David Farkas
It’s nice to be in demand as a franchisee. Franchisors throw themselves at you, lenders return your calls, and talented managers want to work for you.
Just ask David Schmille. "Everyone’s trying to get you to do something," chuckles the former Brinker International executive, who has a reputation as a first-rate restaurant operator. Still, like the corporate employee he was for 15 years, he deflects taking credit for his good fortune.
"It’s been a rough economy and lots of restaurants went south," he says, "but today brands are more bullish and everyone has a story to tell. That’s good for the industry."
And good for Schmille, once president of Cozymel Coastal Mexican Grill. The 53-year-old operator recently signed a three-unit deal to open Twin Peaks Restaurants in Boise (one) and Milwaukee (two). (The Boise unit opened in September.)
Sales at the 19-unit "breastaurant" chain average a towering $4.1 million, acknowledges Schmille, who declines detailing unit economics. Not surprisingly, a Twin Peaks can be highly profitable. "You ask yourself, ‘Can I make franchise royalty and marketing fee payments and still make money?’ The P&L looked very strong," he says.
Schmille isn’t a newcomer to the brand. He’s known co-founder Randy DeWitt for years. They met at Brinker, which backed DeWitt’s prior venture, Rockfish Grill. The two, who live in Dallas, became friends. Schmille, coincidentally, also operates a seafood franchise in Arkansas called Fish City Grill founded by DeWitt’s former partner, Bill Bayne.
Schmille, who once franchised Chili’s restaurants in Idaho, had a spot in mind when he called DeWitt to see if the company had plans for Boise. Go for it, DeWitt told him. They’re subleasing the 7,000-square foot location from a Sizzling Platter franchisee, Schmille says.
Today, tapping financing for projects isn’t much of a problem for Schmille and his two backers, a professional baseball player and a successful entrepreneur. "If you put together a good deal with a good brand, the money is out there," he says.
Financing isn’t an issue for Robert Chase, either, a longtime Money Mailer franchisee with 30 outposts in Phoenix and Denver. Wanting to give another franchise business a shot, he recently agreed to install 15 OrderUp.com outlets in Metro Phoenix.
"We are frugal and intend to self-fund," says Chase, a successful franchisee since his early 20s. "We have a schedule, and will reinvest the proceeds back into all 15 units within 18 months."
According to OrderUp’s Franchise Disclosure Document, it costs $42,550 to $59,250 to set up a territory, which consists of four or five ZIP codes comprising 100,000 people and 80 restaurants. The business itself (it’s an online ordering platform) can be operated from home, though franchisees must solicit clients, which usually means personal visits to restaurants.
Customers order food from their computers and mobile devices. Chase is encouraged by a National Restaurant Association survey in which 40 percent of adults said they would be likely to utilize a smartphone application if it was offered by a quick-service restaurant.
"The time is absolutely right for this type of concept to sweep through the country," Chase declares. "I have identified the takeout and delivery as the next fastest-growing segment of the industry." His time frame is the next five years, "when it becomes easy to order."
Today, it’s not, he claims, because restaurants—particularly neighborhood mom-and-pops—can’t afford the technology that allows them to efficiently offer takeout or delivery. The argument has merit, apparently; four-year-old OrderUp has franchisees in 16 states.
Yet it’s still not as large as online ordering rivals Chicago-based GrubHub and New York-based Seamless, which are older, bigger and better financed. In August, the two companies merged. So far, they have largely concentrated their efforts in larger cities.
OrderUp franchisees charge restaurant clients about 12 percent per order placed through their sites. The franchisor takes a cut of 5 percent (the royalty fee). The FDD’s Item 19 shows a company-owned OrderUp in Morgantown, West Virginia, averaged $2.46 per order over 84,286 orders from 2011 to 2012. The optimistic-sounding Chase estimates that once his 15-unit empire is in place he’ll service from 750 to 1,000 restaurants, or roughly 25 percent of the total number of restaurant in Phoenix.
Within two years, he thinks the restaurants that sign on to OrderUp will ring up about $30 million with Chase’s franchise keeping about 7 percent of the sum.
Chicken to Utah
A 30-unit Five Guys Burgers & Fries franchise in the West is turning its attention to the chicken category and scouting for sites in the heavily populated Salt Lake Valley and Greater Salt Lake City area. (See related story on page 29.) MJM 5G, which operates its burger joints in Nevada, agreed to open 18 Zaxby’s within the next five years. A press release called the deal "a major milestone" for the Athens, Georgia-based, fast-casual brand, which desires a national footprint.
Franchisees Ryan and Jeff Howes, who are brothers, and Mike Cummings believe Zaxby’s is a good fit in population-dense Salt Lake County. Slightly more than a third of the state’s 2.9 million people live there. The area’s median income is a hefty $60,000.
"Salt Lake is a strong economy. There’s lots of home building and commercial building, as well," Ryan says. Privately owned housing starts in Utah totaled 1,109 in July—a year-over-year increase of more than 37 percent, according to a September report by Zions Bank. Job growth rose 3.5 percent year-over-year.
"We’re having no problem finding solid A+ corners," Howes claims, adding the free-standing concept needs a strong mix of residential, commercial and daytime population to drive volumes. He expected two of the restaurants to open this year.
Finding employees to work there might be the issue. Utah’s unemployment rate dropped to 4.6 percent in July, down 0.1 percent from the month prior.
David Farkas has covered the restaurant industry for 25 years as a reporter and food writer. Submit your company’s development agreements to him at [email protected].
