Drew French’s biggest problem when he opened the first Your Pie in Athens, Ga., was attracting customers to the idea of a getting a hot, customizable pizza served in minutes. But by the opening of the 17th store, he had a different set of challenges. Your Pie was exploding beyond its 2008 roots through franchise growth at the same time the new fast-casual pizza category was crowding with more players. Five years after the first store, Your Pie needed help creating systems, and it needed support to stay competitive. It was time for outside funding. A private-equity firm invested in Your Pie.
“When I opened the first store, I did not have an operations manual,” French says. “We have a much better defined system today than we did eight years ago.”
When entrepreneurs launch a new restaurant concept, they’ll often hear comments from industry veterans such as, “Just wait until you get to store 10 or store 50 or 100.” Every stage in a restaurant company’s life is fraught with twists and turns. We asked six chain veterans what are the significant milestones in the growth of a restaurant company and learned no two concepts are exactly alike in how they multiply and expand. However, there are some common stages of growth and strategies operators share to clear new hurdles on the road to expansion. Click ahead to read more.
From 1 to 5: A learning curve
Nick Bayer racked up $100,000 on his American Express card to open the first Saxbys Coffee in Atlanta in 2005. And then, right out of the gate, he started selling franchises. The same year it launched, Saxbys opened a second store, a franchised unit. As it kept expanding, all stores were franchised. Bayer even sold that first company store to a franchisee.
“That was mistake number 200,” Bayer says. “I should have stopped with the first one and worked through the kinks and challenges. The first one should have served as the model for a franchisee.”
Some Saxbys franchisees did very well, while others struggled, but Bayer couldn’t pinpoint a reason why some were succeeding and others were not.
“Was it real estate? Was it competition? Was it pricing? Franchisee experience?” Bayer recalls. “The fact that we weren’t operating a unit ourselves did not give us the experience or knowledge to discern those things properly.”
Operators need to understand from the beginning what works and what doesn’t, says Chris Doody, who successfully built up Bravo Brio Restaurant Group to about 60 units before selling the company. Now, as founder and CEO of Piada Italian Street Food, he is expanding the Columbus, Ohio-based fast-casual chain into several states.
“When you have one store, you have to understand the unit-level economics,” Doody says. “Before you do store No. 2, store No. 1 should prove itself. It should give a return on the investment. You can build the second store out of the cash flow of the first store.”
But be careful if the first store continues to pay for the second store, says Milwaukee restaurateur Dave Sobelman. After phenomenal success with his first restaurant, Sobelmans Pub and Grill, which opened in 1999 and won local acclaim for its burgers and bloody marys, Sobelman switched gears for his second restaurant. Hoping to cash in on consumers interested in grass-feed beef, he opened Sobelman’s Tallgrass Grill. “The second location was not profitable at all,” he says. “We were taking money out of one to feed the other.”
Sobelman kept Tallgrass going for three years before finally pulling the plug in 2013. He decided to stick with what he knew, later opening two more Sobelmans Pub and Grill restaurants in the Milwaukee area. The original store, which is close to downtown Milwaukee, does $2.5 million in sales annually; the other two do between $1.5 million and $1.9 million. Today, after 17 years in business, he’s considering franchising.
“Businesses with brands half as strong as mine—they run with it,” Sobelman says. “We’re not looking to do average or stretch ourselves too thin. You have to make sure you’re doing a good job for your customers. We really take our time.”
For Sobelman, who has become well-known in the Milwaukee area, that extends beyond food. Local politicians will seek him out to discuss community issues, Sobelman says. “I just had a long meeting with a county supervisor who said he wanted to meet with me because I have the pulse of the community,” he said. “It’s like we’re reaping the rewards of running a business in the community for 17 years.”
- Getting operational kinks worked out before growing
- Making smart spending decisions—at the right time—for expansion
From 5 to 10: Setting standards
In a previous life as CEO of Beef ‘O’ Brady’s, Nick Vojnovic oversaw the sports pub’s expansion from 30 stores to nearly 300. But it was a new game when he partnered with Sigrid Bratic in 2011 to grow Little Greek, a fast-casual Mediterranean concept she started in Palm Harbor, Fla.
Bratic needed help expanding beyond four units, two of them franchised. When Vojnovic arrived, he noticed recipes were not written down, and measurements were being done with foam cups. His first order of business was to standardize recipes, procedures and management training.
“Most founders are great operators with their first or second store, but by store five, if they don’t have the systems developed or processes to manage managers, then their operations can drop off,” he says.
Vojnovic also established a set of values for the company to define its culture as it grows and hires more people.
“Passion, integrity, excellence, improve[ment] and giving back to the community,” he says. “Key values need to reflect the current leadership and give direction so you can build a cohesive team.”
- Standardization of recipes, operations and training procedures
- Establishing companywide values
From 10 to 20: Exploring outsiders
Some operators may seek outside funding right from the beginning while others wait until the concept is better established and producing reliable sales growth, Doody says.
After selling off Bravo Brio, Doody founded Piada in 2010 in Columbus, Ohio. The fast-casual concept specializes in Italian wrap-style sandwiches known as piadinas or piadas. The first store did $2.7 million in revenue, which fueled more growth. But to move beyond the Ohio borders, Piada needed more help. By the 14th location, the concept received an infusion of cash from private-equity group L Catterton.
“It depends on the overall strategy whether you bring in outside capital,” Doody says. “I’ve seen it done both ways (early on or later). It depends on your growth trajectory. In Piada’s case, we were well positioned to capitalize on the growth in the fast-casual segment of better food.”
From the start, Piada had strong average sales of over $2 million per store. The concept now is up to 26 stores with locations in Texas and Minnesota and is setting its sights on Florida.
After Saxbys had expanded to 10 franchised stores, Bayer knew he needed to figure out why some franchisees were performing well and others were failing. Running company stores seemed the best way to be able to analyze the concept’s strengths and weaknesses firsthand. Opening new company stores, however, was going to require more capital—and more than his angel investor was capable of providing.
“We needed to own our own corporate cafes and hire people with experience to support our franchisees,” Bayer says. “We needed more smarts.”
He was on the lookout for a private-equity firm, but not just any investment group. Rather than partner with a firm looking to make a relatively quick return on its investment, Saxbys needed a company willing to be in it for the long haul and with expertise to help strengthen the company.
“We needed more nurturing and TLC and not a traditional three- to five-year turnaround,” Bayer says. “We needed a group whose history was based on long-term investments of eight, nine, 10 years.”
MVP Capital Partners bought out the angel investor, but its contribution went beyond cash, Bayer says. “They pushed me to think strategically—to evaluate the forest from outside of the forest, to see the big picture,” he says. “What was the business I ultimately wanted to grow?”
Saxbys opened more company stores after that; it now has 30 units in total, mostly company-owned. In the process of growing, more emphasis was put on
hiring, training and culture.
“We had cafes in our system that were the coolest neighborhood place with great buzz and energy; those that struggled didn’t have that,” Bayer explains. “They had turnover. People were unhappy, not well-trained and not well-supported.”
Like Vojnovic, Bayer established a mission statement and core values on which to base business decisions. One of the values is to hire “O.D.D. people”—outgoing, detail-oriented and disciplined.
“The key to success was the culture of hospitality–friendly people who want to serve and make other people’s lives better every day,” he says.
The company also found a sweet spot on college campuses. A Saxbys at Drexel University in Philadelphia is run entirely by students in the university’s School of Entrepreneurship. Saxbys is looking to do more agreements with colleges, a sort of hybrid franchise model, Bayer says.
“It’s an opportunity to cultivate the next generation of talent into our company, and then support them to become franchisees,” he says.
- Consider outside investment
- Corporate becomes well-rounded and has the necessary know-how
From 20 to 40: Cultivating rockstars
Now with 25 stores, four under development and plans for more to open this year, Little Greek is venturing into another stage where well-trained managers and franchisees are a must, along with experts in the corporate office, says Vojnovic.
“Some of your superstars who have been wearing all the hats need to hand some of their hats over to experts in that field,” he says. “Realize your strengths and weaknesses.”
Your Pie anticipates adding 20 stores to its existing 28, mostly franchises, says French. In preparation for this next stage, the company’s focus has been on internal development to be able to support franchisees. Most of the franchisees have multistore agreements.
“Their first store has to work for them to continue to grow,” French says. “We have to work hand-in-hand with them as they go from one to two stores. We internally developed more people to provide support, and more and better systems to help support the franchisees.”
Now, with locations in more than eight states, Your Pie’s support team also has to be ready to go assist franchisees in person.
- Create a system for selecting franchisees
- A plan to support franchisees
From 40 to 100: Fine tuning
Phil Keiser, president and CEO of Culver Franchising System, joined the family-run restaurant company in 1996 when it had about 44 stores. Back then, he was director of operations for the Prairie du Sac, Wis.-based burger chain. Despite its success in franchising and popularity in the Midwest, Culver’s franchisees were having inconsistent results.
Keiser noticed that the problem centered on training. Initially, new franchisees were only getting a few hours a week of classroom training to prepare to run their own stores. While they were required to participate in another store’s opening, they were not a part of the prelaunch training, resulting in Keiser having to take time to explain procedures.
“A lot of it came down to how well we were training our franchisees and how could we better prepare them to take this on,” says Keiser, who took the helm last year, replacing co-founder Craig Culver, who remains chairman.
Training became more standardized: Incoming franchisees spend 16 weeks training, both in classrooms and in stores. A number of training sessions are set up through the year, and franchisees must attend one before opening a store. Franchisees also must attend two store openings before they can open their own.
Another focus at Culver’s was fine-tuning systems and creating kitchen equipment packages and prototype store designs, Keiser says.
Culver’s went from opening nine to 13 stores a year, to opening 35 to 40 stores. That pace slowed down during the Great Recession but has returned in recent years, Keiser says. The company now has more than 530 stores.
“When something does not go as well as hoped or planned, we have to take a look and say, ‘O.K., let’s not let history repeat itself,’” he says.
- Standardized franchisee training
- Equipment packages and prototypes