Ever since Jeff Osterfeld opened the first Penn Station restaurant in Cincinnati, Ohio over 30 years ago, the franchise brand has continued to refine its operational model and carefully extend its footprint. There are now more than 300 Penn Station restaurants across 15 states, and franchisees are reaping the benefits of increasing brand recognition and the franchise’s continued focus on supporting unit-level economics.
Greg Goddard, Director of Development and Franchising at Penn Station, broke down how things keep getting better for the brand, and why Penn Station has an edge on every other food-service franchise in 2018.
Here are 5 reasons why Penn Station is a top-pick franchise in 2018:
1. Operational simplicity
Like most restaurants, the majority of Penn Station’s operational costs are in food, paper and personnel. Unlike most restaurants, Penn Station has been able to substantially reduce those costs by streamlining their operations to require minimal inventory and personnel.
One of the way’s Penn Station has reduced their operational costs is by crafting a slim menu of items with wide appeal for both lunch and dinner, allowing them to attract large crowds throughout the day without having to maintain a large or complicated kitchen.
“We’ve always had the same menu of options that are appealing to customers and easy to prepare for owners: fresh-cut fries, fresh-grilled sandwiches, fresh-baked cookies, and fresh-squeezed lemonade,” Goddard said. “The grilled sandwiches are an especially appealing point of differentiation because they make Penn Station an exciting option for both lunch and dinner. Most of the restaurants in our segment see a roughly 75/25 lunch/dinner split. We have a system-wide 50/50 split.”
“And because we’ve crafted such a simple menu, our owners manage a much smaller inventory and work with a reduced staff compared to other food-service concepts, allowing them to focus on growing the business and interacting with customers instead of managing an enormous kitchen. A lot of restaurants will have 10, 20 or 30 people on the clock at one time. Penn Station restaurants typically require a staff of six at any given time.”
2. A deliberate growth strategy
Where some franchise brands take a shotgun approach to growth, installing new units wherever the real estate is available, Penn Station takes a more measured approach. Goddard said the brand’s growth strategy has been carefully designed to promote franchisee success.
“We’ve always grown with three things in mind,” Goddard said. “Brand awareness, logistics and operational support. Every new territory we enter must first be primed to meet those three demands. Because of that, we tend to grow out in concentric circles from our existing markets. That allows every one of our franchisees to benefit from strong brand awareness, an existing pipeline for inventory and resources and a readily available support staff to help with any and everything. We don’t bounce around the country chasing any opening we can find. We are focused on growing in a way that will find the most success for our owners.”
Because Penn Station is focused more on the quality of their stores than quantity, they are adamant about attracting the best franchisees. To that end, the brand instituted an enhanced variable royalty program, which puts royalties owed to the franchisor on a sliding scale from zero to eight percent in a franchisee’s first five years.
“The enhanced variable royalty program is a huge incentive for entrepreneurs who are interested in joining the Penn Station system, as it could allow the operators to have better cash flow which would lead to more marketing dollars and/or expedited growth.” Goddard said. "It’s a great reason for anyone who may have been on the fence about joining Penn Station to get in touch with our development team in 2018.”
3. Franchisee longevity
The health of a franchise brand may be best measured by the satisfaction of its franchisees, and franchisee satisfaction, in turn, is best measured by how long franchisees stay with the brand. Where some brands regularly see franchisees leaving their system to leverage their experience in the industry with other brands, Penn Station franchisees rarely sell their restaurants before retiring, suggesting that Penn Station is offering their franchisees a level of satisfaction that other brands can’t.
“System-wide, we see very few transfers,” Goddard said. Many of our franchisees have been around for 20 or 30 years—since we first opened. We see that as a testament to our communications and the strong relationship between our corporate team and franchisees. Owners don’t stick around if they are unhappy with the direction of the franchise or if they can’t work with the corporate team, so the fact that so many of our franchisees stay with us for their entire career is as good an indication as any that we are on the right track.”
4. Strong corporate infrastructure
Penn Station’s corporate team functions as a support system for franchisees, working behind the scenes to make sure Penn Station restaurant owners have everything they need and that the system is working for them.
“The majority of our corporate payroll is dedicated to field operations,” Goddard said. “We have more staff from our corporate team out at restaurants working with franchisees than we have anywhere in our headquarters. Our field reps visit each restaurant to provide support and help fine-tune operations about six or eight times per year, far more than most other franchise brands. Additionally, with only one corporate owned store, our operations team is solely focused on assisting franchisee operations and performance.”
“We also have a system of collecting feedback from our owners so that we always know what’s working and what isn’t and we can respond accordingly, quickly. Philosophically we are an operations-driven company, so more of our money goes to building and refining operations, making things easier and more profitable for our owners, than anywhere else. Simple, effective operations—that’s the lifeblood of our brand.”
5. A scalable model
Penn Station has built a model designed to scale, so owners can quickly develop into multi-unit operators. The average Penn Station owner operates four Penn Station restaurants. Counting only multi-unit operators, that number jumps to five, with our largest multi-unit operator running 18 stores and growing. That means that most Penn Station owners have a portfolio of restaurants contributing to their capital.
“The majority of our franchise system is run by multi-unit operators,” Goddard said. “That speaks to the economy of scale we’ve refined with our system. Our model is designed to support franchisees growth so that they can quickly grow their operation from a job into a business. When a franchise system has a lot of single-unit operators, that doesn’t say a lot for the long-term success of their owners. Over 70 percent of Penn Station franchisees are multi-unit operators.