Arby's Gets A Deal To Finance Remodels
Arby's recently released its latest remodel program. On Monday, it unveiled a key element in that program: financing.
The sandwich concept said that it has a deal with Element Financial Group to loan money to franchisees to fund as much as 100 percent of the cost of the remodels, which could cost on average of $300,000 per location, depending on the building and its previous condition.
The deal is designed to give operators big and small quick access to financing for those projects, which have in early tests improved same-store sales at remodeled locations by as much as 20 percent. Arby's, owned by the Atlanta-based private equity firm Roark Capital, has agreed to guarantee portions of the loans.
David Pipes, Arby's CFO, told Franchise Times that the remodel program eliminates problems some franchisees have with capital access. It'll also accelerate the program. "It'll be quicker than having everybody go separately to try to find capital," he said. "We've got it set up so it's very easy for them to do that."
Financing is a vital element in any franchise remodel program, particularly in systems with a mix of big and small operators. While the lending environment has improved of late, it's still difficult for smaller operators—who have a notably difficult time getting lending for remodels. "The collateral for a remodel is not the strongest," Pipes said. Without a financing program, larger operators would do the remodels and smaller operators wouldn't.
The Arby's program is designed to help both big and small players, even if they have other loans. And with proper credit those operators can fund up to 100 percent of the cost of an improvement.
Element takes the loan application through a web portal, using standardized documentation and with streamlined decisionmaking, and the lender can respond within 24 hours and approve a loan within five days, unless the franchisee has credit trouble.
"Part of the beauty of it, it's easy enough for large franchisees to get financing," Pipes said. "But even for those franchisees, it's simple if you just have a single remodel, as opposed to refinancing your entire business. But it's also geared to work very well for small franchisees who might not have access to capital."
Element has more than $4 billion in total assets, and is a big equipment and project finance company. Pipes said it was important to have a lender that was experienced in the restaurant industry. He also said that it's "nearly impossible" to have a franchisee remodel lending program without some guarantee from the franchisor.
In this case, the lending could help remodel Arby's, a legacy brand with a number of locations that could use an upgrade, not to mention the sales lift that goes with it. The remodel program could also keep the brand's momentum going—its sales lately has been buoyed by a number of successful products like the brisket sandwich.
"You don't get the opportunity to just keep your existing facilities forever and not have things start to deteriorate," Pipes said. "To keep moving forward, you've got to keep the brand fresh."