Checkers ‘zee spreads the wealth as Schlotzsky’s couple doubles down
Illustration by Jonathan Hankin
Veteran franchisee Angelo Freites assures me that despite his long tenure operating fast-food eateries, he would never be tempted to launch one of his own.
“I don’t have one iota of creativeness in my body,” insists Freites, who has opened 17 Checkers Drive-Ins in south Florida over the past two years. “I’m a nuts-and-bolts type of person. The recipe is there. All you need to do is lead your people.”
Freites, like other successful fast-food operators, believes leadership involves rewarding workers. He is in the early stages, in fact, of formulating a managing partner program that will offer employees equity. “In other programs, it means you get percentage of cash flow, but you are not really an owner,” he explains. “I believe in spreading wealth and motivating people.”
Yet no employee who wants a piece of the action will have to write a check. “It will be earned through sweat equity,” he says. “Some people just don’t have” the money. “This is a reward for what they have done and will do.”
Freites cites the example of a worker who has been with him for nearly 20 years—both in New Jersey (where Freites once operated Wendy’s restaurants) and, now, Florida—who will become the franchisee of the Checkers Freites opened this fall. “He will be an owner of that operating company and a franchisee of one store,” he says.
Freites, raised in Queens, New York, in an Argentine-Italian immigrant family, began his career “flipping burgers,” eventually becoming a partner in a growing Wendy’s franchise known as JAA Restaurant Group (today, it’s called JAE Restaurant Group. See my May 2018 column for details.) He tired of constant travel and left it a few years ago.
In late 2015, Freites purchased two Checkers restaurants from the franchisor. He has also acquired units from existing franchisees and has opened his own restaurants, ground up.
The value-oriented burger category made sense to him, what with just two direct, national competitors: White Castle and Krystal’s.
“When the economy is really good,” he reasons, “my customer is still my customer, and when it’s bad, all those consumers come to me. I’m a little scared to say this, but we’re almost recession-proof.”
Sales are one thing; costs are another. About half of the 60 new Checkers and Rally’s units slated to open nationally in 2018 will be lower-priced modular units. “I can fit one on 1,500 square feet,” declares Freites, claiming he can open two Checkers for the price of one Wendy’s. “So therefore the site work is much less. My ROI on new builds is tremendous.”
Franchisee returns, however, are often tempered by franchisor’s requirements for capital spending. Freites notes “tough conversations” can result, particularly for multi-unit operators. “Do the math,” he suggests, referring to per-unit implementation cost. Checkers’ franchisees, for example, are being asked to invest in a single-system point-of-sale tying together delivery, call-ahead and loyalty programs.
Still, Freites concedes, “You can’t do those things if everyone isn’t on the same platform.”
Longtime Schlotzsky’s franchisees Cary and Jackie Albert will soon become franchisees of Marriott International, with a new Fairfield Inn in Ennis, Texas. The couple has been developing commercial real estate in the Dallas/Fort Worth metroplex for the past 10 years, and the hotel deal is part of their next strip center project.
The couple, who operate 30 Schlotzsky’s, had been buying existing 8,000- to 10,000-square-foot centers, typically opening a Schlotzsky’s with a drive-thru in an endcap. They also opened units streetside.
When it dawned on them that strip-center economics beat those of standalones, they began building centers (with a Schlotzsky’s) and leasing the remaining the space.
Cary puts the cost of a center at about $600,000. “For every two or three we build, we sell” a strip center. The sale price is usually $1.5 million.
“I sell one strip center and fuel three more,” he claims, adding the company carries almost zero debt, borrowing minimally to help finance the builds. “That’s been our model ever since.”
He and Jackie have been franchisees since 1995, though their serious restaurant growth didn’t begin until after Roark Capital acquired Schlotzsky’s in 2007.
Early this year Albert Enterprises acquired eight acres in Ennis, a small town (pop. 18,513) 35 miles south of Dallas. The couple’s strategy includes selling a parcel to Chick-fil-A and building two strip centers. In one, a Schlotzsky’s will occupy an endcap. Behind that center, on the two remaining acres, the company is building a 75-unit Fairfield Inn.
“It was a purely opportunistic deal,” Cary declares. The company is partnering with First Call Hospitality, a hotel management firm based in Fargo, North Dakota, which will hire the employees and operate the hotel.
First Call has a “small equity position,” he adds.
The Alberts, as mentioned, prefer to buy land and construct their own Schlotzsky’s. In fact, only nine of their 30 outposts have been acquired from other franchisees—with varying degrees of success, admits Jackie, who heads the company’s restaurant division. (Cary helms a non-restaurant company in the group.)
“We’ve taken some in that were mediocre and saw a huge lift,” in sales, “and some that were terrible and we didn’t get a great lift,” Jackie recalls, referring to acquisitions, “and some that have been run really well, and we were not able to lift sales much.”
The couple expects to have roughly 42 Schlotzsky’s in their fold by the end of 2020.
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 firstname.lastname@example.org.