As Dave’s Hot Chicken President Jim Bitticks sat for an interview with Winsight Head of Conferences Chris Keating at the FSTEC restaurant technology conference on Thursday, the photo of a Dave’s restaurant behind him was an important one: his own.
“I’m also a franchisee,” Bitticks said. In fact, he is a partner in a seven-store deal. Several members of the chain’s management team are franchisees or investors, he said, an idea that came from CEO Bill Phelps, who did the same thing when he was with Wetzel’s Pretzels.
Allowing management into the franchise ranks gets “everyone aligned on making the business stronger or better,” Bitticks said.
He wasn’t the only one. “I’m a franchisee of all my brands,” said Gregg Majewski, the founder of Craveworthy Brands. Craveworthy has been gobbling up smaller concepts, including Mongolian concepts Genghis Grill, Flat Top Grill and BD’s Mongolian Grill. “I feel the pain when I make a decision to bring something in.”
There has long been a debate in franchising about the proper strategy of store ownership. Many brands choose not to operate their own restaurants, opting to focus on running a brand and let the business of running locations up to franchisees. Yet when franchisors operate at least some of their own stores, they can test out new ideas and get a sense of the impact of their decisions on the brand.
Franchises often feature considerable tension between the two groups. Franchisors make their money through royalties, which come as a percentage of revenue. But franchisees have to make a profit off that revenue. As such, franchisors often push revenue growth while franchisees want that revenue to earn a profit.
Having brands operate their own restaurants can in theory ensure that brands get a true understanding of the profitability of their decisions.
Yet operating restaurants doesn’t necessarily make a good franchisor. There have been plenty of examples of brands with franchisee disputes and other franchise-related challenges involving systems with corporate ownership.
Having executives become franchisees can take the idea a step further. The executives themselves profit when the brand does particularly well and they struggle when the brand does not. When their company institutes a new remodel, for instance, they have to remodel locations themselves. If they want a new POS system, they will have to buy one, too. Pushing a value menu? They'll have to run it.
In some respects, it’s similar to the stock options publicly traded companies hand to top executives. By handing executives those options, the companies believe the executives will make decisions in the best interest of shareholders.
But franchises cannot succeed unless franchisees are successful. As a rule, having executives run their own stores keeps their eyes on what matters. As such, several companies over the years have taken this step, letting executives become franchisees of the brand they are operating.
To be sure, there are challenges to this idea. Operating a franchise and running restaurants are, in fact, two different things. And the executives could become distracted by the operation of their franchise restaurants and lose focus on the brand. Executives will have to make sure they're avoiding potential conflicts of interest in some of their decisions, and they'd better be good operators.
But at least when they become franchisees, the executives are putting their money where their mouth is, and that means something. It's an idea certainly worth considering for more brands.