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The Pipeline

A born salesman, a ‘born deliberator,’ plus one newcomer


David Farkas

“Would you pay $13 a day to make sure you had a car to get to work?” asks J.D. Byrider franchisee Jimmy Day. Before I can answer, he adds, “Our average car payment is a little over $400 a month.” 

If that sum seems on the high side, consider that the car itself and the interest rate on the loan needed to purchase it aren’t typical of most dealerships. J.D. Byrider sells cars that are five to 10 years old and finances them at rates suggesting its customers have had serious credit issues.

Item 19 in the company’s franchise disclosure document says the average interest rate charged by franchised and company stores was 21.3 percent in 2012 (the latest figures available). Not surprisingly, J.D. Byrider’s website defends the rate, noting: “Because of past credit challenges, our typical customer brings risk to the table. The higher the risk, the higher the interest.” Today, there are 157 J.D. Byriders (23 company and 134 franchise stores).

The business model—which depends on what Day describes as “the lower third of the socio-economic ladder”—can be a lucrative one. The 12 company stores open at least five years wrung an average gross profit of $4.02 million on average revenue of $10.27 million from 2010 through 2012, according to the FDD. “Finance revenues” accounted for about 25 percent of the total.

Day, who operates three J.D. Byrider’s in San Antonio, Texas, concedes his stores are not hitting those numbers just yet. That’s because, he admits, he initially miscalculated the loss a franchisee took upon repossessing cars. “There is one huge difference in the rent-to-own business” compared to J.D. Byrider, explains Day, who also franchises 16 Aaron’s. “In rent-to-own, if you put a Sony 60-inch flat screen in someone’s house and they don’t make the payment, it is not a big deal. You just refurbish it and put it back out for sale. If the guy wants it back, he comes and picks it up.”

But repossessing a car in Texas is a big deal because the car, by law, must be re-auctioned (although the lenders can sock deadbeats for the costs of repossession, storage and sale fees). “It took a few years for me to get that,” he admits. “Today our repossession rates are way down and profits way up.”

Meanwhile, Day, who calls himself a born salesman, will open his fourth J.D. Byrider store this year in Austin and two more there in 2015. Financing growth isn’t a worry. “We have a great relationship with Houston-based Plains Capital Bank,” he says, citing a $22 million line of credit “to carry paper.” Bigger banks now want his business, too, Day claims: “My CFO just had dinner with the Wells Fargo folks.”

Dunkin’ heads west

If the ebullient Jimmy Day is born salesman, prudent Ted Morton is born deliberator. During a 30-minute phone call, the CEO of Sizzling Platter offers measured responses to my questions while carefully choosing words.

His answer to a question about the possibility of  becoming a franchisee of Red Robin’s new, fast-casual Burger Works is typical. “Red Robin is an excellent brand,” offers Morton, who already operates six Red Robin Gourmet Burger restaurants. But executives there “are not talking about franchising Burger Works. They are focused on brand transformation, transforming Red Robin restaurants with tremendous enhancements. We will also be doing that in our restaurants.”

Actually, I’d called Morton about Sizzling Platter’s recent agreement to open 46 more Dunkin’ Donuts “throughout the greater Sacramento metro area and surrounding cities of Stockton, Modesto, Tracy, Manteca, Placerville and Davis, California,” said a press release. Morton’s company already operates 17 of the coffee shops as part of a 60-plus unit agreement for northern Utah, Denver, Colorado and Texas.

What, for example, was the demographic attraction causing him to agree to open so many units in relatively small towns? “I’ll let Dunkin’ Donuts talk” about demographics. “But I can say the target market matches up with their demographics, so we feel like it’s a good fit,” says Morton, adding his team was analyzing 20 locations.

Salt Lake City-based Sizzling Platter has a mostly successful record as a franchisee, beginning with a single Sizzler Family Steakhouse in Salt Lake in 1963, which eventually spread to Idaho, Nevada and Washington. Its Red Robin Gourmet Burgers operation was launched in the early 1990s. It added Little Caesars in 2007, opening units in Utah, Colorado, Washington, Texas and New Mexico. 

In 2012, it opened its first Dunkin’ Donuts stores in Texas, financing growth largely through cash flow, Morton says.

Morton isn’t unfamiliar with the Golden State, having once operated Texas Roadhouse restaurants there. “California is very strict with labor laws in terms of breaks,” he says. In general, he adds, local jurisdictions are making it tougher for restaurants to open: “It’s more difficult. There are a lot more hurdles to move through. But we are up to the challenge.”

Friend of a friend

You know a guy for years. One day, he has an idea for a restaurant. You listen. Do you partner with him?

Tony Altomare “and I have been buddies since high school,” offers Philadelphia native Keith Morris, an independent investment adviser. “He called one day and brought up the idea of opening a pizza shop. But I had just begun in the financial services business. I was also considering a career in coaching basketball at the collegiate level, so I didn’t want to go into it. Tony then built a seven-unit chain called Tony Roni’s.”

That was in 1994. Today, Morris is Altomare’s first franchisee in a two-unit Philly cheesesteak venture dubbed Wit or Witout. (The phrase refers to “with or without onions.”) Morris’s goal is to open three to five of the 1,500-square-foot units over the next five years in affluent Montgomery, Bucks and Chester counties.

Altomare acquired the award-winning concept in March, 2013, from Nicole DiZio, who created Wit or Witout in 2009 and even franchised two units to the late John Tumolo, co-founder of Rita’s Water Ice.

Franchise consultant Michael Seid, who attended Temple University, believes a cheesesteak concept will be most successful in markets “where good cheesesteaks are known but there isn’t anyone else doing good ones.”

“We are trying to bring this concept to high-traffic late-night venues with a corporate daytime businesses,” says Morris, who expects to finance his first unit via an SBA lender. That unit should cost about $350,000, he says, and ring up sales up to $1 million.

Morris, who has no experience in the restaurant industry, won’t be operating his franchise units. Altomare hired the manager for his first one, Morris adds. 

David Farkas has covered the restaurant industry for 25 years as a reporter and food writer. Submit your company’s development agreements to him  at dfarkas99@gmail.com.

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