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At attention

Franchisors out in force on military bases


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Military bases are becoming growth targets for franchisors. Building one on a base isn't as difficult as it may seem, but there are some things to keep in mind.

A typical U.S. military base is really a modest-sized city. It contains tens of thousands of troops, their families - plus routine visitors - along with contractors and a cadre of civilian staff to deal with them. The bases themselves are large, and the simple act of leaving one for lunch can be time consuming.

Sounds like a good place for a restaurant.

And indeed a growing number of restaurant chains believe the same thing. At a time when economic turbulence and credit problems make a traditional franchise unit far more difficult to develop, franchise systems are increasingly looking at military bases to build new locations.

Dealing with the federal government and locating on a base offers a set of complexities, which can drive up the cost of operating a unit. But the locations can provide a brand with benefits far beyond the base.

"It's a good idea for franchisors to get on military bases," said Scott Weber, attorney out of Tampa, Florida, for Phelps Dunbar. "If you're an officer or a enlisted person serving abroad and one of the first things you do is take the kids to the Burger King on base near living quarters, that can create a lasting memory for you and your family that not any ad or Super Bowl commercial could achieve."

Johnny Rockets will open its first military base unit at Camp Pendleton in Southern California in May, "the first of what we hope are many," said Cozette Phifer, director of communications for the California-based chain. The Air Force is also opening a Johnny Rockets unit at its Ramstein Air Base in Germany.

The chain has been increasingly aggressive in placing units inside alternative or non-traditional locations. The company contacted the armed forces and indicated that it'd be interested in opening on military bases, and the Marines contacted the company about submitting a proposal for Camp Pendleton.

 

Dave Eberle

Dave Eberle of Johnny Rockets, which is starting to open on military bases.

"It's a great audience for us," said Dave Eberle, senior vice president of franchise sales for the burger-and-shakes brand. "The military population is heavy. It has civilian population. It's better than a lot of towns can give us in terms of demographics."

Franchises view military bases as strong potential locations because of their set populations and the expectation that a large number of troops will return from abroad over the next couple of years. Base locations can have a marketing impact - photos of guys in fatigues eating Domino's, for instance, would be a strong ad for the Detroit-based delivery chain.

Typically, larger chains have been more aggressive on bases, including Burger King, Dairy Queen and KFC, Weber said. Yet smaller brands could get the exposure of a broader geography by locating on a base.

There are two ways that a franchise can open a unit on a military base. There is the traditional way, to provide services directly to the military or its personnel and be paid by the government. Such contracts, similar to the ones provided to makers of fighter jets like Boeing, are more heavily regulated because they involve the direct appropriation of taxpayer dollars. But the contracts can be easier to predict, Weber said.

Most franchises, however, locate on military bases in or as an out-parcel at an Exchange, which Weber described as "the closest thing to a Super Wal-Mart on a military base." The exchanges frequently have popular restaurants like Burger King or Dairy Queen or Domino's. Businesses on the Exchange must be operated as a for-profit enterprise.

Exchanges are typically managed by a contracting officer, a member of the military who decides who goes on base and who gets the contracts. Dealing with that officer is key to getting on a base, Weber said. "The franchisor needs to understand how those contracting officers think and how they interact," he said.

Franchises must decide whether they want to respond to requests or whether a franchisee should do it - in Johnny Rockets' case, the company had the franchisee, Robert Azinian, handle the proposal. Azinian owns franchises in California, Washington, Connecticut and Nevada.

While Exchange contracts don't follow federal rules for awarding appropriated-funds contracts, those rules are used as a guide - so a franchise must make a bid that is submitted with a specific amount of requested information in a certain period of time.

Franchises that do locate on military bases may have to follow certain rules that could eat into store profits, such as prevailing wage requirements that may force them to pay higher salaries to employees. And Weber noted that the traditional rush hours don't come into play at military locations, where peak hours come at shift changes and when troops return from overseas.

"Don't expect your first one or two locations to be cash cows," Weber said. "It's a better idea to look at this as a strategic method to enter the marketplace."

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