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Lean start for Jersey Mike’s ‘zee, while Duck Donuts attracts pair


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David Farkas

Illustration by Jonathan Hankin

No, he hadn’t gone to college, explained Jersey Mike’s franchisee Chris Brown after I had inquired about his prior work as a management consultant with an MBA.

I chuckled at his wry humor. After all, Brown’s LinkedIn profile listed an advanced degree from Southern Methodist University and impressive work experience.

“There is another Chris Brown, and he’s a Jersey Mike’s franchisee in Texas, I think,” Brown added brightly.

Oops.

The Chris Brown I was interviewing is a former college bar owner who grew up in Greenville, North Carolina. He sold his “down-and-dirty, derelict nightclub”  in the mid-aughts to finance the first of his 43 Jersey Mike’s sandwich shops. It opened in 2008. Three others followed quickly thereafter.

“Call it naive, but I didn’t even know what franchising was,” he told me. “I didn’t know people owned these, but I always liked the product.”

Brown had met a Jersey Mike’s multi-unit franchisee who explained the details of franchising and the strong relationship he had with the franchisor. It didn’t hurt that the guy looked like he was doing well.

“He owned seven stores at the time, and was nice enough to share numbers with me. He’s the reason I got into it,” Brown offered, adding he partnered with another franchisee at the time.

The recession, however, was then swamping the restaurant business. “I opened my first store in 2008, just as it hit,” he recalled, “and a second in March 2009, my third in September and the fourth in December—all at the worst possible time.”

Brown, who now lives in Savannah, Georgia, believes trial by fire taught him important lessons.

“I got to cut my teeth on the brand and run a business lean and mean—and survive,” he noted. Landlords were also willing to deal.

Today, 10 years later, Brown has changed the capital structure of his 500-employee empire, shedding 16 ownership groups this spring and trimming his lenders to one. The roll-up of 34 Jersey Mike’s, assisted by Brookwood Associates, also afforded the franchisee a $5 million line of development credit and $200,000 revolver.

Yet Brown left nine Jersey Mike’s outside of the recap. I asked him why. “Those stores are operated by my key people, owner-operators. They’ve been with me for awhile,” he explained.

Brown’s longtime goal has been to see other hard-working people succeed. “They started out with sweat equity and putting some cash in,” he went on.

The cash investment—and the pain that comes from writing a bigger-than-usual check—is crucial to motivation. “I’m a big believer that they have a vested interest” in the store, he maintained.

In fact, with the refinancing behind him, Brown wants the owner-operators to buy him out. He believes in so doing they’ll understand bank financing and the ups-and-downs of owning a business.

“It will be beneficial for all of us,” he claimed.

Donuts: East to West

Speaking of MBAs, meet Duck Donuts franchisee Gary Kopel of Huntington Beach, California. His degree, he said, is from the University of California, Irvine. His wife and business partner, Minal Mehta, is an obstetrician/gynecologist.

Like Chris Brown, Kopel sold an existing business to finance the opening of their first two Duck Donuts outlets—in Huntington Beach and (later this year) Irvine. The couple agreed to open five, but believes there’s room for 10 outposts in southern California. The first opened in a 1,280-square-foot space in mid-July, in 5 Points Plaza.

The Mechanicsburg, Pennsylvania-based franchisor was founded in Duck, North Carolina, in 2007 by Russ DiGilio. The family couldn’t find a donut shop there and began making their own, says the company’s website. Eleven years later, the 67-unit brand has hopped to the Golden State in the care of Kopel and Mehta.
“I’d been looking for the next phase in my life,” Kopel told me, adding he has a sweet tooth. “I love sweets, and I am very active on Yelp and online reviewing.”

He indulged that passion (for eating and evaluating) while driving around southern California during his last job selling windows. Meanwhile, he was doing “an unbelievable amount of research” to find a new business when he came across the Duck Donuts franchise offer.

According to the company’s website, it costs from $300,000 to $450,000 to open a Duck Donuts. The franchise fee runs $30,000, “with discounts for purchasing multi-unit options.” A Duck Donuts spokeswoman said AUVs are $700,000.

“I looked at every review and was figuring out how the financials flow,” he recalled. When Kopel approached his wife with his plan, she noted the risk factor but agreed to look into it. They visited a store in another state and sampled the product. “My wife’s reaction was, ‘I’ll get the checkbook,’” he said.  

Kopel added although he and his wife were considering other types of businesses (including rental property construction), the concept’s East Coast origins really appealed to them. Usually, novel things “start out here in California. Duck Donuts began on the East Coast,” he noted.

Yet it took six months to find space for the first Duck Donuts. Landlords with Class A real estate simply didn’t respond to his or broker calls. Finally, targeting a center, Kopel used an old trick: Call as the clock ticks 5. “They’ll usually pick up that last call,” he claimed.

The landlord did and was familiar with the brand. “We had to convince them of our history,” Kopel conceded, adding, however, she’d recently dropped the busy shop. “She said, ‘We have other shopping centers if you’re interested,’” he said of her additional interest.

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 dfarkas99@gmail.com.

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