When Julia Stewart sums up her $907 million company’s focus with the seemingly nonchalant, “Our whole thing is about franchising,” you should, one, pay attention, and two, not be surprised that as guest editor she decided to devote the magazine to that topic.
The issue of Restaurant Business you are holding is very similar and very different from past copies. It’s still got great content. But for this month, we decided to give up some control. But not to just anybody. We passed the editorial pen to Julia Stewart, a lifelong member of the industry and the visionary executive at the helm of DineEquity, parent of IHOP and Applebee’s and the largest full-service restaurant company on the planet.
Julia’s record of success stretches many years and through many iconic brands: Taco Bell, Burger King Corp. Carl’s Jr. Restaurants and others.
But her 10-year stretch as CEO of IHOP and then, with the acquisition of Applebee’s in 2007, as CEO and chairman of DineEquity, has been a career-defining achievement. The turnaround she led at IHOP saw the chain take the leadership position in family dining, surpassing Denny’s in total sales (with fewer restaurants); increase the average IHOP restaurant volume from approximately $1.3 million to $1.8 million; and raise the stock price from $23.51 to approximately $51 today. Likewise, since the acquisition, Applebee’s has seen positive same-store sales for the first time in two years; the opening of its 2,000th location; 80 percent of its menu updated or improved; and 250 company-owned restaurants sold or in the process of selling to franchisees.
You could say we franchised this issue out to Julia.
Here’s how it worked. We told her she could pick whatever topics she wanted to see covered in the magazine. She chose franchising—along with industry activism. We assigned the stories, then our editors plus Julia edited the stories. Julia then added her own insights with each, as you’ll see. (We left 20-Minute University and Foodservice Buyer as is.)
Julia picked franchising because she knows franchising and because she doesn’t think enough operators appreciate all it can do for a brand.
“I’ve run company operations and I love that side of the business,” she says. “But over the years I have developed an affinity for franchisees. I think they make you better, they make you smarter, they thank you for what you’re doing today and they ask you what you’re doing for them tomorrow. I like that challenge.”
When Julia was hired in 2001, the company board said she needed to find out why they didn’t have strong growth. She quickly zeroed in on the company’s antiquated franchising model, where IHOP would buy or lease the land and build all the restaurants, require franchisees to sublease the land from them and the company would take back any stores that franchisees didn’t want anymore. This required a lot of capital from IHOP, and it meant that there was a small number of company stores to run all over the country, a big money pit.
With Julia’s direction, IHOP sold all its company stores and got out of the restaurant construction business, turning over all restaurant development to franchisees. IHOP quickly turned from a 90 percent franchised company into a 99 percent franchised chain (the company has opened 10 restaurants in Cincinnati as an R&D market).
With money freed up from no longer running far-flung company stores or building restaurants (or, after the Applebee’s acquisition, handling purchasing—see How it Works, page 82 of the magazine), IHOP poured resources into marketing and menu R&D.
“That’s the year the stock went from $20 to $40 a share,” she explains.
Emboldened by its turnaround success, IHOP purchased Applebee’s four years ago, and now under the DineEquity banner, set out on a near-carbon-copy revitalization model.
But, as Julia points out, it all began with franchising.
“We put all of our effort and energy and resources behind driving top line sales for franchisees and making them more money, and we got really good at it.”
As she warns, however, wanting to franchise isn’t the same as succeeding at franchising. It is not suited to everyone.
“There are a lot of people out there who want to grow their business and think franchising is the way to do it but who really don’t understand franchising, don’t understand the culture, don’t understand the strategy, what’s necessary to be in a real franchise model where you have real honest-to-goodness relationships, where you listen to one another, you learn from one another. If you don’t have that mindset I think it’s very difficult to be successful.”
And now, Julia Stewart is going to share some of her secrets to franchising success. So, good reading. And good franchising.