Operating a restaurant is no easy job, as anyone in the industry will quickly attest to. But what can ease the process for some is being a franchisee and capitalizing on the support—from operating expenses to new site locations to marketing, HR, and technology—from a corporate office.
While broadly thought of as a fast-food path to growth, many full-service restaurant brands now franchise, and many continue to open a small number of corporate stores alongside the expansion to capitalize on returns and share efficiencies across a multi-unit organization.
But what makes a good franchise? One that assesses risks; holds your hand through preparation, opening and beyond; one that doesn’t require a major upfront payment; one that offers a fast return on investment. And perhaps, most importantly, whether or not it’s a brand resonating with consumers with a model designed for the future.
Here, with the help of franchise consultants and experts, FSR takes a look at 10 of the top franchise deals and why they’re worthy of consideration.
Total U.S. units: 19 units
U.S. Franchised Units: 9
Systemwide Sales: $48 million
Franchise Fee: $49,500 for first location; $37,000 for any additional locations
Total Start-Up Costs: $1.4 million – $2.5 million
Royalty: 5%
Brand Development: 1%
Renewal Fee: $49,500
Current Franchise Marketing Fee: 2% (for local marketing, rather than corporate)
Gary Huether spends a lot of time listening to his franchisees since he’s been one before.
Huether is the president and co-founder of Arooga’s Grille House & Sports Bar and the No. 1 reason his restaurants are successful, he says, is they appeal to a very diverse clientele, drawing families, kids’ sports teams and adults who enjoy the sports-restaurant atmosphere. “We’re not pigeonholed in a certain demographic,” he says.
Established in Harrisburg, Pennsylvania, in 2008, Arooga’s is a sports restaurant offering 44 beers on tap and a selection of gluten free, organic, antibiotic-free, and plant-based dishes.
The chain’s keeping up with technology as well as diet trends. It has proprietary kitchen and front-of-the-house software and partnered with leading vendors to enhance ordering, food delivery, and its loyalty program.
Arooga’s may appeal to everyone but it’s now more appealing to franchises, too, since there’s additional flexibility regarding the size of the restaurants. They are often shrinking to 3,000 to 4,000 feet, which helps with the start-up investment, Huether says, “so we have a couple of options.” The smaller footprint comes with a downsized menu as well.
With 19 units, nine of them franchised, and with two franchise locations expected to open early this year, Arooga’s has room to grow, making it an enticing concept for operators hoping to get in on the ground level of expansion, but still link up with a proven brand.
Total U.S. units: 15
U.S. Franchised Units: 15
Systemwide Sales: $30 million
Franchise Fee: $75,000
Total Start-Up Costs: $1.275 million – $4 million
Royalty: 5%
Renewal Fee: 50% of the current franchise fee
Marketing Fee: 3% (self-spend)
Johnny’s Italian Steakhouse debuted 2002 in Des Moines, Iowa, and now has 15 franchised locations in seven states with four units in development. It is owned by the Heart of America restaurant group.
Reminiscent of 1940s and 1950s supper clubs, it’s considered upscale yet affordable, serving steaks, of course, and a full selection of Italian fare.
“People are looking for an experience today,” says Mike Whalen, president and CEO of the Moline, Illinois-based company. “Quality full-service foodservice is how to make a difference.”
And what makes this 100 percent franchised company different is that it is versatile, being able to go into lifestyle centers, retail offices and hotels, as well as freestanding locations. About 60 percent of the restaurants are in hotels.
And because the Heart of America is a franchisee of several brands like Hyatt and Marriott, it understands franchisee’s concerns. “We’re on both sides,” says Ajay Singh, vice president of brand development. “The best franchisors are the ones that operate their own units and have skin in the game.”
Franchises looking into Johnny’s need at least five years’ restaurant experience as an owner or general manager. Generally, franchisees start off with one restaurant and build from there, Singh says. And Heart of America provides a lot of support, helping with location selection, interior/exterior design services, sourcing, and local marketing. Once a restaurant opens, team members arrive for staff training and opening.
Total U.S. Units: 14
U.S. Franchised Units: 6
Systemwide Sales: $20,875,000
Franchise Fee: $45,000
Total Start-Up Costs: $475,500 – $907,000
Royalty: 6%
Renewal Fee: 25% of the current franchise fee
Marketing Fee: 2%
No restaurant experience is required to become a franchise of Hotshots Sports Bar & Grill. Couple that with the chain’s low investment costs and it becomes an attractive proposition for potential new business owners.
“Our start up costs are typically lower,” CEO Matt Volmert says. “We can be in a successful location for sometimes around $400,000 to $500,000, all in,” though this can go higher depending on the location. This is because the restaurants have smaller kitchens, “and because we’re a bar, we don’t have to have all the associated furniture and fixtures and finishes that a casual restaurant requires. We also like open floor plans—we don’t build walls or partitions which means less construction.”
Hotshots also encourages franchisees to move into spaces that can be retrofitted. One is in a former Gold’s Gym.
Hotshots locations also tend to start generating money the minute they open, Volmert says. “Our business model is different from just about any place out there. Most places are restaurants with bars attached; we are the opposite of that; we are a bar with a restaurant attached. That lends itself to a lot of areas of opportunity and different customer experiences.”
And indeed, the revenue split at Hotshots is around 65/35 percent alcohol/food. “That has some advantages: The typical margin on alcohol is greater than food; and customers are often in Hotshots for longer than they’d be in a typical restaurant. We are designing the experience and trying to motivate our customer to spend more time with us,” Volmert says.
“That gives us the opportunity to engage with the customer for much longer and to offer them a deeper experience,” he adds. To encourage this even further, Hotshots runs spontaneous promotions like a hula hoop contest or an impromptu darts tournament several times a night, “to get the customers involved and get them out of their seats whenever we can.”
With 14 corporate locations and six franchised, Hotshots, which will celebrate its 30th anniversary next June, is growing. “We like a lot of areas around the corporate headquarters, which is St. Louis, such as the Kansas City area, Texas, and the Atlanta area, and Ohio,” Volmert says. He’s particularly focused on franchising, “because it lends itself to quicker growth … and we want to open up new frontiers with corporate locations.”
Total U.S. units: 485
U.S. Franchised Units: 450
Systemwide Sales: $1.7 billion
Franchise Fee: $50,000
Total Start-Up Costs: $2,991,129 – $6,732,615
Royalty: 4%
Renewal Fee: Varies
Marketing Fee: 2.4%
Golden Corral announced a new incentive recently for franchisees to remodel their current restaurants to the brand’s new Gateway design package. The program supports franchise owners with a reinvestment credit, a local marketing credit, and a people hiring and training credit.
The new design launched two years ago, featuring a contemporary exterior appearance with oversized windows, stacked fireplaces, redesigned buffets, and multiple seating areas.
To aid the renovations, Raleigh, North Carolina-based Golden Corral created a remodel team to help franchise owners plan and execute the reimage of their locations. The remodel program has been in place for just a few years and is reviewed annually, but so far, it’s doing well. “Our existing franchisees have responded very well, opening eight to 10 per year, and all qualified for this incentive,” says senior vice president of development, David Conklin.
“Golden Corral is committed to a 100-year plan. To stay relevant in an increasingly competitive environment, a key component of our plan is the revitalization of our restaurants,” president and CEO Lance Trenary says.
As part of the new prototype, Golden Corral developed a smaller and more efficient kitchen, which is roughly 2,900 square feet, rather than the former 3,700.
Golden Corral always opens in high-density markets, which is important, since high-frequency users visit the restaurants as many as 80 times a year. Golden Corral is the nation’s largest grill-buffet restaurant franchise—a legacy brand with nearly 50 years of experience and a shade under 500 units in 41 states.
Total U.S. units: 85
U.S. Franchised Units: 56
Systemwide Sales: $318 million
Franchise Fee: $50,000
Total Start-Up Costs: Conversion 1,424,550 – $2,710,500; new construction $3,302,150-$3,606,000.
Royalty: 5%
Renewal Fee: $25,000.
Marketing Fee: 2.5%
Twin Peaks, owned by Addison, Texas-based Front Burner Restaurants L.P., and founded in 2005, is growing in a segment that’s faced its share of challenges lately. Next year, the concept plans to open 10 to 15 locations, which will bring the total store count to about 100. After that, the goal is 12 to 15 new restaurants per year, to reach 160 by the end of 2025. Nine out of every 10 stores are conversions.
This growth will be a mixture of both corporate and franchised locations, “both adding footprints to existing franchise partners, in combination with welcoming new faces to the brand,” says CEO Joe Hummel. All told, corporate stores will continue to mix at least 30 percent of all restaurants.
And Twin Peaks is an attractive proposition. Both traffic and sales were up in the third quarter of this year; and have been positive since 2016. In fact, the company has reported 36 positive periods, it says.
Last month, Twin Peaks announced it has teamed up with ApplePie Capital to allocate up to $30 million in debt capital to its franchisees and propel franchise expansion to new and existing groups.
And in August, the brand, known for 29-degree beers, refreshed its menu with items such as the Cowboy Margarita and Smoked Pork Cubano.
“We were excited to introduce our smoker program earlier this year,” Hummel says. “It’s another way we’ve challenged ourselves to continue to enhance our menu but also keep items made-in-house. Each of our locations has a smoker in-house.”
The chain, headquartered in Dallas, has 85 locations in 26 states and is looking to grow both the number of units and geographically.
Total U.S. units: 35
U.S. Franchised Units: 30
Systemwide Sales: 150 million
Franchise Fee: $60,000
Total Start-Up Costs: $1.2 million – $2.5 million
Royalty: 5%
Renewal Fee: $30,000
Marketing Fee: 2%
Franchisees of Walk On’s Bistreaux & Bar become part of the Walk-On’s family, which invests in culture from the corporate headquarters to each location, says president and CEO, Scott Taylor. And each store has its own regional franchise coach. This person is responsible for no more than 10 stores so they can regularly visit locations and provide any help that’s needed.
Part of what makes Walk-On’s locations so successful is nothing is left to chance. “We worked hard to systematize everything we do, from hiring staff, operating shifts, preparing our menu and community involvement,” Taylor says. “We’ve even systematized the basics like how we clean things and put them away. This makes it easier for franchisees to expand.”
Walk-on’s, based in Baton Rouge, Louisiana, is clearly doing something right. Having opened in 2003, the chain now has 35 units, 30 of them franchised, with another 20 to come online in 2020 and for the years following that, too. By the end of next year, Taylor expects to be in 10 states. In 2020, three of the new stores will be corporately owned. Walk-On’s has its sights set on adding 150 stores across 15 states in the next few years.
Serving scratch-made Cajun food, the brand is especially known for fresh food—a category differentiator. “We cut fish, steaks, chicken, peel shrimp, every day in our kitchens,” Taylor says. “Nothing is frozen/pre-breaded on our menu. Our menu offers classic Americana dishes that appeal to a broad range of consumers along with some authentic South Louisiana cuisine. There is something for everyone.”
Total U.S. units: 112
U.S. Franchised Units: 40
Systemwide Sales: $325 million
Franchise Fee: $40,000
Total Start-Up Costs: $1.9 million
Royalty: 4%
Renewal Fee: $20,000
Marketing Fee: 3%
Founded in 1976, Old Chicago operates more than 100 restaurants and is owned by CraftWorks Holdings. This year, the brand has aggressively looked toward growth.
“Old Chicago is going through a resurgence, with new brand positioning and momentum,” says Josh Kern, chief experience officer, CraftWorks Holdings, “and 2020 is going to be a stellar year. The brand is able to harness the resources and buying power of CraftWorks Holdings to pull through synergies and drive down costs to increase profits for franchisees.”
By the end of this year, there will be 40 franchised Old Chicago units, with another 10 debuting in 2020. By the end of 2025, Kern expects to have around 100 franchised units and 75 company stores. The chain is also expanding its geographical reach, moving into South Dakota, Alabama, California, Ohio, and Florida, and continuing its growth in Texas and Arizona.
Old Chicago has worked on personalizing its 40-year-old loyalty program, OC Rewards. The program was launched in 2014 and now drives more than 30 percent of total sales.
“The program allows us to segment consumers but is a nimble system that truly drives sales, which is the number one metric for success of our franchise partners,” Kern says. “Second, our raving fans drive the loyalty program and seek out Old Chicago locations wherever they might be in the U.S. This allows us to speak to not only individuals but families, sports teams and others looking to hang out and catch the game at OC. Our loyalty program is simply the heart of driving sales for the brand.”
The program constantly rewards guests. They get one point for every dollar spent on food and beverage and five OC Bucks for every 75 points. Along the way, they earn recognition, prizes, promotional offers, and members-only perks, all of which are tracked online and through the mobile app. Customers benefit again when Old Chicago uses the data it collects to send messages about a specific brewery or style of beer, new LTO menu items, or discounts to encourage return visits.
Total U.S. units: 97
U.S. Franchised Units: 96
Systemwide Sales: $253 million
Franchise Fee: $35,000 licensing fee
Total Start-Up Costs: $601,000 – $972,000
Royalty: 4.5%
Renewal Fee: $17,500 or 50% of the current initial franchise fee, whichever is greater
Marketing Fee: 2%
Founded in 1968, Sonny’s BBQ last year celebrated its half-century. Of its 97 locations, 96 are franchised, and all are in the southeast. The company is expanding via franchising, and is currently focused on growth in Florida, Georgia, the Carolinas, and Louisiana.
Sonny’s provides franchisees with the tools they need, the company says, as well as ongoing support. This includes extensive training before the opening of a new restaurant and continuing education as needed. It also provides marketing, IT, operational, HR, and specialized assistance as necessary for the success of its franchisees, as well as software and tools that help franchisees succeed.
Known, not surprisingly, for barbecue, especially pulled pork, St. Louis ribs and brisket, at the heart of every Sonny’s BBQ is a certified pitmaster. All pitmasters go through an intensive training program to learn the science of smoking, cuts of meat, cooking times and temperatures, and how to make sauces and rubs.
Sonny’s isn’t just about food, either. Random Acts of BBQ is a proprietary program designed to celebrate people who selflessly give their time and talent to others with little recognition in return. The brand receives nominations for this program from customers and barbecue fans across the brand’s footprint, then individual restaurant teams select recipients from their local community and surprise them with a feast to celebrate and honor all they do to spread the spirit of barbecue.
Going forward, Sonny’s is in the midst of system-wide remodels with the majority of Sonny’s BBQ locations now reflecting the chain’s new ’68 prototype.
Total U.S. units: 28
U.S. Franchised Units: 19
Systemwide Sales: $ 36 million
Franchise Fee: $45,000
Total Start-Up Costs: $600,000 – $1 million
Royalty: 5%
Renewal Fee: $20,000
Marketing Fee: 1%
The first franchised location of Famous Toastery opened nine years after the brand’s debut in 2005. And by the end of this year, CEO Robert Maynard expects to have about 40 units operating, 30 of them franchised, with another six to 12 in 2020.
He doesn’t have a particular number of units anticipated, opting instead for a more fluid approach. “Brands in general have to get away from being obsessed with how many units they have,” Maynard says. “I don’t know how many stores I want to have; I want to have successful stores with successful franchisees and you have to keep your eye on the prize that counts; having a great restaurant and a great restaurant that is profitable.”
However, he is “focusing 100 percent on franchise growth now that we have gotten the right team in place,” he says. “We’re on the right trajectory and know what works.”
When the Charlotte, North Carolina-based chain started out, it had a wide open market, but since that time, more breakfast concepts have opened, Maynard says. But what differentiates this brand, he says, is “we haven’t given up on keeping our quality top-notch, while our competitors by and large are taking the cheap route.”
At the same time, he says, it’s important to not compete with others. “We set out on our own plan, we are on our own growth trajectory and doing what we do best at the pace we feel is best for our business. We’re trying to make things better and better, and we expand when we’re ready, which is now. There’s access to so much information and this stuff can drive you crazy. You’ve got to believe in your own goals; if you don’t you’ll follow every trend and do what everyone else is doing. You’ve got to stick to your guns.”
Total U.S. units: 68
U.S. Franchised Units: 61
Systemwide Sales: $100 million
Franchise Fee: $50,000
Total Start-Up Costs: $510,600 – $1,190,000
Royalty: 5%
Renewal Fee: $35,000
Marketing Fee: 1%
Twenty-three years after the original Another Broken Egg Café opened in Old Mandeville, Louisiana, there are 68 locations of this Orlando, Florida-based brand, 61 of them franchised, and the chain continues to grow. There are restaurants in 12 states and over the next year the concept will be expanding to several more.
“We’ve laid the foundation to continue the brand’s growth and build a pipeline that will push us toward our goal of 300 units by 2025,” says Clay Carson, vice president of franchise sales and real estate development. “During that time, we’re looking to create a healthy balance of franchised and corporate-owned locations. Our sights are set on approximately 30 new corporate-owned locations.”
The company recently brought on Paul Macaluso, the former CEO of Krystal and president of McAlister’s Deli, as CEO.
Qualified franchisees are encouraged to open multiple units—at least three—and preferably to manage an entire area, though for smaller markets the company considers granting single-unit agreements where it makes sense. There’s plenty of brand support throughout the process, and a six-week training course at a corporate café prior to launch, in addition to a training team on-site at the new restaurant in time for opening.
In 2017, Another Broken Egg was purchased by The Beekman Group, a private equity firm. Since the acquisition the brand has recruited nine new franchisees, who will roll out 31 new locations. “The Beekman Group’s leadership and strategic vision has provided us the ability to attract and build a tenured, successful executive team. In doing so it has allowed the company to scale franchise growth at a category leading pace,” says Chris Artinian, previous president and COO, and current board member for Another Broken Egg.
An addition, Another Broken Egg launched a reimagined “New South” cafe design this year and, in November, the concept named Paul Macaluso president and CEO. Macaluso’s background includes Taco Bell, Burger King, and FOCUS Brands. Most recently he was president and CEO of The Krystal Company, where he led a brand revitalization effort.
