Chicken Salad Chick, Captain D’s ‘zees share insights
Illustration by Jonathan Hankin
“I did lots of paperwork, praying and waiting,” recalls three-unit Chicken Salad Chick franchisee Misty Hudson Whitehead, and not necessarily in that order.
First came the waiting for the then-tiny Auburn, Alabama-based franchisor to call back. Whitehead, a medical device salesperson in 2012, learned via Facebook that a colleague had quit her job to open a restaurant called Chicken Salad Chick.
Whitehead couldn’t quite believe it. Yet she convinced herself she also had the wherewithal to do so. After all, it meant she could quit traveling and spend time with her children. And the territory she desired—Fairhope-Mobile, Alabama—was available.
“I’d lived there before,” she says.
She prayed for financing after several banks turned her down. About to tap her 401k, “a good ole’ boy” at Iberia Bank said he’d arrange an SBA loan (thus the paperwork).
“Of course, I had to transfer everything I owned to them, including my 401k and savings. But they bailed me out with a week to spare,” Whitehead says.
The franchisor’s FDD estimates the total initial investment for a single unit ranges from $483,000 to $648,000. Whitehead opened her third unit with a combination of cash flow and bank loans.
Restaurant investor Roger Lipton recently estimated the brand’s unit economics on his blog, noting store-level EBITDA (earnings before interest, taxes, depreciation and amortization) after royalties was likely 15 percent. Given a $1.2 million average unit volume, he calculated a cash-on-cash return of $180,000, or 40 percent on a $450,000 investment including franchisee fee. He called it “among the best returns in the franchised food industry.”
Today, area developer Whitehead operates three Chicken Salad Chicks in south Alabama. Her fourth opens later this year in nearby Foley. A fifth is planned for the near future. The brand boasts 104 outlets in all.
Another piece of luck: Whitehead's first landlord attended Auburn University, in Auburn, where the brand was founded in 2008. He was hooked on its sandwiches. (Southern Living called the chain’s “Fancy Nancy” the best chicken salad in America.) Whitehead, who’d never worked in a restaurant and knew little about real estate, concedes she was suspicious of her first location, in Mobile, an endcap with a drive-thru.
“It was all housetops, with a few businesses nearby,” she recalls. Yet the franchisor assured her that because a Publix supermarket, known for its careful demographic research, anchored the center, the store would work.
It did, apparently. She took her first paycheck two weeks after the store opened. Today, she says it rings up $120,000 a month with monthly rent at $4,500. “My rent is locked in for 10 years, and I’m only on year five,” she adds.
Diving into Captain D’s
Franchisees Chris Benner and Tim Stokes inked their first development plan with Captain D’s in 2015. Last year, their company, Trident Holdings LLC, became the Nashville-based brand’s largest franchisee, acquiring eight units. It brought their total to 33 in seven states. Meanwhile, they agreed to add at least 20 more restaurants, including sister brand Grandy’s. The duo explains the specifics of their latest deal in this Q&A (edited for clarity).
What’s the new deal look like?
Tim Stokes: We have a development agreement in place for 10 more Captain D’s and 10 Grandy’s over six years. Given our existing units, that will put us at 53. If we can find more strategic acquisitions inside the brand we are not opposed to growing that way, too.
What was the multiple for the Captain D’s you acquired?
Stokes: We bought at about 4.5x EBITDA. But then you are signed up for a development agreement to open 20 more stores. So depending how you value that, I’d say it’s a little more expensive than just looking at the 4.5 times number.
Are you likely to get about 3x to 3.5x of that multiple from your lender?
Stokes: Yes, though fortunately we have some pretty some good equity on the balance sheet so we have ability to leverage that as well.
What kind of shape were the existing eight stores in?
Chris Benner: They’re in relatively good shape. The bells and whistles the brand has introduced to improve speed of service, kitchen operations and technology were already there. We’ve not experienced that when we picked up other units from franchisees.
What’s your real estate strategy?
Benner: Towns we’ve identified include Christiansburg and Roanoke, Virginia. Further south we’ll be in and around Atlanta, say, in Loganville and Dacula. We’re also looking at McComb and Brookhaven, Mississippi. And also Natchitoches, Louisiana.
Does your ‘zor have a role in site selection?
Benner: When our brokers identify something we think looks good, we communicate that to Captain D’s and within 14 days they are on the ground doing due diligence to qualify that site. Two weeks ago we identified a property in McComb, Mississippi. This week their guy is in McComb. It’s a conversion, and he’ll do the initial steps to see if it can become a Captain D’s.
How much does land cost if you decide to buy the property instead of lease?
Stokes: The real estate—the dirt, let’s call it—can run anywhere from $400,000 to $1 million. The cost of Captains D’s on it, depending on the site work—and that’s the big variable—could run another $1.1 million on the build. It gets pricey. So you have to have the highest and best use of the land.
David Farkas has covered the restaurant business for 25 years as a reporter and food writer, and writes about development deals in The Pipeline in each issue. Send your franchise’s development agreements to him at email@example.com.