Famous Dave’s franchisee sees promise in ghost kitchens
Elliot Baum, like many restaurant operators, delights in talking about growth. Right now, for example, he is imagining starting from scratch as a Famous Dave’s franchisee. “If you had an endcap with a Starbucks on one side and I could do an endcap on the other side, I’d look to get 2,500 square feet and put a drive-thru on. That’s where I’d be at,” he explains in a mid-July phone call.
He envisions the small unit ringing up $40,000 a week, or roughly $2 million annually. “Not including any investment from the landlord, I think we could be in business, all in, for six- or seven-hundred grand,” he muses.
In the real world, growth has been hard to come by because of the pandemic. The veteran franchisee—he’s been in the Famous Dave’s system since 2003—has shuttered two of his 17 Famous Dave’s and one of two ghost kitchens.
“My goal was to make sure I wasn’t bleeding any cash,” he says. The restaurants “were not doing great, and I had short-term leases that expire this December.”
The ghost kitchen, in Chicago’s Avondale neighborhood, lacked customers after businesses in the surrounding areas (including downtown) shut down or sent workers home. “I didn’t have the lunch crowd that was ordering on a delivery basis,” Baum says, insisting the closure is only temporary. He has a three-month reprieve on rent.
Baum is likely the only Famous Dave’s franchisee operating a ghost kitchen. He says CloudKitchens, a company formed by former Uber CEO Travis Kalanick, approached the franchisor and was told to talk to Baum. His other ghost kitchen, on Chicago’s West Side, remains in business.
Baum, who opened the kitchens shortly after the pandemic began, says his investment in each was less than $100,000. Subtracting the cost of his refrigerated truck, which he purchased separately, “total investment to get into one of these is $75,000.” His royalty fee is “significantly discounted,” though Baum didn’t disclose an exact figure. Rent runs $5,000 a month.
The remaining ghost kitchen rings up about $8,000 a week, he says. “Key” to keeping it profitable is smoking meats at and delivering them from one of his Famous Dave’s. “At five-hundred grand, I’m breaking even,” he says, estimating the sales run rate.
Average unit volumes at Baum’s 15 franchised brick-and mortar restaurants in Michigan, Ohio, Virginia and Maryland were at 82 percent of their pre-pandemic level, which he says was “north of $3 million.” He boasts his four Detroit eateries rang up nearly $4 million annually. The bulk of sales at Baum’s restaurants are from off-premises channels.
Baum, a native of Detroit, got his start in the business working at his father’s kosher catering company. While in his 20s, Baum joined a Burger King franchise operated by the Schostak family (today called Team Schostak), where he earned his way to a partnership.
He left Burger King in 1999, eventually forming a partnership with local entrepreneur Alon Kaufman, who financed real estate. Baum, whose Blue Ribbon Restaurants group is based in Walled Lake, Michigan, bought him out in 2012.
Sales stay hot
One Hour Heating & Air Conditioning franchisee Scott Rohrer also launched his career working for a family business—his own. And he’s even thought of entering the foodservice business by way of Rita’s Italian Ice. Yet given the effects of the pandemic, he says, any thought of franchising a food-related business is “on the back burner.”
Otherwise, the pandemic hasn’t slowed his business, which also includes plumbing and electrical franchises. In short, customers haven’t feared workers inside their home servicing their air conditioner. “I don’t know too many people willing to go without air conditioning in the summer,” says Rohrer.
His franchise was deemed an essential business in Pennsylvania, which also meant it was required to operate with a number of protocols in place to keep employees and clients safe. Rohrer says employees arrive at customers’ homes wearing face masks and gloves while practicing social distancing.
The homes he and minority partner Matt Buckwalter service now make up eight territories throughout five eastern Pennsylvania counties and parts of Delaware. Growth has been the result of acquiring retiring franchisees’ territories and expanding business organically.
“The majority of our growth has to do with marketing and servicing our customers well,” says Rohrer, adding the franchise has targeted a 10 percent growth rate since 2003. The partners expect to add more territories next year and, perhaps, another brand within their existing territories. “Authority Brands has other franchises, like Mosquito Squad and Cleaning Authority,” he says, referring to their multi-brand franchisor.
Not incidentally, 2003 was the year Rohrer’s dad, who ran the business, asked his son if he wanted to keep using the family name or switch to a franchise brand. “At that point, the name was not as important as being part of something greater and building something larger together,” Rohrer recalls telling his father.
The “something” was a collection of businesses that banded together, dubbing themselves the Contractors Success Group. “It was a best-ideas group that would meet to share ideas. And we raised our hands early and said, ‘We want to be part of it,’” he says.
The Rohrer Company, which at the time had annual sales of $5.8 million, thus became the fifth franchisee in the group. Its name was replaced by three franchise brands: One Hour Heating & Air Conditioning, Mister Sparky and Benjamin Franklin Plumbing. Rohrer, 49, who heads operations, and Buckwalter, 47, in charge of sales, operate them as three separate businesses.
“We’re two distinctly different personalities,” laughs Rohrer, who credits their success to the Entrepreneurial Operating System.
Explains Rohrer: “We adopted that philosophy to enhance our internal culture in the last three to four years. It has really help Matt and I as partners look at our gifts and really excel where we do best.”