Between acquisitions, the ongoing COVID-19 effects and re-thinking how the growing number of concepts work together, Focus Brands CEO Jim Holthouser has a lot on his mind. His chief goal for the company is transforming a collection of assets into a unified team of regional and super-regional players.
It's not a new trick for Holthouser—he did it in casinos and in his latest leadership stint he did it with hotels at Hilton. Inspire Brands demonstrates the power of shared services in a national arena and Roark Capital, which owns both Inspire and Focus Brands, clearly sees the value. Of course, Holthouser has to replicate the model with less resources and far less scale than the national brands in Inspire's portfolio, which includes Dunkin', Arby's and Jimmy John's.
"As I look at the Focus Brands, they're all mid-cap brands, regional brands and while they are very well known and they do well, they don’t have the biggest ad fund as maybe some of the more national players," he said. "If you structure yourself a little different and work a little different behind the scenes, there are all sorts of efficiencies you start to build."
Focus franchises seven brands: Auntie Anne's, Carvel, Cinnabon, Jamba, McAlister's Deli, Moe's Southwest Grill and Schlotzsky's.
Holthouser said he had plenty of time to chart the course since he started in February 2020.
"I was in my second week and we sent everyone home," said Holthouser of joining just before pandemic shutdowns in the U.S. "It was eight months later I got to meet people in the company face-to-face."
The silver lining: He got an exceptional trial by fire with the rest of the management team, and between the Zoom calls, he had the whole building to himself to ponder how to streamline the business holistically.
"In the past, we had seven decision makers, everything required responses. We needed seven different company systems, seven contracts for everything," said Holthouser. "That’s not how we work anymore."
For example, he looked to two existential restaurant industry issues: technology and supply chain costs.
"Where it does manifest itself is in the supply chain," said Holthouser. "We're going through a process now where we're re-rationalizing all those SKUs. If we can collapse two SKUs into one, whether it's drinking straws or cups or to-go packing, there's huge savings there. That savings can be passed on to franchisees, that’s leveraging scale."
He's looking for a lot of what he calls "indirect spend" costs, credit card processing, uniforms, and those paper goods. It's a lot of "unsexy stuff" but it adds up to real cost savings when those banal necessities are negotiated at the scale of Focus' seven brands.
Technology is another area he's looking to leverage that scale.
"In the first quarter of next year, we'll launch a unified front-end platform," said Holthouser. "In the common platform, the consumers will get a better digital ordering experience and our owners will experience higher conversion rates. You’ll still see a unique app for each of our seven brands, but they'll be using the exact same framework and the same back end."
As any brand leader knows, the cost to update technology is exceptional. Spreading the cost is one benefit, but slimming the table stakes also means more capital to innovate around the edges.
"Now, every time we need to refresh technology, and this stuff needs a refresh, I don’t need $1 million, I need about $200,000 and we can find new ways to delight the customer. And I'm doing it once, not seven times—so you're getting speed," said Holthouser. "I could probably give you 100 examples, but that shows the power of brands working together and pooling resources where it makes sense. Now we can stretch our dollars and give our brands much more sophisticated demand generation."
While the integration work continues, he's also looking to grow the team. Jamba, which the company acquired in October 2020, is fully integrated and the team has innovated around the menu, plus there's a renewed direction for the brand. Focus Brands franchisees are especially growing into the newest concept under the umbrella. Holthouser detailed his M&A process with Franchise Times previously, but in short, he's hunting for what's next.
"Focus has very good scale but there's no such thing as too much scale, the more brands I can add on, the more I can do for franchisees in supply chain and provide great technology tools," said Holthouser. "We're very actively looking at M&A candidates, we look at a lot of them. I haven’t found the one that is a really good fit yet. The multiples are a little irrational is the delicate way to put it."
He said the high prices and stiff competition from concept acquirers across the space somewhat narrows his target. He has to find a good payback for Roark, enough scale to be proven out for franchisees but not so large that it would take over the company.
"You get above 1,000 locations, that would probably overwhelm us. That's the reason we'll put the big scale brands with Inspire, they're set up to manage businesses at that level and Focus' common denominator is running regional mid-cap brands," said Holthouser, who's looking but not rushing to find the next deal. "It's very cyclical, evening will calm down and normalcy and rational behavior will return."