Penn Station’s Modest Startup Costs Allow for Rapid Expansion

Penn Station offers multi-unit operators a number of advantages over other concepts. An operationally simplistic model allows owners to run their restaurants by focusing on guests and employees; an established corporate infrastructure provides support systems to address many problems that may arise; and strong branding has developed consumer awareness throughout markets across the U.S. But the most crucial value proposition Penn Station offers franchisees may be the same value it offers customers: more bang for the buck.

With an overall initial investment ranging from $290,984 to $594,478, the start-up costs to open a Penn Station fall far below the million-dollar range typically required to open many of the largest foodservice franchises. That means that sophisticated franchise entrepreneurs can find a much higher return on their investment with Penn Station than they might with other brands.

“When you take into account land and build-out for most of the major foodservice brands, you are looking at a million-dollar investment or more,” said Greg Goddard, Penn Station’s Director of Development and Franchising. “That same investment at Penn Station can get you multiple units, which may bring you a much higher cash-on-cash return.”

Goddard says it’s not unusual for investors with high capital to sign multi-unit contracts with Penn Station and begin building right away.

“If you can afford to invest in one of the big national brands in fast-casual franchising, you can make that same investment in Penn Station and start to grow right away, taking over or having a significant stake in a whole market. We have a number of franchisees who have an entire market to themselves, operating 15 or 18 locations and earning much more than if they had just one or two locations with the biggest brands.”

Roger Kirkland, a 14-year Penn Station franchisee in West Virginia, owned a McDonald’s before realizing the money he had invested with the burger brand could go much further at Penn Station. Kirkland sold his McDonald’s restaurant, and today he owns 10 Penn Station locations, all operating under the umbrella of his own holding company, The Best Subs LLC.

“Roger realized that if his McDonald’s started to do poorly, either because it was in a bad location or he had staffing trouble, or for any other reason, then he’d be in trouble,” Goddard said. “With Penn Station he was able to spread out his investment and associated risk by opening a number of restaurants. That way, if one had a difficult month, he wouldn’t be in bad shape. Additionally, he realized he would essentially have the same amount of staff and managers but spread out in many different locations in the same geographical region.”

Nick Powills, the Chief Brand Strategist for franchise PR company No Limit Agency*, says expansion should be the top priority for any franchise investor.

“For any brand, when you take out all of the costs of operating a business, it can be difficult to achieve significant wealth with a single unit,” Powills said. “When you start adding units, you are parlaying the initial investment to increase your total volume. Your marketing dollars benefit every unit, your customer acquisition costs benefit every unit, basically all of your spending is now benefiting all of your units, but you are getting separate volume from each, so with each new unit, your volume further exceeds your investment.”

It’s not just a happy mistake that Penn Station allows the largest investors to grow faster than they can with other brands. Goddard says the buildout of Penn Station restaurants was designed specifically to increase ROI.

“We made very deliberate decisions in our construction design to reduce costs and make our restaurants easier to build in every market,” he said. “Initial investment has a direct impact on return, so the goal in our construction department is to make every aspect as cost-efficient as possible. At our core, we are an operations-driven company. We’re focused on good food, customer service and a clean environment. So, the big, ornate buildouts that cost a ton of money don’t fit our culture and philosophy anyway. If they did, our startup costs might be an extra $100,000 per unit, which would take owners much longer to recoup their investment.”

Penn Station’s lower startup costs are just one of the ways that the franchise has been refined with an eye toward ROI for franchisees. Goddard says that dedication to reducing costs is built into the brand’s DNA.  “We are very conscious of the P&L for every franchisee,” Goddard said. “Every aspect of our operation has been designed to make our stores inexpensive and profitable to run. That’s not just a gift to our owners, it’s a key element of our growth strategy. We want our owners to have as much capital as possible so they can parlay that into their next restaurant, growing their operation and ours.”