The Number-One Reason to Buy a Penn Station: Operational Simplicity

Earlier this year, we looked at the five best reasons to buy a Penn Station. Now, we’re digging a little deeper into each of those points, starting with the number-one reason: operational simplicity.

Like most franchise brands, Penn Station’s operational model was designed in part to promote consistency between restaurants run by different owners. This requires a level of operational simplicity that allows owners with different backgrounds and skillsets to produce the same product and experience for customers on a more consistent basis. Penn Station has taken that principle of design to the next level, refining its operational model over more than three decades to create a restaurant that is not only easier to run, but also maximally cost-effective for owners, allowing them to expand their operations more quickly.

Penn Station’s operational model is explicitly focused on keeping overhead as low as possible. That allows the franchise to minimize startup costs and promote multi-unit growth for franchisees.

“When you take into account land and build-out costs 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 return.”

Many of Penn Station’s 300 plus locations are owned by large multi-unit franchisees, some of whom run entire markets. Some of those larger owners are multi-brand franchisees who have added Penn Station to their portfolio specifically because its operational model creates a reliable revenue stream.

“Of all of my restaurants, Penn Station is the most profitable,” said T.W. Wright, a multi-brand franchisee with four Penn Stations in Kentucky and West Virginia. "It’s designed that way. The footprint is smaller than my other restaurants, the operations are simpler and the franchisor doesn’t nickel and dime you; they are very conservative and work hard to keep ROI up and monthly costs down.”

Craig Dunaway, Penn Station’s owner and president, said that the entire franchise model is oriented around unit-level economics.

“We are hypersensitive to a franchisee’s profitability,” Dunaway said. “We know what every line item on the P&L (a store’s profit-and-loss document) should look like, and we can help stores identify waste. It’s a great system, and if a franchisee follows it, they’ve got a strong shot at success.”

One of the ways Penn Station has kept operational costs low is by designing a slim menu that shares ingredients between items.

“Our menu is streamlined to reduce overhead,” said Dunaway. “We offer simple, appealing menu items, almost all of which share ingredients with other menu items. We use one type of bread, one cut of chicken, etcetera. There is very little food waste, and inventory is restocked quickly and inexpensively. We also negotiate all of our supplier contracts, allowing store owners to focus on staff and customers instead of shopping around for better suppliers.”

But that cost-conscious menu design does not sacrifice consumer appeal. Penn Station’s key point of differentiation is its hot, grilled subs, which make the restaurant a more attractive dinner option than most sandwich restaurants.

“The grilled sandwiches are an especially appealing point of differentiation because they make Penn Station an exciting option for both lunch and dinner,” said Goddard. “Most of the restaurants in our segment see a roughly 75/25 lunch/dinner split. We typically average a system-wide 50/50 split.”

Penn Station’s streamlined menu offerings also require smaller staffs to operate, relieving much of the managerial burden that comes with operating other restaurants.

“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,” Goddard said. “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.”

Goddard says those operational benefits represent the core of the franchise’s growth strategy and the reason why investors continue to flock to the brand after 30 years of franchising.

“Every aspect of our operation has been designed to make our stores inexpensive and profitable to run,” he said. “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.”