When McAlister’s Deli broke ground last June on a location in London, Ky., a city of just under 8,000 halfway between Lexington and Knoxville, Tenn., the event was so notable locally that the town’s mayor and the head of the local economic development authority participated in a groundbreaking.
The location, which opened in February, is one of many smaller cities and towns where the sandwich chain is finding success. It also recently opened in Dickson, Tenn., a city of about 16,000 30 miles to the west of Nashville.
“The beauty of McAlister’s is it can work in pretty much any market,” Jim Holthouser, CEO of McAlister’s parent company Focus Brands, said in this week’s episode of the Restaurant Business podcast A Deeper Dive. “It can work in dense, urban locations all the way down to tertiary markets.”
That kind of variety gives McAlister’s a substantial runway for growth in the coming years. The 500-unit brand is the largest in the Focus Brands roster, on pace to become a $1 billion-per-year concept sometime in the coming months on a trailing 12-month basis. That would be the first of Focus’s seven concepts to hit the mark.
The small markets give the brand more room to grow than many other concepts. It opens more markets and more possibilities than many other sandwich chains might consider. “I think that brand has so much runway across the U.S.,” Holthouser said.
To be sure, McAlister’s is rooted in the kind of tertiary markets like London or Dickson. The company was started in 1989 by a dentist in Oxford, Miss., a city of just 26,000 75 miles south of Memphis. The menu features sandwiches, soups and loaded baked potatoes and a substantial beverage business, anchored by its iced tea.
Southern brands, as a rule, must have a strong tea game. And McAlister’s game is so strong the company established a tea subscription for its loyalty users, Tea Pass, in 2021. “Its big signature item is its tea,” Holthouser said. “A whole lot of the brand’s program centers around its iced tea.”
The company has been a consistent performer among fast-casual sandwich chains. U.S. system sales have grown 50% over the past five years, according to data from Restaurant Business sister company Technomic. The company has averaged 8% sales growth per year since 2016, more than twice the average for fast-casual and sandwich chains. By comparison, Panera Bread has averaged 2.2% growth over that same period.
McAlister’s average unit volumes, meanwhile, are inching toward $2 million. Unit volumes averaged nearly $1.8 million in 2021, according to Technomic.
McAlister’s was bought by the Atlanta-based private equity firm Roark Capital in 2005, which soon folded the company into the roster of Focus concepts, including Moe’s Southwest Grill and the sandwich chain Schlotzsky’s, along with Jamba and treat chains Auntie Anne’s, Cinnabon and Carvel. Franchisees operate about 94% of McAlister's locations.
Many brands as they grow have tended to focus on population centers, including suburbs and urban markets. Yet those larger markets have proven more difficult to grow in recently. Competition for real estate has driven up lease rates, if you can find the real estate in the first place.
Smaller markets can be cheaper because real estate is more readily available. And brands that grow in these markets can find a receptive customer base. “McAlister’s can go in and it is the place in the market,” Holthouser said. “It’s a place where people go after church on Sundays, business lunches or have family dinners during the week. They just work.”
More to the point, for the company to reach its potential, it must have a broad selection of potential markets it can grow into. So, while McAlister’s can go into those dense, urban markets with its sweet tea and loaded potatoes, it can also go into these small towns where the mayor shows up for the groundbreaking ceremony.
“There’s no reason McAlister’s can grow well beyond its footprint,” Holthouser said.
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