Restaurant CEOs: You must spend more to make more

Franchising comes with a variety of challenges, but few are as difficult as maintaining the franchisee-franchisor relationship. A handful of sessions at this week's International Franchising Association show in New Orleans addressed this topic, including one featuring the CEO of Fresh to Order, Pierre Panos, who stressed the importance of training.

"The first three months' execution will determine the next three years of sales," said Panos, who is also a Papa John's franchisee. "If we don't execute perfectly it will take us three years and $300,000 in marketing to get the sales back that we should have had after three months."

Training standards

Unlike most franchisors, Panos doesn't have a "maximum" on training time, but a standard new-store opening involves a 10-person training team on location for four to six weeks. It's an expense that Panos fully covers, and if the store isn't up to par after the training, his team stays longer. He pays for that, too.

"We will absolutely develop a operator for as long as they are willing to be with us; in some cases we have trained operators for one year," he said.

The training doesn't stop there. After the initial 30 days on site, Panos transitions training to:

  • Weekly calls
  • Monthly shops
  • Monthly audits
  • Monthly business reviews
  • P and L optimization

"I don't want to make money on royalties," Panos said, stressing the importance of investing back into the business on everything from solid operations management to training strategies. "I want to spend it all. We believe you have to open perfectly."

Another operator with a similar strategy is Amit Kleinberg, CEO of Menchie's Frozen Yogurt, who spoke Monday on a CEO Roundtable about how he's grown his brand to nearly 400 units in six years.

His secret: Investing all his "profits" back into the franchises. He didn't make a dime on the business until he opened his 200th unit.

"We grossed $60 million, and I invested it all back into building it, not profiting," he said. "This is the first dividend (we've given) in over six years."

Compared to all of his competitors, Kleinberg said he knows he has at least 50 percent more infrastructure, which is one reason his business is thriving.

"All of them skimped and didn't grow," he said. "You invest in your people. Companies who focus just on growth aren't going to get there. My focus is never on growing my number of units. It's to be the best in my sector — No. 1. If we were No. 2, I'd sell the business. If you focus on being the leader and doing the one thing that you do better than anyone else out there, you will grow."

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