The restaurant industry is nothing if not cyclical. Take the casual-dining chain, which dominated the American dining landscape for over half a century. Amid the sustained economic growth of the 1980s and ’90s, the category exploded, as TGI Fridays, Chili’s, Applebee’s, and Olive Garden blanketed suburban areas with their easily replicable, corporate-lite take on good food and wholesome good times.
As these brands institutionalized and began franchising to support their rapid growth, their square footage grew and individual stores’ quirkiness waned. By the early 2000s, customers started turning their attention to the up-and-coming fast-casual category, which emphasized product quality and freshness and speedy service in sleek environs. As fast casual has swelled in units and customer visits over the past decade, the picture has darkened for casual chains; faltering same-store sales forced a slew of unit closures and bankruptcy filings.
“Nothing lasts forever; customers evolve and tastes evolve,” says Dan Rowe, CEO of franchise developer Fransmart, based in Arlington, Virginia. “The original Chili’s was funky and tiny—just 2,400 square feet—and did $5 million a year. But when you corporatize so many things, you lose that secret sauce that made you special to begin with—you hire middle management, institutionalize everything, and you get bigger and less successful.”
So how does the next generation of casual-dining franchises avoid going the way of so many legacy casual-dining chains? Stay small, true to the surroundings, and perfectly imperfect; and corporatize without becoming corporate.
It’s taken a while for fast-casual brands priding themselves on product quality and coolness to embrace franchising as an avenue for growth. So it’s no surprise that up-and-comers in the chain casual-dining set have shied away from a model historically affiliated with diluted product and outdated, cookie-cutter decor. Not to mention that casual dining is a singularly challenging segment of dining.
“High-volume casual dining is one of the more difficult concepts to run in our industry,” says Fred Herrmann, senior vice president of operations for Washington D.C.-based Matchbox. “The traffic is fast and furious, the menu is much larger than quick service. Then there’s the labor component that has to be managed, which gets pricier and pricier.”
Matchbox bills itself as a come-as-you-are neighborhood spot with premium wood-fired pizzas, chef-driven entrées, specialty cocktails, and local craft beers. After opening in 2003, it quickly swelled to 10 restaurants in the Washington, D.C., metropolitan area. By 2015, the brand was on a path toward massive national expansion but got into financial trouble after several new storefronts went over budget and opened late.
Following a management shake-up and a lawsuit, the struggling chain received an $11 million investment from Thompson Hospitality in 2018. It has since slowed down its growth trajectory to a few new locations per year, focusing instead on existing footprints in the greater D.C./Northern Virginia area, Texas, and Florida. It has also capped unit sizes at 5,000 to 6,000 square feet. In that vein, franchising is the smartest way to expand outside the brand’s home territory, Herrmann says.
“Training along our standards is expensive and flying our directors out once a month is expensive—both of which I think should be standard,” he says. “Franchising is a textbook way to grow the brand without a lot of overhead and incurring a lot of expenses.”
Thompson tapped into existing developer relationships in Texas and Florida to promote expansion in those areas, with Dallas and Sunrise, Florida, acting as hubs. Having all but saturated D.C., Matchbox is attracted to areas like Houston and Fort Lauderdale for their density, income levels, and vibe. The latter’s bustling main drag, Las Olas Boulevard, is a cool strip with “small, funky little restaurant groups,” like beloved regional Italian brand Louie Bossi’s, Herrmann says. “That’s what makes it attractive. We don’t want to go so chainy.”
Franchisees are empowered to tap into their local expertise; corporate grants them wiggle room for certain elements, such as varying menus regionally and building out beer lists to reflect local tastes.
“Corporate beer lists tend to be not very exciting but are obviously attractive because putting a tap handle in every restaurant assures great pricing,” Herrmann says. “We’ve found that local breweries are willing to do the same thing on a smaller scale. Our partner here in D.C., Lost Rhino Brewing, brews our proprietary Matchbox IPA, and it’s a fantastic symbiotic relationship. It’s about applying that thinking on a smaller scale with much better product. That’s a sliver of what we’re trying to do.”
Maintaining the vibe
Fransmart’s Rowe also has an affinity for quirky, neighborhood pizza joints, seeking them out in nearly every city he visits. That’s partly why he’s spent roughly the past decade pestering celebrity chef/restaurateur Todd English to franchise Boston-based Figs, known for its chill atmosphere, seasonal pasta dishes, and free-form, crisp-edged pizzas with elevated toppings like crispy calamari and lemon aioli. English finally relented, partnering with Fransmart in 2019 to take the Boston-based brand international.
“I think this will be the biggest thing I’ve ever worked on,” says Rowe, who built Fransmart through such successful partnerships as Five Guys and the Halal Guys. “There’s this gaping hole in casual dining in general for specialty pizza. There’s plenty of great regional places, but no one has built a national brand doing it.” (Casual chain California Pizza Kitchen has a national footprint, but all stores are company-owned.)
Unlike burger- or seafood-focused chains with wide-ranging menus centered on expensive proteins, pizza-and-pasta concepts are literally built on flour and water, with lower food and operating costs since kitchens are engineered to do high volumes with fewer people.
Much as competitive sports teams build on a strong bench, Fransmart maintains a database of more than 100,000 prospective franchisees, plus national landlords and airport concession groups. “It’s almost like cheating,” Rowe says. “We chase home-run locations first—good sites and deals—because we want happy, successful, referenceable franchisees.”
Before Rowe inks a new agreement, he taps those networks to gauge interest and opportunity. In the case of Figs, franchisees like the brand positioning and unit economic model. The concept’s association with a well-known name like English also adds a certain appeal.
Landlords are often thrilled by the potential ROI a restaurant like Figs could bring to regional malls and lifestyle centers. When consumers fled these commercial centers for more sophisticated competitors, retailers and restaurants followed suit, leaving vacancies and all-too-eager proprietors.
Even as Fransmart and Figs ink multi-store deals in airports up and down the East Coast and across the Middle East, they’re capping expansion at around 200 locations tucked in the neighborhoods of major markets, with footprints no larger than 3,000 square feet and 80 seats.
“We want to keep it nichey, crafty, and feeling local,” Rowe says. “We don’t want to wedge into something contrived. The best way to be relevant and stay hot for the next 20 years is to pick good real estate and execute at a high level.”
Jonathan Weathington, CEO of North Carolina–based franchise Shuckin’ Shack, doesn’t even have a target number of locations in mind.
“My goal is opening healthy restaurants, period,” he says. “Whatever decision we’re making, I’m not thinking about that moment. I’m thinking about one, three, five, 10 years down the line.”
Market differentiation was central to Shuckin’ Shack’s decision to franchise starting in 2014. Beginning as a 900-square-foot oyster shack in Carolina Beach, the brand’s regionally specific focus and manageable footprint made franchising a natural fit; it has since added more than a dozen locations across five states. The owners initially targeted nearby areas for regional recognition, supply chain access, and less than half a day’s drive should executives need to put out any fires.
Get to know your neighbors
Because the brand has grown on hustle and guest obsession rather than traditional marketing channels, community involvement is one of the main tenets Shuckin’ Shack looks for in franchisees.
“It’s hard to turn down experienced operators, but I’d say personality and cultural fit are far more important than operational background,” Weathington says. “We can teach people how to do what we’re doing within our four walls. What has proven to be a lot more difficult is what needs to happen outside. Personality, desire to participate in the community—those are qualities that either you have or you don’t.”
Whether sponsoring local youth baseball teams or soccer leagues, participating in a neighborhood cleanup, or attending community gatherings, such efforts might get put on the back burner amid the chaos of operating a restaurant. Nevertheless, they are essential to building a rapport with the neighborhood and, by extension, repeat guests.
“Maybe if business is a little slow, the first thing you think about is, ‘What am I not doing operationally?’ But your first thought should be, ‘How do I reach my community?’” Weathington adds.
Community engagement was the driving force behind 20-year-old Eggs Up Grill’s total franchise revamp, which started last March when private-equity firm WJ Partners acquired it. As part of the purchase, Ricky Richardson, a longtime TGI Fridays executive, was named CEO of the Spartanburg, South Carolina–based brand, which has 35 locations across the Southeast.
As he unpacked the brand and its success drivers—for instance, in two decades of business, Eggs Up Grill had never closed a location—Richardson learned the brand’s potential existed within franchisees themselves. After all, they are the face of Eggs Up.
“We started focusing on what made us successful, which were those franchise owner-operators who are very hands-on and connected to the communities they do business in and are leveraging personal connections with the brand and brand representatives,” Richardson says.
Eggs Up Grill aims to open 15 to 20 restaurants next year across the Carolinas, Florida, and Georgia.
Interestingly, some 70 percent of franchisees didn’t have prior industry experience beyond working in restaurants during high school, though part of the brand’s inherent appeal is the operational simplicity. As a breakfast concept, operators only oversee a single daypart, which makes it easier for franchisees and employees—particularly those with children—to establish a work-life balance. Team sizes run small, capping at 20 or 25 employees, which Richardson says fosters more open, positive communication among staff and ownership.
“There’s so much about this concept and its positioning that makes the people element so much easier,” he says.
At the end of the day, customers will determine the life cycle of this generation of full-service franchises, as Weathington points out.
“We’re thankful for the brands that paved the way—the TGI Fridays and Chili’s that became synonymous with going out on a Friday night in the ’80s,” he says. “At the end of the day, people are habitual. We’re not necessarily asking them to not visit somewhere else; we’re asking them to add us to their habit. … We won’t survive on single visits; we survive on customer loyalty.”