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As closures mount, Dickey’s makes changes

After nearly 200 locations closed over the past two years, the company has increased franchisee support and digital sales and says things are turning around.
Photograph: Shutterstock

Faced with sales and profitability challenges that have led to the closure of nearly 200 locations over the past two years, Dickey’s Barbecue Pit has overhauled its franchise support, operations and marketing in a bid to turn itself around.

The company shrunk by 24 locations last year and 62 restaurants over the past two years, despite aggressive new-unit development over that time period, according to the Dallas-based chain’s latest franchise disclosure document, or FDD.

Dickey’s operated 507 locations as of May 31, according to the FDD, down from 569 two years earlier. Over that period, 193 locations—more than a third of its locations—were closed either because their franchise agreement was terminated or the operator shut its doors.

It offset those closures with 132 openings over the same period.

The closures prompted the company to make major changes in how it works with franchisees, said Jeff Gruber, senior vice president of franchise operations, in an interview Tuesday with Restaurant Business.

“We feel like we’re on the upswing for sure,” Gruber said. “We had a better year than the year prior. It obviously was a tumultuous couple of years, but we feel like we’re pulling out of it.”

In an email to operators that was shared with RB, CEO Laura Rea Dickey that so far this year, openings have outpaced closures, and same-store sales have turned positive.

Dickey’s was started in 1941 when Travis Dickey opened a barbecue restaurant in Dallas. The company began franchising in the 1990s, and it really took off during the recession, when many people turned to the franchise business after being laid off from corporate jobs.

Dickey’s was one of the fastest-growing restaurant chains in the U.S. between 2010 and 2015, and even before its more recent decline, it was adding units at an impressive pace.

The chain grew from 115 U.S. locations to 567 units at its peak in 2017, a fourfold increase. Dickey’s is mostly franchise-operated, with just five company-owned units.

Dickey’s more recent decline, however, has coincided with sales challenges. Average unit volumes last year declined 5.2% to $735,000, according to data from RB sister company Technomic.

Many of the locations had their franchise agreements terminated, meaning they violated rules regarding the operations of their restaurants.

Last year, the company terminated 45 franchisee-owned locations, while another 38 simply “ceased operations.” The year before, Dickey’s terminated 90 franchisees, with 20 closures.

The number of terminations, in particular, is unusual. The 135 terminations over the past two years represent nearly one out of every four locations.

By comparison, the much larger 7,000-unit Burger King terminated just four restaurants in the past two years.

At the end of 2018, however, the company said it had decided to put changes in place designed to support operators. Dickey’s said it tripled its field operations team, shrinking the number of restaurants each person works with.

It supplemented that staff with area operations teams that work in restaurants, with operators and employees to ensure stores are meeting brand standards, Gruber said. It added a financial operations team to review stores’ finances and added franchisee advisory committees to work with the brand on the franchisor’s efforts.

Gruber said the company has a “hotline” for operators in need of assistance and is polling operators weekly on their views regarding the brand.

Dickey’s gave operators more leeway on marketing spending, devoting more of that toward local marketing that might be more effective.

And Gruber said that Dickey’s is putting “more firepower” behind its digital sales efforts; he said digital sales are on track to reach 25% of all sales by next year. And a month ago, Dickey’s began “white label” delivery through its own smartphone app, with the delivery provided by DoorDash, at 400 locations thus far.

“We’re encouraged by the progress we’ve seen,” Gruber said. “We have a lot of wind at our sails. We’re anticipating even more progress.

“We’ve labeled it a turnaround year within our organization.”

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