Hot grilled subs and fresh cut fries have been the keys to success for Penn Station. Keeping the menu and operations simple provide a high demand, great product for the customers and great bottom line for franchisees. However, this highly refined business model wasn’t developed by accident.
In the history of retail, there are few environments as lucrative as the 1980’s mall food court. And yet, that’s exactly where Jeff Osterfeld found himself experiencing a sting of dissatisfaction with his sandwich shop, Jeffrey’s Delicatessen. Osterfeld was proud of his fledgling business, but he couldn’t help but covet the snaking line outside the food court’s new cheesesteak shop. Worse, their food was good. Very good.
Osterfeld took the hint. He decided to head to Philadelphia to perfect his sandwich variant. After some successful retooling, Penn Station was born.
The revamped shop was a success, and Osterfeld quickly opened two more. He saw a hitch, however, after the new stores were up and running. Business at the new stores lagged, and Osterfeld realized that the lack of owner attention was limiting their growth.
So Osterfeld turned to franchising.
“Jeff never wanted to grow this thing sky high just for growth’s sake,” says franchise President Craig Dunaway. “His main goal has always been that each franchisee location is successful, and that’s what’s made us successful as a company.”
A former franchisee himself, Dunaway knows exactly how supportive Penn Station is to its stores. Osterfeld took notice of Dunaway when he joined the Franchisee Advisory Council in the late ‘90s. Dunaway had been a partner in an accounting firm, and Osterfeld appreciated his persistent focus on numbers. Where other franchisees tended to look at the business in terms of operations, Dunaway always brought it back to the finances. That perspective was in line with Osterfeld’s goal of having every store be a financial success. Osterfeld wanted to work more closely with Dunaway, and in 1999, he asked Dunaway to become President.
From top to bottom, the brand is built around smart, smooth operations. That includes the food. Oriented around hot made to order subs and a hot side of fresh hand cut fries, the menu is engineered to offer a unique product while maximizing efficiency in the kitchen and in the supply chain. Because the menu offers hot meal options, the brand’s peak service hours are extended into evenings and weekends, far exceeding those of cold sandwich shops, which serve primarily just a lunch crowd. In many Penn Station locations, the dinner and weekend crowd exceeds the daily lunch crowd.
And the food satisfies. The meals are hearty, featuring hearth-baked bread, fresh-squeezed lemonade, fresh-cut french fries made from hand-selected potatoes, and chocolate chunk cookies.
The brand’s focus on franchisee success has never wavered. “We owe our existence to individual store profitability and unit-level economics,” says Director of Development and Franchising Greg Goddard. “We have always been an operationally and profitability focused company. Unlike some other franchisors, who focus on top-line sales to maximize royalties, we know we succeed when our franchisees’ bottom-line is strong. We are especially good at giving franchisees the tools necessary to control food costs, paper costs and payroll.”
Key to the franchise’s store-level success across markets is the simplified menu. Penn Station is known for its array of 14 fresh-grilled and cold-deli sandwiches, fresh-cut fries, fresh-squeezed lemonade, and fresh-baked chocolate chunk cookies. But also offers Pepsi Products, Fresh-brewed Ice Tea, and chips to compliment their sandwiches. That simplicity keeps the customer line moving, the employees trained quickly, and the inventory fresh.
“Our primary focus has traditionally been operations,” says Goddard. “Unlike other brands who visit stores once a year, our area representatives are on site supporting local stores multiple times a year. System-wide, we see a 50-50 lunch-to-dinner split – a huge benefit to any restaurant operator. So unlike our competitors, being a day-only model doesn’t pose as much of an issue over time.” And still, the brand remains difficult to imitate. More than 90% of Penn Stations’ sandwiches are served grilled and with hot, fresh-cut fries, and most sandwich chains don’t have an answer for that.
“Multi-unit operators for other food concepts see a lot of upside with us because of how we run our P&L, says Goddard. “We keep our food costs tight through superior policies and procedures, and the fact we do not take rebates like most other concepts. Our footprint is small; it runs about 1,500 to 1,700 square feet, so we are pretty agile.”
Beyond the base-level operational support, Penn Station provides ongoing assistance to its franchisees. The company’s manager training program was ranked in the top 125 by Training Magazine, and unlike other franchises in the industry, Penn Station’s area representatives serve an average of only 21 stores.
As with every franchise opportunity, success is determined by a combination of industry demand, franchise system and model, and the efforts of each individual owner. Penn Station is selective in its franchisee awarding process so that they can ensure they are partnering with individuals who share their values, mission and dedication to success. With those criteria, they’ve managed an enviable stretch of growth and store-level success.
“Key to our success is requiring managing owners,” says Dunaway. “Multi-unit operators are required to have 10% partners if they are going to manage the day-to-day business for multiple deals. The managing owners can manage non-managing owners. The brand is dedicated to having an owner as close to the counter as possible.”
Start-up costs to open a Penn Station vary from market to market based primarily on the cost of real estate. The overall investment ranges from $293,102 to $593,027 per restaurant. This does not include lease expenses (see Note 2 in 2017 FDD Item 7), the optional Site Reservation Fee or the Territory Fee (see 2017 FDD, Item 5 regarding the terms and applicability of the Site Reservation Fee and the Territory Fee). More information can be found in the Item 7 of their Franchise Disclosure Document.