1851 caught up with the franchise development professionals representing various brands to learn more about the state of the industry and their predictions for the year ahead.
Who is buying franchises right now and what type of activity are you seeing?
Chris Cheek, Chief Development Officer of Newk’s Eatery: I’ve been with Newk’s Eatery for about five years and in franchising for 16 years, and we’re in a time now where the franchise candidate is the most educated they’ve ever been about the brand they're seeking before ever reaching out. They do tons of research. Back in the “good old days,” as the franchisor, you’d hold a lot of information back from a candidate until you got the same amount of information from them. Now, they’re extremely educated prior to any contact with us.
For us, we’re targeting folks with existing restaurant experience. Quite often, our franchise candidates are existing multi-unit operators of other non-competing brands and are seeking control of the market. They’re looking to commit to a development agreement to build out the market.
What's the number one thing franchisees are looking for in the conversations that you're having with prospects?
Unit economics. They’re very sophisticated and educated from the beginning of the process, and are looking for opportunities to add to their portfolio of existing restaurants with proven brands with good unit economics. All throughout the history of our company, the Newk’s brand has had attractive unit economics compared to similar restaurants in the category. We’ve also been doing a lot of work over the last 18 months to make those even better.
We’ve reduced the prototypical square footage of our locations by 1,000 square feet, so rent is now lower. We’ve also reduced construction costs by almost 15% in a time where a lot of brands are seeing these costs rise. We didn't get complacent and put in a lot of activity and efforts to improve these aspects of our business. We’ve implemented a new labor model, too, because unit economics is a huge driver in franchise development.
Do you have an ideal franchisee in your system, and what are their qualities?
There are three distinct qualities I always refer to, the first being restaurant experience. We’re a culinary-driven fast-casual, so we need franchisees with culinary-driven hospitality. Newk’s Eatery isn’t a discount brand, so our franchisees need to have a passion for the kind of food quality we hold dear.
Third, a track record and skill set of bringing a growing brand to a new market. What I mean by that is that we’re at 125 units and growing rapidly, but we’re not at a size where anyone benefits from primetime TV commercials. The best franchisees in our system put the business on their back and drive local store awareness. We provide strong support, but they have to want to build the business.
What's the biggest challenge facing franchise development right now and how are you overcoming it?
For us, and really for any brand, restaurant franchise or elsewhere in the retail category, the biggest challenge is dealing with rent and land costs and rising labor costs. In the retail space, you’ll always need to build something and employ people. To combat this, we’ve reduced the square footage of our prototypical locations and testing a new labor model.
The third challenge, from more of a franchise recruiting perspective, is that there are so many options in franchising. We’re competing for franchisees’ investments across segments and brands, and there are so many choices for prospects right now.
What's one thing prospective franchisees should know about your brand, and franchising in general, before buying?
We want folks to come into our brand with eyes wide open. During the recruiting process all the way through discovery day, we're sharing with brutal honestly what it takes to succeed in our business. Despite recruiting people with a restaurant background, we have processes that are unique to our business, so we make it a point to share with everyone what it takes to make it in our system.
Were now 15 years old, which is young in restaurant years, but we’re proven. With over 125 units, we’re proven, but we still have a lot of available geographic territory. Oftentimes, proven brands lack available territory.
Of the 125 or so units we have, we own and operate 20 ourselves. That’s really important for candidates to understand because we walk the walk and talk the talk. We’re the largest operator of our own brand, which adds to our credibility with our franchisees.
Why should franchisees invest in your industry and in your brand specifically, and why should they invest now?
The restaurant industry and the fast-casual category has traditionally been one of the fastest-growing segments of the franchise industry. The restaurant industry should be attractive to everyone because everyone has a stomach they use 3-4 times per day. While the industry is competitive and involves some risk, if operated well and with the support of the right brand, your investment will serve a function in everyone's everyday life.
In our current position, Newk’s is big enough to be proven, yet still has availability in a lot of markets. There's a lot of room to grow. If you do the math, we have just over 100 franchise restaurants that are operated by approximately 38 franchise groups. Our franchisees function like a family in terms of collaboration. Since it is such a tight-knit group, there's a lot of collaboration that can happen even outside of our purview.