How to Become an Elite Restaurant Brand
Dreaming of your brand joining the QSR 50? These three milestones will help get you there.
In today’s limited-service landscape, competition is fierce, growth is key, and companies are doing everything they can to turn their brand into one of America’s elite.
But what does it mean to be elite in this industry? While there are countless paths to success, industry experts agree there are three sure-fire milestones that signify whether a brand is a limited-service heavyweight: 1,000 units, $1 billion in sales, and $2 million average unit volume (auv).
Want to join these exclusive clubs? Here’s what the companies who have been there and done that have to say about crossing these achievements off your brand’s bucket list.
Milestone No. 1: 1,000 Units
Atlanta-based Church’s Chicken is certainly no stranger to operating 1,000-plus units. That’s because the chicken concept crossed that threshold nearly 40 years ago when it opened its 1,000th unit in Phoenix. But even though the company now has 1,200 restaurants domestically and more than 500 abroad, executive vice president of international business and global development Tony Moralejo says the milestone continues to feel like validation for Church’s Chicken.
“To get to 1,000 restaurants, it means that you’ve arrived. You become this national player, and in many cases, you become a global brand,” he says. “It means essentially that you’ve established a brand presence that’s appealing to a wider consumer base, and that’s something to celebrate.”
Though Church’s reached this milestone long before Moralejo’s time with the brand, he says he continues to rely on four “Ps” to maintain unit growth: people, product, passion, and patience. “You don’t get to 1,000 restaurants overnight,” he says, noting that it can take decades for a brand to build the momentum it takes to reach 1,000 units. “You’ve got to have patience, especially when it comes to profit. There’s a difference between growth and profitable growth, and what both the franchisor and the franchisee should strive for is profitable growth.”
That’s why Moralejo says one of Church’s key growth priorities is to protect its franchisees at all costs—even from themselves when they want to expand in a risky way. “Sometimes as a franchisor, you have to learn to say no and protect the franchisees that operationally aren’t ready to expand,” he says.
It was this emphasis on selecting the right franchisees, approving the best sites, and approaching growth cautiously that helped Firehouse Subs open its 1,000th location in 2016. “I can have the greatest brand in the world, but if I put it in the hands of a poor operator—or even put a great operator on a very bad site—it’s not going to be successful,” says CEO Don Fox.
Though these factors ultimately helped Firehouse reach the 1,000-unit milestone, the company spent 22 years taking a slow-and-steady-wins-the-race approach that Fox says other brands should replicate when trying to grow unit count. “Be more focused on being the tortoise and not the hare,” he says. “If the lug nuts are starting to feel loose and the wheels are wobbling a little bit, don’t hesitate to slow down from time to time and recalibrate.”
While taking it one unit at a time is critical to Firehouse’s growth strategy, restaurant consultant Aaron Allen says advance preparation is also imperative if a brand hopes to reach the 1,000-unit mark and beyond. This includes putting a plan in place for infrastructure, market expansion, and a pipeline of talent that comes years and even decades ahead of achieving the desired unit count.
Having a driving force aside from just unit growth is also helpful for keeping a brand on the right trajectory. For Firehouse Subs, what motivated growth was the opportunity to increase charitable donations through its Public Safety Foundation.
“By virtue of our success and the generosity of our customers—which only happens because we have 1,000 restaurants for them to come to—we’ve donated over $25 million in equipment to police and fire departments,” Fox says. “We take the greatest satisfaction of our growth knowing that beyond the jobs and the careers and the profits we’ve made, we’ve made a real difference in saving people’s lives.”
Milestone No. 2: $1 Billion in Sales
Even within an $800 billion restaurant industry with more than 1 million locations operating in the U.S., only 29 limited-service brands reached the $1 billion sales milestone this year.
One of these was Culver’s, which first crossed the billion-dollar threshold in 2014, when it had 500 units and 30 years of business under its belt. (The company did $1.3 billion in sales at just over 600 locations in 2016.) The decades of experience allowed Culver’s to build and reinforce one of the primary factors in its success: the company’s culture.
“As we grow, maintaining that culture is so important to us,” president and CEO Joe Koss says. The company is built on six core values—doing the right thing for its guests, franchisees, restaurant team members, the industry as a whole, and the communities it operates in, as well as conducting business in an ethically and socially responsible way—and Koss says getting the culture right before anything else helped set the stage for its strong sales growth over the years.
Fellow burger brand Five Guys joined the $1 billion club five years ago, which founder Jerry Murrell says has been a boon for both recruiting franchisees and gaining access to additional capital. However, while many concepts look to menu innovation and headline-grabbing marketing tactics to help them surpass the $1 billion mark, Murrell says it was Five Guys’ dedication to sameness that pushed the brand beyond the finish line.
“Every day, people are coming at us with, ‘Why don’t you advertise? Why don’t you add a new item? Why don’t you wear a chicken suit? Why don’t you toot your own horn?’” Murrell says. “There are all kinds of things that come at you all the time, and you think maybe you’re doing something wrong. But we’ve been fortunate in the fact that we didn’t fall for any of that and stuck to our guns.”
Allen says speed, convenience, replication, and ease of service are also crucial to helping drive sales over $1 billion, as is a brand’s measured approach to growth. “Plan like a $1 billion company, but expand and spend like an entrepreneurial company—a little bit more conservatively and cautiously,” he says. This means investing in innovative technology, up-to-date restaurant designs and prototypes, well-researched menu developments, and—as Five Guys can attest—hiring and investing in the right people at all levels of the company.
“I’ve been criticized by banks so much for paying our people too much money. But [employees] go home at night, and they have to worry about the business doing well, too,” Murrell says, adding that empowering franchisees and team members is also crucial for growth. “Whether it’s a district manager or just an hourly worker, give them some kind of ownership so that they feel like they’re part of the company.”
However, even with a strong culture, secure operations, and a dedication to supporting the team, some brands may struggle to reach the upper sales stratosphere—at least domestically.
“If the brand grows solidly, then eventually it may very well reach the $1 billion mark, but it might not all be in the United States,” says John Gordon, principal and founder of Pacific Management Consulting Group. “You may very well have to have international units in order to make it to that big number.”
Milestone No. 3: $2 Million AUV
Only six companies in this year’s QSR 50 managed an AUV of $2 million or higher. While this milestone is not exclusive to national companies—unlike 1,000 locations or $1 billion in sales, the $2 million AUV threshold is attainable to small-scale operations—it is coveted by major companies as a sign that the system is efficient, healthy, and thriving.
Culver’s hit $2 million AUV in 2014, the same year it reached the 500-unit mark and $1 billion in sales. “The most important for us, of any of those numbers, was hitting that $2 million AUV and growing restaurants’ average sales throughout the system,” Koss says. He adds that the brand was able to reach the milestone by focusing on a number of strategic priorities, including honing and evolving the menu, enhancing the quality of products, launching cause-marketing initiatives that helped Culver’s connect with the agricultural community, and going through a reimaging effort to keep facilities in like-new condition.
El Pollo Loco is one brand that is oh-so-close to finally hitting $2 million in AUV. The company has implemented a number of strategies since 2011 that have helped the brand boost its AUV from $1.5 million to $1.988 million last year. From conducting in-depth consumer research and hiring fresh faces—including a new CMO, CFO, chief development officer, and executive chef—to refinancing its $300 million in debt, undergoing an IPO, re-engineering its menu, and developing two new store prototypes, the company’s comprehensive plan to spur growth and unit-level economics has quickly paid off.
In fact, many of El Pollo Loco’s 460 stores already bring in more than $2 million—and even $3 million—in sales each year, says president and CEO Steve Sather. Perhaps that’s because the brand isn’t what he calls “capacity constrained.” That means it does a robust, evenly split lunch and dinner business—thanks to family meal deals—while also offering drive-thru, takeout, and dining-room options.
Gordon says multiple sales platforms, both inside and outside of the store, are crucial for brands that hope to hit $2 million in AUV. Whether it’s breakfast, delivery, mobile ordering, or another approach altogether, “the brands that can adapt and find one or two additional things that they can be known for will succeed,” Gordon says.
Once El Pollo Loco does hit that mark, Sather doesn’t expect the company to stop or slow down. “The minute we average $2 million,” he says, “there’s no reason we shouldn’t be doing $2.5 million. So let’s keep moving on.”
Original article from QSRMagazine.com
By Mary Avant, August 2017