Diversity Food Brands Trades Royalty for Development
Diversity Food Brands is a unique franchisor with a singular focus on non-traditional spaces such as airports, college and corporate campuses and healthcare facilities.
That laser focus is a product of founder and CEO Jeff Keys' long tenure in franchised foodservice. He said he started the company with the non-traditional niche in mind.
“I thought there was a need an opportunity for someone to come in and basically try to fill that hard-to-fill space with some healthy alternatives. So I started looking for brands and settled on not having a single brand but a portfolio of brands that kind of address the growing trend of healthier choices,” said Keys. “They still have to have be satisfying, but I knew there were brands out there that were better than the typical choices but weren’t as extreme to be considered actual health food.”
Over the years, he brought together Le Petit Bistro Cafe, Sandella’s Flatbread Café and an express model of the bistro with a to-go focus and smaller footprint. He’s also developed partnerships with a handful of brands to bring different choices to large operators such as Sodexo or Aramark. Currently, the company has 67 franchised Sandella’s and two cafés.
He said that focus helps Diversity compete within a relatively small pool of similar brands.
“We’re a small company with small brands. So we have to choose what battles we’re going to fight and our markets carefully. We're not going to knock off McDonald’s or Subway; we wanted to focus on markets where we could be competitive,” said Keys.
He said airports have been good, but hospitals have been a sweet spot lately as more facilities look to get indulgent fast food out. Hoodless ovens, simple operations and the ability to fit into small footprints have worked in college libraries and other tricky spaces.
And to sweeten the offering, Keys said a sliding-scale royalty has helped Diversity ink new development agreements.
“It’s really a sliding scale, we are in a growth mode, so we want to encourage development,” said Keys. "We settled on a model where our current client base is large foodservice companies. So depending on the development commitment, we’d rather encourage development.”
He said in a typical seven-year contract, they’ll offer half off for a good size deal and cut royalties to zero for big royalty commitments. To make ends meet, he said there are a handful of proprietary products, such as the flatbread base at Sandella’s, that bring in revenue enough to support franchisees and the overhead.
“The idea is that we’ll get through this period of growth, by encouraging development and making a little bit, and they can put that money into building. And at the end of that seven- or 10-year term, they can prove it out,” said Keys.
For large, sophisticated operators like those that cater to big campuses and facilities, that’s an enticing offer.
“They always like to see zero, the whole market is more and more competitive every day. So when you’re talking about being in a situation with Diversity Brands and you can say 3 percent or zero, that’s as much as a six point discount, and six points in the restaurant business is a huge deal,” said Keys.
Diversity Food Brands has 12 Sandella’s in the pipeline. Keys said that could jump come summer when college campuses start their work for the next school year.