Franchises with $1 million average unit volume might not cut it anymore.
“I think that if you look at what a good restaurant or a good franchise was five years ago, at $1 million, you’re making some pretty good money,” said Raj Patel, president of Hari Group, a franchisee of Dunkin’, Dave’s Hot Chicken, McAlister’s Deli and Currito. Now, with the costs of goods and labor increasing rapidly, $1.5 million to $2 million is a healthier range, Patel said.
Patel was one of three panelists who during a session at the Restaurant Finance & Development Conference November 15 in Las Vegas discussed what to look for when expanding a multi-concept franchise portfolio. The panel also featured Eddie Nieves of Warner Foods, a franchisee of Jack in the Box, Panera, Black Bear Diner, Noodles & Co. and Popeyes; and Shamsu Charania of The Falcons Group, a franchisee of Checkers & Rally’s, Dunkin’, Baskin Robbins, TGI Fridays and Twin Peaks.
Nieves agreed. Whatever level of average sales was needed to make money a few years ago, add at least $500,000 to it. “It just doesn’t work anymore at the same level,” Nieves said.
The Falcons Group prefers a slower, more conservative approach to development because of the lower risk factor. Charania, the group’s CEO, looks for established versus emerging brands.
“We prefer mainstream brands with mass appeal, rather than niche brands,” he said.
When he was looking for another concept, Charania didn’t expect to favor Twin Peaks, let alone invest in it. He equated the franchise to the likes of Hooters, where an emphasis is on servers in revealing attire, and wasn’t interested until he learned more about the quality of the menu offerings.
Warner Foods—of which Nieves is a partner—prefers acquisitions over new developments, at least at first. That’s mostly because acquiring an existing store shrinks the learning curve when starting with a new brand, Nieves said.
“I think every deal we have done has come along with an acquisition,” said Nieves, such as with the acquisition of 15 Noodles restaurants in California as part of a large multi-unit development deal.
Looking at a franchisor’s leadership team is essential in determining a brand’s potential success. Specifically, Nieves looks at the team’s communication, talent and vision.
The Hari Group signed a deal to open Dave’s Hot Chicken when the brand was much smaller. Patel ordered food from Dave’s via delivery while staying about 40 minutes away, and the chicken stayed crispy. For him, that sealed the deal that this brand was going to be a success.
“Sometimes it’s better to be lucky than good, and there was a lot of luck involved there,” Patel said.
A brand’s ability to appeal to Gen Z
Gen Z is a huge part of the newest consumer base for restaurants, and the panelists discussed the importance of appealing to the younger generation without alienating its older clientele.
“Gen Z is probably the hardest segment for brands to attract right now,” Patel said. “They’re really paying attentional to the digital aspect.”
A panel of hospitality students at RFDC emphasized the importance of using social media, especially Tik Tok, for brand promotion.
Two of the Hari Group’s brands do a great job at this, Patel said: Dunkin’ and Dave’s. Looking at Dunkin’s customers, they run a lot younger than they did a few years ago, in Patel’s observations. Dave’s was practically built on Instagram, he said.
Aside from social media alone, brands need products that appeal to the younger generation, Charania added, which he said Dunkin’ does a great job with.
“If you don’t have both, it’s not going to work,” he said.
Nieves has seen a lot of brands shift from traditional media, like TV commercials, to social media for advertising and promotion.
“The trend is there,” Nieves said. “I’m not 100 percent sure where it’s going to land, but definitely social media is a big piece.”