Article
Keeping QSR growth in check
When it comes to brand expansion, patience, persistence make the difference.
March 17, 2008 by Valerie Killifer — senior editor, NetWorld Alliance
Chicken chain Bojangles' has experienced a roller coaster of growth over its 30-year history. Starting out as a small, locally held company, the chain was held by a New York-based public company in the 1980s then a Silicon Valley investment group in the 1990s. In 1998, the brand was acquired by a local group with a strong restaurant background, and almost a decade later — in September 2007 — changed hands again: this time to a Charlotte, N.C.-based private equity group.
Over its three decades of existence, the chain — like many others — has encountered exhilarating growth countered by dizzying disappointment.
But its growth seems to have settled on a steadily increasing pace. Passing a milestone of 400 stores in February 2008 and extending its reach to Charlotte Douglas International airport, the chain plans to open roughly 50 units this year. The chain also has reported 55 consecutive months of same-store sales increases in company restaurants.
"We're running at a good clip," said Eric Newman, executive vice president for Bojangles', adding that 80 percent of the new restaurant openings are franchises and that ratio will hold steady as the growth continues.
With Newman's 23 years of experience in the restaurant industry and having seen Bojangles' grow too quickly in previous generations, he realizes the importance of setting a healthy pace of growth.
"Companies that grow too boisterously beyond their base almost always have a falling back, almost always have a day of accounting when things don't shake out," he said. "You outgrow your ability to manage (the company) from within, you outgrow your infrastructure, you become unwieldy geographically and underpenetrated in too many markets."
On solid ground
Building a strong brand often is compared to building a strong marriage; it's the united vision of the future that brings people, and brands, together. But once you lose that vision, it's easy for things to fall apart.
"Oftentimes, business leaders have their company's vision and mission in their head, but they don't articulate it to their people," said Lee Froschheiser, president and CEO of business-management consulting and executive-development firm Management Action Programs (MAP). "It is important to create a common vision, mission and values. What I see is companies write it on a wall or a piece of paper, but never look at it again. Go out and talk about it. Execute against it and make sure you have measurements that tell you whether you're achieving those things."
With Bojangles' new ownership, taking that corporate vision to the masses is critical. The new CEO, for example, has interacted face to face with every company unit director and is meeting with area directors and franchisees.
"He's communicating in every form possible a singular set of visions," Newman said. "Not being spread too thin, but a focus on execution."
The chain also is sticking to its proven menu of spicy, Cajun-style chicken, biscuits and side items such as Cajun pintos. Newman says that when growing a company, it's vital to avoid the temptation to add new items that may complicate the menu.
"We're doing everything we can to focus the entire system on the execution of our primary products — what we do best — and execute better against that," he said.
Patience has played a key role in the success of many brands. But many other concepts have learned the hard way what can happen when growth outpaces experience and infrastructure.
"If you look at any of the long-term good concepts that are out there, they have had a controlled growth over all of those years — not through franchising, but they planned their mission pretty well," said Andrew Gennusa, president of Red Bank, N.J.-based Zebu Forno Franchise LLC.
Gennusa has been in the restaurant industry nearly 25 years. In 1987, he cofounded the Manhattan Bagel Co. with his brother, Jason, and in 2001 co-founded Zebu Forno, where he currently serves as president.
Gennusa said he learned from experience what can happen when a brand grows too quickly. At Manhattan Bagel Co.'s peak, the concept boasted about 440 locations.
"That was a true American success story with not the greatest ending," Gennusa said.
The Manhattan Bagel Co. was one of — if not the first — public bagel companies in the country. It also was the first bagel company to file for Chapter 11 bankruptcy.
"For me, it was a lesson beyond anything you could ever buy or go to school for," he said. "I'm fortunate enough to bring all of that experience into this business."
When Gennusa was growing Manhattan Bagel Co., he made the mistake of expanding the brand beyond the company's control.
"In the past, I had opened as many as 10 stores per month, and that's pretty good growth for a small chain. I'm not looking to do that here," he said. "My goal here is at the end of five years to have the 10 or 20 locations that we open, in 10 or 20 years, still be open."
From the center
One common mistake nascent franchisors make is overextending their brand to markets they can't easily support.
"The ideal situation is keeping everything in your back yard," said Tony Walker, chief operating officer of Denver-based Spicy Pickle.
Spicy Pickle was founded in 1999 and has built a solid presence in the Denver and surrounding region. The company recently signed a franchise agreement for three locations in Los Angeles, bringing the number of units in development to 113.
Walker and others maintain the best way to grow a brand is to do so concentrically — from the center — focusing on markets closer to home for optimum growth potential.
Bojangles' also has found success with that approach, targeting the Southeast anchored by its Charlotte, N.C., headquarters. With strong representation in both Carolinas, Virginia and Georgia, much of the growth in the region is occurring in newer territories such as Alabama, north Florida and Tennessee. Though the brand ventures outside of the region, it does so on a careful basis, Newman said.
"Our focus is the Southeast," he said. "That's the natural for us and we still have an awful lot of room to fill."
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Pitney Bowes MapInfo is a fully integrated data, software and research-services firm that provides predictive analytics. Restaurant practice leader Brian Hill said, in most instances, he agrees with the restaurant strategy of building locally.
"If they have the flexibility and ability to leverage support in various markets, it can be done," he said. "But startups don't have the same set of personnel and resources to manage a network from coast to coast."
Hill said chains should consider their locations based on demographic and psychographic indicators. "Define who your customer is and where do they exist," he said. "A QSR may encompass a trade area of five miles while a casual-dining chain may encompass 15 miles," he said.
Hill said restaurants are (or should be) driven by four key factors when looking to expand their brand:
1. Household populations
2. Worker populations (such as nearby office parks)
3. Shopping areas
4. Other sales drivers
"As well as other factors involved in the site," he said. "Are you a corner location or an end cap?"
A good pace of growth for a restaurant brand should be about 25 percent a year.
"Every concept has its own pace," said Phil Friedman, chairman, president and chief executive officer of McAlister's Deli. "Anyone growing 25 percent to 30 percent in a year, you're doing well. And as the numbers get bigger, you have to have a system and structure in place to support the numbers."
Power to the people
Restaurateurs struggle with finding the right kind of franchisee regardless of how long they've been in the business.
"As companies grow and have aggressive growth, there are a lot of mistakes in the fundamentals that get covered up because revenue is pouring in. As things slow down and business slows down, that's when a lot of sins come to the top," Froschheiser said.
"One of the first mistakes they make at the corporate level is not measuring the right thing at the store level. The second mistake is they assume their policies and procedures, and the rules they develop, are getting pushed down through the stores. But when you hire a lot of people, hiring practices start breaking and they stop hiring the right people."
In today's competitive restaurant environment, the majority of restaurant-brand executives can't philosophically or financially afford to bring mismatched franchisees to the table.
"When you start bringing in new people who didn't grow up with you, you have to invest more time in training," Friedman said. "As the numbers get bigger, you have to have a system and structure in place to support the numbers. Just like everything else, there's not a good and bad, there's just the right fit."
Finding the right fit may sound easier than what it seems. A host of franchisee-selection tools offer restaurant executives an inside glimpse into the personality and financial characteristics of a potential operator. But while those tools are helpful, they're not always a "sure thing."
To help move their brands in the right direction, executives are increasingly focused on finding franchisees with solid restaurant-industry experience, and training managers to excel at the store-level. Franchisees and managers with foodservice experience understand the operational and customer-service intricacies the industry represents. After all, it's the overall customer experience that keeps customers walking through the door.
Froschheiser says companies that create accountability separate who wants to do a good job and who doesn't.
"Results are the bad guy, not the person, which is why measures are so important," he said. "Accountability allows me to really create passion, to find out if I have right players on the team and to reinforce whatever I measure is going to get done. You can grow, have good controlled growth and still be very profitable and healthy as a company."
* Additional reporting by Michelle Avery.
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