Newk’s template goes under the knife, in The Urbane Franchisor
Photo by Nicholas Upton
Alabama-based architect Erik Hendon hasn’t designed all of the recent Newk’s Eatery locations, but he’s not far off with somewhere between 70 and 80 locations under his belt.
His latest project is the Newk’s that recently opened in Texarkana in December, but the more interesting story is the partnership between his firm, Hendon + Huckestein Architects, and Newk’s corporate office that has tweaked the brand’s prototype and trimmed as much as 20 percent off the cost of future restaurants through value engineering and collaborative construction planning.
“I keep joking with them that you have to build more than just one before it’s a true prototype,” said Hendon, adding the prototype has been a moving target as additional cost savings continue to bubble up. “It’s always an evolution as they tweak operationally what happens in their kitchen.”
With the average Newk’s costing somewhere around a million dollars, shaving 20 percent off the top is no easy task. Many of the changes were small, but taken as a whole, prototype changes like off-site millwork, buying in bulk for future locations and building concrete foundations only after the lease is signed make a big impact and came as a result of deep relationships with landlords, vendors and franchisees.
For the Newk’s internal ops team, planning ahead has paid off and enabled the brand’s unit-level economics to work in pricier urban locations. “Whether it’s west Texas or a new market for them like Virginia, so many of those efforts did help to bring down the cost and helped shorten up the timeline,” Hendon said. “Of course, time is money.”
Slashing construction costs gives Newk’s flexibility to go into non-typical spaces, including urban locations such as Atlanta.
Putting heads together
Restaurant construction and real estate isn’t easy, especially when adjusting brand templates to enable smaller restaurants, adding a drive-thru lane or making additional back-of-the-house space for catering or delivery. Whoever the client—retail or restaurant—Hendon said there is often a tendency to lean on vendors to shave costs, which can lead to some clients counterproductively pushing back opening dates on a mistaken quest to find savings.
With good subcontractors in short supply in most markets, and upward pressure on materials costs and uncertainty related to the ongoing trade war and tariffs, there’s a natural tendency for brands and franchise owners to push back against rising prices.
“Construction costs can get tricky, because there’s always a tendency to chase dollars,” he added. “I’ve seen restaurants that will spend weeks trying to save four or five thousand dollars, but what’s a week’s worth of sales? If you can stay on schedule by trusting the people to do what they know, you can get a restaurant opened quicker and a couple weeks worth of sales more than offsets a few dollars you might see from a value engineering standpoint.”
Speaking about his own experience, clients having an experienced real estate team with highly organized, thoughtful plans will allow most contractors to get in, get out and finish the job as quickly as possible.
Chief Development Officer Chris Cheek joined Newk’s when it had just 65 locations four years ago. Now over the 125 mark, Newk’s is a different beast as it opens nearly one new location each week. Cheek’s work includes recruiting new franchisees and diving in to find the right real estate and restaurant design as the ink dries on the franchise contract. A significant part of that includes poring through real estate analytics, then quickly pivoting to making sure each new restaurant can be profitable for the long-term health of the brand.
“We recognize a bad site once leased is the one mistake you can’t fix in the business,” Cheek said. “We want to look at our franchisees spending money to build a Newk’s at a certain address as if it was our own company money we were spending.”
Because the brand was already efficient in terms of restaurant design and the equipment package, there weren’t one or two big-ticket items to bring down construction costs. Not messing with the guest experience or food prep were sacrosanct, but everything else was on the table.
Newk’s Vice President of Development Mike Snyder spearheaded the effort, working with Hendon + Huckestein to clean up the architectural drawings with a goal of preventing change orders for franchisees regardless of which architecture firm they select. Utilities like water lines, power requirements and HVAC ductwork were particularly impactful.
Cheek said they tell landlords to leave out the concrete slab altogether during the construction. Giving the franchisee a “dollars credit” for doing the slab themselves later on allows owners to run the plumbing exactly where it needs to go, rather than requiring expensive retrofits. The same principles applied to roof-mounted HVAC units, as well as grease traps, which can all be tailored to Newk’s corporate specifications if added later in the game.
Those and less obvious tweaks are the result of twice-annual summits at the Newk’s headquarters including the corporate development team, architects and equipment vendors in the system and a handful of general contractors who are building new locations.
These exercises in frugality pared construction costs down to around $105 per square foot, a decrease from $125 to $129 before the reengineering process. A typical Newk’s is somewhere in the 2,300- to 3,800-square-foot range.
“It benefits us, but also benefits our franchisees first and foremost,” Cheek said of trimming the cost. “Franchisees opening on time and on or under budget, they tend to have good things to say about their experience with the brand, and build more restaurants and become good validators for new franchise candidates as well.”
Shrinking to grow
Arkansas franchisees Wes Williams and Wade Quinn built their first Newk’s in 2013 and recently opened their third in Conway, just north of Little Rock. Reflecting the evolution of the prototype, their latest location is 1,300 square feet smaller than their first. Both credit the company for working closely with them before, during and after construction. From their perspective, the company has done an even better job incorporating franchisee feedback and beefing up the real estate team at the headquarters.
“Back in 2013, part of the requirements was [founder] Dr. Newcomb came out to the site, and if he liked it, it was good,” Williams said. “We just took a field trip, if he liked the site he gave us permission and that was that.” These days, it has used more advanced site selection tools, including analyzing traffic counts, consumer spending in the area, and others to reduce on-the-ground research for franchisees and the company alike.
“As a company, Newk’s is certainly all about trying to figure out how to make the restaurants more profitable from the ground up,” Quinn said. “They take an outside party who looks from an outside perspective and says here’s what you could possibly do differently, and that allows them to make subtle adjustments as they go, which drive down the overall cost.”
As Newk’s has grown, and its template has shrunk, the brand has moved into more urban territories with a site in Midtown Atlanta “that has zero parking,” one in downtown Birmingham near the University of Alabama, one near the Bank of America Corporate Center in downtown Charlotte, and a location in Little Rock that has an “urban-suburban” character.
“When you’re in a setting like that, you really have to generate a significant amount of catering sales, because you typically won’t pick up as much dinner or even lunch on Saturdays and Sundays—you have to account for the drop-off in lunch and dinner in weekends and nights,” said Cheek.
Catering and third-party delivery have helped pick up the slack for its urban restaurants, with one location doing nearly half its sales through off-premises channels. Boosting those outlets in city locations helps the brand fit into smaller spaces, which can also include significant savings for both construction and recurring costs.
“These expensive urban sites often come with expensive rent, so you have to make sure your financial model works,” Cheek said. “If it’s a smaller square footage, obviously you’re reducing that occupancy costs of an urban location.”
Tom Kaiser, pictured on opposite page, is senior editor of Franchise Times and writes about urban tales in franchising in each issue. Send story ideas