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Checking in on 2010 growth plans

Restaurant Business in January spoke with five emerging chains whose executives shared their companies’ growth plans for 2010. Each exuded optimism about being able to beat back the recession to achieve those plans. We checked back in with those same companies to find out how close they’d come to achieving those goals by November. What we found was a mixed bag. With one significant exception, most were licking their wounds and eager to put 2010 behind them.

Rock ‘n’ Joe Coffee Lounge & Eats

Cranford, New Jersey
January status: 7 New Jersey units, 1 in Florida
2010 Big Plans: Add at least 10 new stores
As of November: No new stores added

We had a good year overall, but weren’t able to pursue our original goals,” says Rock ‘n’ Joe founder and CEO Kevin Brennan. “We were getting plenty of interest, but the financing was just so tight. We couldn’t get anybody financed.”

Seeing the writing on the wall by the end of the first quarter, Brennan shifted his focus from unit growth to operations, fine tuning concept and branding updates that had been introduced the prior year. An alliance with a new roaster was launched, as well. “I decided this would be the year to focus on operations, making the stores as profitable as possible and homing in on the concept,” he says. “One of the main things we did was to concentrate on upping the whole quality coffee experience. Our new roaster brought a lot to the table in that regard and has helped with tightening our brand image. As a result, we’re seeing nice increases in our coffee sales: We’re up 31 percent over the past year at our headquarters unit alone. We also focused in hard on training and on customer engagement. The steps we took this year will also make us more attractive to investors going forward.”

Those steps, he adds, also should help ensure the company’s continued viability if 2011 is another tough year. While Brennan hopes to be able to add those 10 new franchised units next year, continued economic uncertainty and tight credit has him casting his net for larger investors. “The days of mom and pop getting that SBA loan to buy a franchise may be over,” he says. “I don’t know if they’re ever coming back. We need to attract larger investors and are starting to see better-quality leads come in. There are still a lot of unknowns, but we feel strongly that the groundwork we’ve done has us ready to grow when the time is right and the investors are in place.”

Chutney Joe’s

Indian Diner
Chicago, Illinois
January status: Single-unit prototype
2010 Big Plans: Three to five units expected to open in second half of year; 10 to 25 per year in ’11 and beyond
As of November: No new stores opened, one franchised unit sold

Aiming to make Chutney Joe’s the “Indian Chipotle,” founder, President and CEO Vijay Puniani at the start of the year envisioned having his limited-menu, fast-casual concept well positioned for regional growth by year’s end. He also expected to have three to five additional units open in Chicago. Neither effort went according to plan: No new units were open and just one franchise contract was signed for a second unit, not expected to open until early 2011.

Puniani says red tape involved in establishing the franchising organization and securing approvals was the biggest hurdle. “What we expected to take three or four months ended up taking eight because of bureaucracy and red tape. The growth we should have seen by this fall we now anticipate accomplishing by spring 2011, with three or more units opening by mid-summer.”

Having hired a franchise development company in late February, Chutney Joe’s as of early November was still awaiting finalization of its operations and training manual. All other components of the franchising program were in place, however, and approval had been granted by the state of Illinois to begin selling franchises. Starting with customer leads, its Web site and some online advertising, as well as with help from an outside firm, the sales effort had begun. “We’ve had a lot of interest but lack of financing is still a huge issue. We need people with a lot of cash and equity upfront. One contract was signed with a multi-brand franchisee for a single unit in Chicago. It’s moving along quickly and our goal is for that store to be open by mid-January. They’ve said they’d like to open more units, but will wait and see how the first six months goes and review the numbers.”

If growth plans for the year didn’t pan out, the numbers, he says, do look good. The original Chutney Joe’s, opened in February 2009 in the city’s South Loop, has seen strong growth. “In each of the past three months, sales have increased more than 20 percent over the same period last year. Traffic is continuing to build and everything is going good—and I’m keeping my fingers crossed while I’m saying that,” he laughs.

Hot Head Burritos

Dayton, Ohio
January status: 8 units
2010 Big Plans: Begin franchising, get 30 new stores open or in the works by year end
As of November: Four new units opened, three additional units opening by end of December; 30 to 40 stores under contract

The second half of 2010 has been a busy one at Hot Head, with four new store openings in the fall and more slated to come online before the New Year. The first 90 days of 2011 promise to be even busier. “We have six franchisees right now, all of whom are in the process of working out leases and preparing to open. We expect to have a total of 20 stores open by around March of 2011,” says Ray Wiley, who founded the fast-casual chain with his wife Cynthia in 2007. The new stores are going up in the company’s home market of Dayton, plus Cincinnati and northern Kentucky.

His expectations for planned unit openings are firmly grounded, Wiley adds. “All are contracted and funded, so we’re not waiting on financing. Most of our people are smaller, individual franchisees who are self-funded; they come to us with cash,” he says. “And in the couple of instances where franchisees have had to borrow, they’ve been able to. Credit hasn’t dried up completely. In fact, it seems to be loosening up.”

That scenario, and his success in achieving initial growth targets in this difficult year, has Wiley confident that Hot Head will continue to expand quickly. “I fully expect,” he says, “to have a total of 40 stores either open or in process by the end of 2011.”

The Rock Wood Fired Pizza & Spirits

Tacoma, Washington
January status: 10 units in Washington State
2010 Big Plans: Double in size, adding first five of 40 units slated for Canada plus five in California. Lay groundwork for additional U.S. expansion.
As of November: One Canadian unit opened; no new U.S. units: financing secured by an existing franchisee to open one additional unit in 2011

At the start of the year, an optimistic Kevin Hansen, president of The Rock, noted, “It just seems like the time is right for our brand.” He’d predicted something of a breakout year for The Rock, thanks in part to the signing of a master development agreement with multi-concept operator Kaizen Brands Inc. of Vancouver, B.C., to build 40 stores in Canada. Now, after a disappointing year in which lack of financing saw the company add just a single unit in Canada and none in the U.S., he’s pushed those goals back a year and says he’d just as soon scratch 2010 off the books.

“The interest and discussion level has been high, but commitments from potential franchisee groups in new markets are not happening at the pace that I had anticipated,” Hansen says. “One of our local franchisees in the Vancouver market struggled all year with financing and was just able in October to secure funding for a second location. It’s been a very tough year on that front.”

While growth targets were missed, the year did hold some bright spots. The first Canadian unit, in Red Deer, Alberta, has been a big success and consistently leads the system in sales. The recent funding secured by The Rock’s Vancouver franchisee for a second unit will take the company into Oregon for the first time. And The Rock has formed a new affiliate company with Philadelphia-based The Katz Group to develop 15 units. “We’ve selected Denver as our first market and have two locations procured there,” Hansen says. “It’s not a franchising agreement, but a 50/50 partnership with Katz, so those will be corporate stores... We haven’t waivered in our commitment to franchising, but this particular group had the experience and the resources and our ownership decided that partnering to expand made sense in this environment.”

Lime Fresh Mexican Grill

Miami, Florida
January status: 5 South Florida units
2010 Big Plans: Double in size to 10 units, begin expanding outside of South Florida
As of November: 5 new units opened with a sixth underway; deal inked with Ruby Tuesday to develop up to 200 franchised units

Lime hit its targets this year, and then some. The Miami-based fast-casual chain, known for freshly prepared, healthful fare, not only doubled in size to 10 units in Florida (plus an 11th in the works at press time), but it also struck a licensing deal with casual-dining giant Ruby Tuesday to develop up to 200 new franchised stores up the East Coast.

“It wasn’t anticipated, but we’re really excited about it,” founder and CEO John Kunkle says of the Ruby Tuesday deal. “It’s great for both sides. They were looking to get into the fast-casual market and came to us. We discussed different scenarios, ultimately settling on this licensing/franchising agreement. As a small brand, I was extremely concerned that I enter into a relationship of that size with the right people and the right controls in place. They were comfortable with that, and we made financial sense for them. We reduced our royalties significantly to make the numbers work for them. In turn, I get to see the concept grow under my direction and with complete brand control.”

Ruby Tuesday plans to have two or three Lime units open before March of ’11 and a dozen operating before the end of the year. “Once the infrastructure is well established, the goal is to roll out a store every 60 to 90 days.” Kunkle says.

While franchising to individual owners was initially part of Kunkle’s growth plan, he has abandoned that model. “Individual store franchising didn’t fit well with my business philosophy,” he says. “We’re very hands-on and found little difference in running a franchised store and a corporate store, so we switched back to expanding corporately. The Ruby’s deal is a unique opportunity that lets us grow in the right way, but with the deep pockets of this casual-dining powerhouse. We also retain full development rights to the Florida market, the western U.S. and international markets and will continue to grow with corporate stores. It’s a best-case scenario.”

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