How five emerging chains plan to grow in 2010—and how they're going to finance it.
Taking bold steps to achieve dramatic growth in the middle of a killer recession isn’t for the timid. With flat being the new up, survival for many is the more immediate goal; growth can come back into focus once the storm passes.
But some companies see things through a different lens. For those with the right blend of concept, vision, financing and chutzpah, now’s a perfect time to grow and they’ve got big plans to do just that. Here’s a peek at how five emerging chains intend to move the needle this year.
Rock ‘n’ Joe Coffee Lounge & Eats
Founder/CEO: Kevin Brennan
Current: 7 New Jersey units, 1 in Florida
Big plans: Launch newly refined concept and menu systemwide. Change real estate model from suburban to urban. Add at least 10 new stores.
Kevin Brennan expects 2010 to be a big year for Rock ‘n’ Joe Coffee Lounge & Eats, which starts the year with one company-owned and seven franchised units. Working with franchise development company Franpoint Partners, Brennan recently took key steps to reposition the chain to appeal to a broader, less upscale audience. With a new name (changed from Rockin’ Joe Coffeehouse & Bistro), a new look, counter-service format, a significantly streamlined menu and stronger focus on coffee quality, he’s poised to go after higher volume and attract franchisee partners who can stamp out a larger footprint, fast.
When the economic meltdown hit in the fall of ’08, “we could no longer be the small, boutique sort of place that we started out as,” Brennan says. “We needed to streamline and go after serious volume. Our look is new; our format, which was table service, is now quicker, more efficient counter service; our menu is smaller; and our preferred real estate has changed from the suburbs to high-traffic city locations.”
With four new stores opened last year, Brennan aims to open at least 10 more urban franchised stores this year in New Jersey, New York and Philadelphia. The first of those is on track to open in early March in Union, New Jersey. Moving forward, he’s transitioning from the company’s traditional single-unit franchisee model to one focused on area developers. “We won’t get totally away from the owner-operator model,” he says, “but we’re looking for developers that already have a good infrastructure and management team.”
The credit crunch is also behind Brennan’s desire for larger, well-established franchisees. After opening his third franchised store in April of 2008, he began advertising to generate a pipeline of potential franchisees. “Then the credit crunch hit and all but one of the leads I had lost their financing,” he says. “I spent a lot of marketing dollars and was geared up for big growth, but it fell apart. We’re working hard to avoid that same fate this time around, realizing it’s going to be tough for the average guy to get financing now. We don’t offer any financing assistance, and in part because of the credit situation we’ve revised our target. All of the steps we’ve taken to reposition the brand should increase our appeal not only to a larger customer base, but also to larger developers who either already have or can more easily get funding.”
Chutney Joe’s Indian Diner
President/CEO: Vijay Puniani
Current: Single-unit prototype
Big plans: Take Indian cuisine mainstream with limited-menu, contemporary, fast-casual franchise. Three to five units expected to open in second half of 2010; 10 to 25 per year in ’11 and beyond.
Named one of America’s most promising start-ups by Business Week magazine, Chutney Joe’s launched in February 2009 and owner Vijay Puniani already has the wheels in motion to expand nationally. In January, he considered proposals from three leading franchise development companies and expected to sign on with one by mid-February. He’s hired a franchise law attorney and has all legal documentation in order. By late May or early June, the retired investment real estate executive says he’ll start selecting franchisees from a list of more than 100 prospects waiting in the wings to help take the concept, which he describes as the “Indian Chipotle,” first across the Midwest and eventually national.
“We developed the entire system so that it can be replicated easily and consistently without having to have a professional cook with experience in Indian cuisine,” Puniani says.
The menu features four meat entrees, four vegetarian entrees, traditional condiments and chutneys, basmati rice, naan and appetizers including tandoori chicken bites and samosas (baked, not fried). “We’ve lightened our preparations,” Puniani says. “We use no cream, no ghee (clarified butter), no trans fats. We have no fryers.” Each week, two off-the-menu specials are offered – one meat, one vegetarian – to provide more variety. Average checks come in under $10 per person.
Puniani says that opening in mid-recession was unfortunate timing, but the success of his first unit proves Chutney Joe’s is an idea whose time has come. “Sales far exceeded our expectations,” he says.
The company’s current management team is prepared to grow the chain to 15 to 20 additional units, at which point Puniani says he will recruit a CEO with experience in growing fast-casual foodservice businesses to take it to the next level.
In the meantime, agreements are expected to be signed with both single-unit franchisees and area developers this year. “We’ll likely do a mix of both. If we find quality individuals and families with the right backgrounds, the right experience, they’ll certainly be considered along with larger more established multi-unit franchisees,” he says.
While the company itself will not offer any financing, Puniani says he has relationships with [banks] who have agreed to help strong prospective franchisees secure funding. “In this environment, obtaining financing will require a lot more equity infusion than it did two or three years ago. Credit is still very tight,” he admits.
Founders: Ray & Cynthia Wiley
Current: 8 units
Big plans: Begin franchising. Get 30 new stores open or in the works by year end.
Launched two-and-a-half years ago as a fun, funky QSR Mexican grill by veteran Subway franchisees Ray and Cynthia Wiley, Hotheads is red hot in its Dayton marketplace. And it’s not only customers who love it; it’s potential franchisees, as well.
Nearly 800 inquiries from people hoping to franchise the concept have poured in since Hotheads opened, Ray says. Now, after 20 years of franchising someone else’s concept, the couple is ready to franchise their own. “When we started Hotheads it was designed to be a franchise,” he says. “It’s just moved along more quickly than we imagined. When we did the first store, we immediately had more and more people asking us to open stores in other areas. Sales kept growing and we had fantastic feedback from customers. I never thought that we’d go from zero to eight stores in such a short time. Right now, it wouldn’t surprise me if we sold agreements for 100 this year, but our goal is 30.”
Currently, one existing Hothead unit is franchised. To ready the company for aggressive franchise sales, the Wileys brought on franchise consulting company iFranchise Group to help with documentation, systems and marketing. In January, they kicked off a direct-mail marketing campaign to existing restaurant owners and other chains to generate interest and leads from potential franchisees. Limited trade advertising has been done, as well.
The company currently is licensed to sell franchises in 36 states, and plans to initially target markets within a 300- to 500-mile radius of Dayton. Agreements are in place with five franchisees, each of whom Wiley expects to have between one and three stores opening this year. Two or three additional company-owned stores are slated to open in the Dayton area, as well, thanks to the current real estate buyer’s market.
Wiley isn’t worried about the poor economy souring his expansion plans. “My company’s built on cash. We don’t tend to borrow money so it’s not been a problem for us. It could be for potential franchisees, but my experience is that franchises actually do quite well when the economy’s bad,” he says. “There are people taking early retirement or getting laid off who decide they’re finally going to work for themselves. Credit can be the tough part. But there are a lot of people out there who have done quite well the past few years and have some money to invest. There’s so much buzz about Hotheads right now that, recession or not, I won’t be at all surprised if we exceed our expectations.”
The Rock Wood Fired Pizza & Spirits
President: Kevin Hansen
Current: 10 units in Washington state
Big plans: Double in size, adding first five of 40 units slated for Canada plus five in California. Lay groundwork for national U.S. expansion. Develop and restructure in-house branding unit to support growth outside of home market.
Founded in 1995, The Rock is well loved in western Washington State for its classic-rock themed casual dining experience. Starting this year, the company will begin playing its tune on a bigger regional stage, including across the border into Canada. Keep Rockin’ LLC, franchisor of The Rock, has signed a master development agreement with multi-concept operator Kaizen Brands Inc. of Vancouver, B.C., to develop 40 units in Canada. Area developer agreements are in the works to take the chain into California by the third or fourth quarter of this year, as well. Development specifications are unique to each area development, but all developers must meet a minimum of three stores.
Calling the Canadian agreement “the crowning achievement in our development,” Rock president Kevin Hansen says he expects the first five of those units to be operational by year end, with the balance coming online over a 10-year period. “Kaizen already has several suitable locations of a casual dining concept that they are not renewing, so they’re rolling those locations into The Rock,” he says. “The first will open in March ... another in May and another in mid-summer.”
Canada, he adds, is particularly fertile ground for expansion. “It doesn’t have a real thick competitive landscape. They’ve got the predictable large national brands that everyone knows, but there’s great opportunity for another large brand that’s refreshing and unique.”
Fresh and compelling are qualities Hansen predicts will help pave the way for the company’s U.S. expansion, as well, despite the depressed economic environment. He says the shakeout in casual dining has opened up new opportunities for strong brands to snag good real estate and ride the rebound. On top of that, “There’s an ever-changing dynamic in food-service and consumer tastes are changing,” he says. “People feel the need to gather and enjoy not only great food, but a great environment with a great vibe. So it just seems like the time is right for our brand.”
Lime Fresh Mexican Grill
Founder/CEO: John Kunkle
Current: 5 South Florida units
Big plans: Double in size to 10 units. Begin expanding outside of South Florida to Tampa, Orlando, Atlanta.
Lime Fresh Mexican Grill founder John Kunkle aims to double the chain’s size this year and start breaking into new markets. Lime, a hybrid concept featuring elements of fast-casual, casual dining, quickservice and full-service, has grown since 2004 to five Miami-area units.
Kunkle says a minimum of five additional stores will open in 2010, with the first two of those—one in downtown Miami and one in downtown Dadeland—opening in April and May, respectively.
“Our goal by the end of the year is to get out of our South Florida market and to hit over 10 stores,” he says. Franchising has been key to Lime’s growth, with four of the company’s existing five stores franchised. But Kunkle says he’s open to adding corporate stores, as well, should prime locations become available before franchisees are signed.
As he embarks on expansion, Kunkle has reviewed inquiries from more than 100 potential franchisees. Each must have a minimum of five years in the casual dining sector, minimum net worth of $2 million and have money upfront to handle per-unit initial investment, exclusive of real estate, of between $544,000 and $730,000. “None of the stores going up or planned has any financing component built in,” he says. “It’s all existing cash or savings that the franchisees bring to the table. We have nothing built into the franchise agreement for them to take a loan against. If they were to get a bank loan they’d have to do so on their own personal collateral and if we were to consider accepting franchisees who need financing, we’d do it only for multi-store agreements. A lot of area developers, regardless of if they have the cash, like to finance a portion of their growth. So we’ll consider that, but we wouldn’t have anything to do with the process.”
If great locations become available and the need to move ahead with corporate stores arises, Kunkle says he’ll seek private lending versus bank loans to finance that growth.