How Franchise Operator WKS Does Better Than the Last Guy
Left to right: WKS founder Roland Spongberg, COO Jay Spongberg, CFO Matt McGuinness and Joanna Blake, VP of people services.
WKS Restaurant Group is one of many acquisitive companies that make a business out of “doing better than the last guy.” The No. 17 company on this year’s Restaurant 200 rankings leapt up the charts as the acquisition of 97 Denny’s locations made quite an impact on 2019 company revenue.
Roland Spongberg said the tactic has worked for all of the company's brands, which include El Pollo Loco, Denny’s, Wendy’s, Blaze Pizza, Krispy Kreme and Corner Bakery.
In an early transaction acquisition target for the company, there was a Denny’s restaurant in the mix with some El Pollo Loco locations. Spongberg didn’t want the Denny’s and tried to carve it out of the deal.
“That went on for about three months, and he said it’s all or nothing. So, I said, ‘Let’s try Denny’s,’” said Spongberg. “We had this Denny’s doing about $1.9 million and we hit $2.2 million in a few months and I said, ‘I like Denny’s.’”
WKS COO Jay Spongberg said they don’t grow revenue like that by just spreading overhead across more restaurants or efficiencies of the home office support network. He said it's culture and systems.
“I think it has a lot to do with our culture. We spend a lot of time on our culture and our people,” said Jay Spongberg. “The restaurant business is really a study of human nature; everyone has this certain amount of effort they’re going to give. Most people are going to give enough to get by and that’s about all you’re going to get. One thing I realized, if we can connect with people on the front lines, we can get our people to give that discretionary effort. When you combine that with some of the structures and systems we came up with, you have a good recipe for success. A lot of our acquisitions where we take over stores that have been there for years, it’s from operators who didn’t have a lot of culture or sophistication around systems they can teach their front line.”
The examination of that starts before a sale, as Joanna Blake, VP of people service and general counsel at WKS said.
“There’s plenty to do when you’re looking at the legal and people side of an acquisition. The due diligence of doing that to make sure the person you’re acquiring is doing things the right way and has things buttoned up from a policy and procedures perspective,” said Blake. “But it’s not always easy to get to the heart of that.”
Spongberg said when the acquisition is complete, he and the operations team still walks in with an open mind.
“You never know what you’re going to get. We’ve seen it all. We’ve seen great performing locations where we plugged in and kept going and we’ve seen horrible locations. One of the first things we look at are what systems they have in place and what habits do they have. We start with the GM, the GM is the most important person in our company, so we really key in on them,” said Spongberg.
He gave an example in the Wendy’s system, of which the company operates 54 locations. He said one location was doing well, $60,000 to $70,000 in sales a week. Almost double the $1.6 million annual 2019 average unit volume reported by the company. But the GM was not treating people well.
“We decided to make a change and put a new GM in there. In about four weeks it went from $70,000 to $80,000. A lot of times franchisees are afraid to mess with something. We can recognize that this guy is a tyrant, he’s not treating people well, and we put in someone who does it right. And people want to work harder and give that extra effort, that gives a lot of value,” said Spongberg. “We look at the overhead, we look at the four-wall economics, and the culture is really a means to an end and usually unlocks more value along the way.”
And there are a lot of tailwinds to growing like WKS has done that create a sort of flywheel effect of more growth, more profit and so on. That’s especially notable in California, where the bulk of WKS restaurants operate.
“When I joined 13 year ago, I believe there were about 38 El Pollo Locos and three Denny’s,” said CFO and VP Matt McGuiness. “It was certainly rapid growth. Since that time, I would say environmental factors for the QSR industry had created a tailwind for larger operators. As minimum wage goes higher, as the cost of compliance goes higher as it become increasingly margin-pressured, penny-profit business that you have to use the best available tools, that takes a lot of work to learn and then to actually use properly.”
One example was insurance, as part of a captive program, McGuiness said they can shrink a major expense while also pushing sales higher. And as they grew, he had more options for finance partners. Prior to the latest big acquisitions of Wendy’s and Denny’s, WKS brought in private equity partners Capital Spring.
And the last part of that flywheel goes back to culture. As a large and growing company, WKS is able to hire top-tier talent, which further enhances the culture and the operations.