One at a time is fine for Fazoli’s, plus high steaks and labor pains
Illustration by Jonathan Hankin
Slow unit growth is the intelligent strategy these days, isn’t it? You open, say, one or maybe two franchise restaurants annually — and, well, Bob’s your uncle. Just to make sure, I posed the question to franchise consultant Andy Simpson of Results Thru Strategy. “The franchisee who’s thinking smarter has a development deal that calls for one a year. That’s a strong deal,” he affirmed.
Macon, Georgia-based franchisees Allen Peake and Mike Chumbley would no doubt agree. Their recent franchise agreement with Fazoli’s requires the partners to open a single unit each year for the next six years. The first opened this spring in Macon, a free-stander on dirt they own. Additional Georgia markets include Warner Robins, Athens, Augusta, Columbus and Savannah.
“This is smart growth on the part of the franchisor,” Peake told me in a recent interview. “We were really glad to see that stance taken by the Fazoli’s leadership team.”
New units, all in major retail hubs, are all likely to be ground-up and free-standing on parcels of land that run from $600,000 to $700,000. “We’ve had to take a pass on some because people want only to do ground leases. I’m not going to invest a million dollars on a building on someone else’s dirt,” Peake declared.
For Peake and Chumbley, who also franchise Captain D’s and Cheddar’s restaurants, Fazoli’s represents a return to the brand.
From the late 1980s to 2000 the partners—then executives with RMS Family Restaurants—operated 14 units in Georgia and Jacksonville, Florida.
After former owner Sun Capital Partners sold Fazoli’s to Sentinel Capital Partners last year, the franchisor began rehabilitating the brand, modifying it into an Italian fast-casual concept under the direction of longtime CEO Carl Howard. Sales have jumped since.
There have been recent bumps in Fazoli’s road. Two years ago management shuttered a second fast-casual concept called Venti Tre Modern Italian after sales slumped in the one and only unit. Peake insisted the failed effort didn’t influence his decision to renew the partners’ acquaintance with the original concept.
“No, not at all. For one thing, we liked Carl and we were impressed with the leadership team. Second, Fazoli’s has had strong same-store sales growth for a number of quarters,” Peake explained, adding the partners really like the food, too.
When Spirit Hospitality opens Johnny’s Italian Steakhouse in early 2018 in Cheyenne, Wyoming, it will—at an elevation of 6,062 feet—tower above the rest of the (now) 10-unit system. Even the Johnny’s that may open a few months earlier in Thornton, Colorado—elevation 5,351 feet—won’t top it.
Yet it’s demography not topography that’s significant to the Fort Collins, Colorado-based hotel franchisee, which has agreed to open the full-service restaurants in two ground-up Hilton Garden Inns.
“Thornton and Cheyenne are similar in demographics and both are experiencing healthy growth,” explained Spirit’s Rob Uehran, president of acquisitions and development. “They are regional centers for tourism and shopping and have quality health care and educational opportunities.”
The population of Cheyenne, the state capital, grew by 6.2 percent, to 63,335, from 2010 to 2015. Median household income, $54,845, is slightly better than the median for the U.S. Thornton, a prosperous Denver suburb, boasts more people (133,451) and an even higher median income ($66,160) than Cheyenne.
Spirit has been financing its growth over the last 20 years via bank debt and a longtime group of global equity partners whose buy-in commitments, according to Uehran, range from $60,000 to $800,000. Not surprisingly, each property is a separate investment entity. The group is being offered ownership in the new Garden Inns.
Johnny’s, which represents Spirit’s first step into full-service dining, impressed Uehran on a weekend scouting trip to a Hilton Garden Inn in Olathe, Kansas, to see the restaurant in action. “There were a couple of key things,” he recalled when asked what convinced him to franchise the brand. “We liked the way Johnny’s unified the staff— hotel, banquet and bar. They have a game plan and work at it every day. It really shows.”
The other thing Uehran liked was the concept’s upscale style and its attraction to local diners. “From day one, they make the non-hotel guest feel welcome. You don’t see that anymore today in an F&B.”
ATWork franchisee David Luttrell’s experience in the staffing industry dates back to the 1980s, including a stint in sales at Olsten Staffing Services. Today, he anticipates his AtWork franchise—23 offices in four states—will bill clients to the tune of $95 million in 2016. The same amounts to roughly 200,000 hours (exclusive of overtime) among some 550 clients.
Luttrell has expanded his Rogersville, Tennessee-based outfit, founded with a single office in 1993, both organically and through acquisitions. In 2014, for example, he picked up six offices from a franchisee who also sold him her buildings.
ATWork franchisees like Luttrell offer “light industrial jobs, warehouse jobs, general labor jobs and many other rewarding career opportunities,” claims the franchisor’s website.
Yet the work can also be risky, Luttrell noted. “We’ve had people lose hands, fall off of ladders and get hit by a forklift,” he said. He then recalled a client that recently put Luttrell’s temps in a precarious position at a construction site.
“That was a no-no. They were supposed to be doing simple assembly work,” he said.
Temps themselves must be carefully vetted. “We do background checks, and we have to follow EEOC rulings. We have to be sure, for instance, we’re following guidelines regarding felons,” he said. “We often have to educate clients on the law.”
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 email@example.com.