Four Foods uses Silicon Valley plays
A little bit of Silicon Valley has made its way to the world of franchising. No, some upstart isn’t going to disrupt the business model into oblivion, but Four Foods Group and CEO Andrew Smith have certainly come to the industry with a fresh set of eyes.
The company owns 36 Kneaders units, has eight more under construction and another 13 planned for 2017. At 46 total restaurants in the Kneaders system, that makes Utah-based Four Foods Group the unit leader by a wide margin. Those restaurants have all been built since the company was founded in 2008, soon before Smith sold his third software company.
Andrew Smith, center, and four of his operating partners, who invest in and run the Kneaders restaurants that Four Foods Group is building. They have 36 so far.
Slicing up the pie
Instrumental in that growth is the unique franchising model Four Foods Group employs. The company buys the land, builds the building and hires the staff, but instead of putting a general manager in place to manage the day-to-day operations, an operating partner invests in and runs the restaurant. In return, the operating partner takes a 30 to 40 percent equity stake in the restaurant.
To some sophisticated, worldly operators, that might sound a lot like an international master franchisee operation. Smith, however, says it mimics the structure of the skill-heavy but asset-light world of technology startups, especially in the days before software caught up with the napkin ideas early investors bet on.
“You have a pie and you kind of slice up the pie because you don’t have anything to sell. So how do you get salespeople who really know how to sell? How do you get a CTO to come over and run the company?” said Smith. “I’ve seen how ownership entices people.”
Operating partners put up an additional $100,000, money that ensures operators have skin in the game and see the business as their own. Smith says that keeps turnover low—he hasn’t lost a partner yet—and maintains an entrepreneurial spirit.
“I need an operating partner who’s going to wake up in the morning and think the same way about the business that I do,” said Smith. “It’s such a tough business that you must get people that are committed. That range of 30 to 40 percent ownership really does incentivize them to the point where they know that they can make a good living and they have the upside of the business growing in their pocket as well.”
According to Smith, the Kneaders he operates have an average unit volume of $2.3 million, which bumps up to about $2.6 million after three years. Three dayparts, 10 to 15 percent in catering sales and 7 to 8 percent in high-margin retail sales put the concept in league with Panera or Corner Bakery.
To hit those numbers, Four Foods Group also has a robust support system to both train and manage the 60 employees necessary to keep each location pumping out fresh pastries, retail baskets, food service and everything else. The support staff looks more like a franchisor support system than a multi-unit home office, and it was something Smith said the nascent five-location brand didn’t have when he first approached them as a franchisee.
“The whole idea of Four Foods Group and why I started it is I wanted to create a platform for the restaurateurs that want to get into a restaurant, but it’s just too damn expensive,” said Smith. “We have a full platform for everything from facility management to operations to HR to IT training, restaurant operations and finance—everything is done at the Four Foods Group level.”
As for the reason behind all the work creating a support system, building restaurants and growing a regional brand instead of just buying a handful of franchises outright, Smith blames his own entrepreneurial spirit.
“Buying a group of 60 Yum Brand units didn’t appeal to me as much as taking something, making it better and as a team saying, ‘We took a business from five units to 100 units; from a $10 million business to a $250 million business,’” said Smith. “That’s fun.”