it can affect your food costs by 3 to 5 percent,” Gilad says. “In the restaurant industry you don’t have huge margins as it is, so every percent counts.”
Payroll, of course, is the other big-ticket item, and while payroll at Vitality Bowls can be lower if an owner/operator is also a manager, she recommends a target. “I feel the magic number on average is right around 22 percent of sales,” she says. “Payroll can eat up almost all your profit if you don’t watch carefully.”
Gilad has five corporate stores in five different markets with different sales volumes, so she believes she has good data to share with franchisees about optimal staffing levels. “We teach them how to adjust it,” she says, but not only on the expense side—ideas to boost revenue are also discussed and shared. “We talk about getting their sales up. They could do $6,000 more a month, without cutting payroll.”
“In the restaurant industry you don’t have huge margins as it is, so every percent counts.” — Tara Gilad, Vitality Bowls
The third major cost is real estate. Before a lease is negotiated and a site selected, Gilad and the franchisee put a pro forma together, shooting for rent under 10 percent of sales—and if it’s 6 percent, so much the better.
A few other data points get Gilad’s attention, but they are less important than the big three. The franchisor takes a 1.5 percent marketing fee, and recommends each restaurant spends a half to a full percentage point more on their own. “In their financial statements there’s a line item on marketing. We can see: Oh my god you spent 6 percent and what did you do? And what was the return?” If the idea worked—Vitality Bowls tends to do well on boosting Yelp and other social media—or flopped like a campaign advertising in movie theaters, Gilad spreads the word to other franchisees.
Another item, “miscellaneous office,” prompts Gilad to share a bootstraps philosophy that she wants her franchisees to adopt, too. “When you first start a business you should be frugal, and not buy a laminator” or something else not necessary. “We want all our franchisees profitable, and we want them very profitable, so we teach them how to manage costs. We show them, this is what happens when you’re frivolous.”
If it sounds time-consuming, “it is. It’s brutal,” Gilad says. “It can take me two days to go through all the financials and then reach out to the franchisees. I personally do it, right now. We only have 25 locations open, so as we grow I’m hoping we can hire more help, but I also feel that as an owner you really have to be in tune with your franchisees and how they’re doing. I really enjoy it.”
Gilad has owned businesses before, but she had never owned a restaurant before founding Vitality Bowls with her husband, Roy. “Yes, I definitely learned about the payroll costs and the food costs on my own, pretty much figuring it out by ourselves,” she says, and she’s disciplined about sharing her hard-earned knowledge with franchisees.
“We personally feel as entrepreneurs that new entrepreneurs need some guidance. And we feel we have a moral responsibility to teach them everything we can about running a business,” Gilad says.
A data guy
“We’re 100 percent data. Everything we do is data,” declares Ken McAllister, CEO of the franchisor of My Salon Suite—and spoken like the engineer he is by trade, with extensive experience in building and construction of highways, dams and airports.
In 2010, he opened the first My Salon Suite in New Orleans, and then followed in 2011 with a second location. Today there are more than 30 in 13 states, and he says they’re on track to have 75 by the end of this year, including a second brand called Salon Plaza. Each suite has 20 to 30 private styling centers that are rented by health and beauty professionals.
“We’re 100 percent data. Everything we do is data.”
Reached in late July, he was in Atlanta doing a typical activity: scouting sites. “It’s all about the data at the site. We have a whole systematic process for obtaining data about locations, competition, stores, costs, to evaluate the property.”
McAllister taps data from real estate agents around the country, and also uses a proprietary in-house software product. The trick to entering a market properly is let the data tell you where to locate, not your gut.
“We go to a market like Minneapolis to evaluate site A, B or C, and we try not to be predetermined to be in Eden Prairie or Maple Grove,” he explains, naming Minneapolis suburbs. “We let the data tell us where to go. I think it takes it from a subjective position of a feeling versus a precise way to evaluate it.
“You and I could go to the site and you say you love it, but…if you let emotions make the decision that’s where the mistakes can be made,” he says.
Once the site is selected and the suite is built, attention shifts to one word familiar to those in the hotel business: occupancy. “We have a monthly scorecard that has a wide range of information. All the owners report and get to see what the others’ scores are. You get to see how everybody sits on the spectrum,” he says.
The occupancy and age of each center is reported, and then benchmarks can be compared. At the one-year mark, those centers above 90 percent occupancy are meeting the guidelines. “The properties under 65, we have biweekly meetings with those folks to describe the strategy and tactics.”
McAllister describes a property that last October was under-performing, with occupancies in the high 30s or low 40s after one year in business. “We had multiple meetings on how to improve. Six months later they followed the plan to a T, and they’re 100 percent full” and looking to open a second location.
Remember that scorecard McAllister mentioned, in which all franchisees’ numbers are shared? He says engagement among franchisees is a key way to boost all operators’ success. All documents are on Google, accessible to all. They have a Facebook page where all the owners can ask questions and share tactics. Then there are weekly one-hour calls on different topics, maybe construction one week or site selection another.
“And then with anybody that’s struggling a little bit, they get extra attention,” he says, noting that hearing something from a franchisee goes further than hearing it from corporate.
“We connect our performing franchisees with the struggling. We can say 10 things 10 times, but they say it and all of a sudden it works. I think it’s the best thing about franchising,” he says.
A little friendly competition
A new operating system called MindBody is transforming daily operations at Young Chefs Academy, which had been using a custom-built but “glitchy” system for years before.
“That’s been invaluable to me, because that old phrase—garbage in, garbage out—you can’t manage what you can’t measure,” says Julie Burleson, CEO of the kids cooking school founded in 2005 but completely overhauled with new investors about two years ago.
“Many people thought they were doing fine, but when you compare you can see through another franchisee’s eyes.” — Julie Burleson, Young Chefs Academy
Operators are now using the same terminology to describe their various revenue streams: camps, birthday parties, fields trips, junior and senior classes. “So if we’re not all using the same names for programs, we’re not getting accurate information back,” she says.
Benchmarking is possible for the first time, and she now shares all of that data with everyone.
Sometimes, it’s an eye-opener. “Many people thought they were doing fine, but when you compare you can see through another franchisee’s eyes. ‘You mean my neighbor in the next state is having twice as many birthday parties as I am?’” a franchisee might learn, and it amps up the friendly competition.
The new system came with a 10 percent increase in the technology fee franchisees are required to pay, but that hike seemed to go down easily, partly because the franchise had never raised the tech fee before.
More difficult was getting franchisees to take the time to learn the new system, which is always a frustrating exercise. “New systems always take longer than you expect,” Burleson says. “It was difficult but we knew it was going to be.”
To find a vendor, they started by asking around within the franchise industry and researching at the International Franchise Association convention. Then they involved their franchisees, tapping the knowledge of one in particular who was most vocal about needing a new system.
They narrowed the choices to three. “We reached out to our franchisees and had them beta-test systems for us, and this one rose to the top,” Burleson says, outlining a key tactic that made the adoption successful. She adds the number of off-the-shelf operating systems, which can be customized somewhat for each business model, has exploded since she first paid a programmer to make their custom system 10 years ago, which ended up being inadequate.
One metric that Burleson tracks closely is conversion rates from marketing programs, for example, the number of people who come to an open house that become members. “One of the revenue buckets is the membership model, so we have students who come on a weekly basis and they sign up for a year, and members are automatically enrolled for our master chefs programs. They come once a week for class and they earn patches toward a master chefs status. It’s a three-year program,” she explains.
Food Network magazine is their partner for the open houses, and advertisers in the magazine supply food products for free in order to get them in the hands of consumers, for a cost of $300 to $500 for the franchisee to staff the cooking stations and provide other supplies.
The goal afterward is to dig into the numbers and set goals for how many members signed up. “It will cost X amount to hold this event; let’s set a goal this year for signing up X amount of members,” is what Burleson recommends.
Of course, a software system can’t fix every operational ill; Burleson had to cancel our first scheduled interview because she had dozens of kids swarming into the cooking school at company headquarters in Atlanta, and it was the usual chaos with teachers who didn’t show up and all the rest. “I think at 3:00 yesterday I was throwing on my chef’s jacket,” and helping kids demonstrate their recipes, Burleson says with a laugh.
But the system is improving operations in multiple ways at Young Chefs Academy. Burleson says she was gratified to get an email recently from a franchisee who had been calling every week or two weeks during the rollout, saying the system didn’t work.
“Her subject line was ‘eating crow.’ And she was saying, ‘I’m so sorry.’ She was sharing data back to us,” and her administrative costs had gone down 30 percent, and her sales had increased, Burleson says. That may be the best testament of all to the power of numbers.
Living Large follows three emerging franchise brands for an entire year, and reports how they handle various operational challenges, from legal issues to joint
employer matters to signing franchisees. Add your advice to the mix by e-mailing Beth Ewen, email@example.com.