Franchises with an average unit volume of $1 million might not cut it anymore.
“I think if you look at what a good restaurant or a good franchise was like five years ago, at $1 million, you’re making quite a bit of money,” said Raj Patel, chairman of Hari Group, a franchisee of Dunkin’, Dave’s Hot Chicken, McAlister’s Deli and Currito. Now, with rapidly rising costs of goods and labor, $1.5 million to $2 million is a healthier range, Patel said.
Patel was one of three panelists who, during a session at Restaurant Financing and Development Conference On November 15 in Las Vegas, we discussed what to look for when expanding a multi-concept franchise portfolio. The panel also included 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 accepted. Whatever the average level of sales needed to make money a few years ago, add at least $500,000. “It doesn’t work on the same level anymore,” Nieves said.
The Falcons group prefers a slower and more conservative development approach due to the lower risk factor. Charania, CEO of the group, looks for established brands rather than emerging ones.
“We prefer mainstream brands with mass appeal, rather than niche brands,” he said.
When he was looking for another concept, Charania did not expect to favor twin peaks, not to mention investing in it. He likened the franchise to Hooters, where the focus is on waiters 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 to new developments, at least initially. That’s mainly because acquiring an existing store reduces the learning curve when starting a new brand, Nieves said.
“I think every deal we’ve made has come with an acquisition,” Nieves said, as with the acquisition of 15 Noodles restaurants in California under a major multi-unit development contract.
Examining a franchisor’s management team is key to determining the potential success of a brand. Specifically, Nieves examines the team’s communication, talent and vision.
The Hari Group has signed an agreement to open Dave’s Hot Chicken when the mark was much smaller. Patel ordered food from Dave by delivery while staying about 40 minutes away, and the chicken remained crispy. For him, it sealed the deal that this brand was going to be a hit.
“Sometimes it’s better to be lucky than good, and there was a lot of luck involved,” Patel said.
The ability of a brand to seduce Generation Z
Gen Z is a big part of the new consumer base for restaurants, and 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 really pay attention 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 brands are doing a great job in this area, Patel said: Dunkin’ and Dave’s. Looking at Dunkin’s customers, they are running much younger than a few years ago, according to Patel’s observations. Dave was practically built on Instagram, he said.
Besides just social media, brands need products that appeal to the younger generation, Charania added, which he says Dunkin’ is doing a great job with.
“If you don’t have both, it won’t work,” he said.
Nieves has seen many brands move from traditional media, like TV commercials, to social media for advertising and promotion.
“The trend is there,” Nieves said. “I’m not 100% sure where this is going to land, but social media is definitely a big part of it.”