NexCen Brands is the franchisor for Great American Cookies, MaggieMoo’s, Marble Slab Creamery, Pretzelmaker and Pretzel Time.  The recently opened up a research and development facility for their restaurant concepts.  At first glance, this looks great, despite it being a tiny 1,200 square feet.   My nitpicking then creeped in.  Here are a few issues I see:

1. The manager of the R&D center is the VP of Plant Operations.  I would much rather see someone with an innovation, marketing or chef background, not someone who coordinates a warehouse or manufacturing facility.
2. The article states that the R&D facility is “supported” by NexCen’s top vendors – bread, chocolate and dairy vendors.  Ummmmm…..bias?  It’s a great deal for franchisor NexCen who gets their vendors to sponsor the facility and research, but do you think this will produce the best innovations for the franchisees?  Will the vendors spend their time “innovating” their particular product offerings more into the menu?

I’m being hard on NexGen, I know.  Hopefully the R&D facility will produce some winners, but the issues noted above make me believe NexGen chose the absolute cheapest way to create the image of R&D.

What’s the best way to create better and cheaper offerings, faster?

After professional research with customers and franchisees, you can identify promising ideas, develop them with your chefs, professionally test the ideas with customers, and repeat the process until you get a winner.  Let your marketing, finance and purchasing teams have input.  Then roll it out to franchisees.

For those looking to familiarize themselves with franchise agreements, this checklist from the Jacksonville, Florida Chamber of Commerce provides a good start. 

BlueMauMau recently had an article about the increase in “better burger” franchises.  I too have seen in the past two years an increase in the high-end burger space from both independent stores like The Daily Grind in Port Orange, FL (great store-baked buns) and franchises like Cheeburger Cheeburger and Five Guys.  I recently performed a valuation on a group of high-end burger franchises for a client and I walked away with mixed feelings.  The key driver of profitability was the lease costs, and the key driver for sales was location.  The basic formula for a decent ROIC (return on invested capital) was convenient, high traffic location with a rent at or below 6% of gross sales.  This ends up being the simple formula for most restaurants.   Your restaurant’s cost targets should be:

• Prime Costs (Food and Labor) a combined 60% (about 30% each depending on type of restaurant),
• rent below 6% of gross sales,
• interest costs below 1.2%,
• owner’s net profit at least 10%,
• which leaves about 22% of your gross sales left for overhead, maintenance, royalty payments, advertising, and other costs.

As you can see, an 8% royalty and advertising costs for a franchise cost takes a big chuck out your remaining 22% budget.The HARDEST part of predicting a restaurant franchise’s success is forecasting sales.   Forecasting sales requires an analysis and comparison of other local restaurants, proximities (closeness to road, attractions, anchor stores, etc.), parking/drive thru, local demographics, competition, signage, brand awareness, and many other details.  If your sales projections cannot confidently support sales at least 20% more than your break-even point, don’t do they deal.

In the United States, resale price maintenance (RPM) is illegal under current U.S. Antitrust laws. In Japan, the Fair Trade Commission’s ordered Seven-Eleven Japan to end its refusal to allow franchise stores to discount bento boxed meals and other food items when the food is close to expiration. This will force all convenience store chains in Japan to review their policy of fixed prices for such products.Hat Tip: Chris Conner @ FranCorp’s Blog 

Thermostat controls help Arby’s cut costs

But someone always forgot to shut off the air or would poke a straw or toothpick through the lockbox on the programmable controls to lower the temperature.

If employees are so desperate for cool air conditioning that they will stick toothpicks through a locked thermostat, then you probably are keeping the temperature too high.  Yeah, you can cut costs by reducing the climate controls, but grumpy hot employees are not worth the savings, in my opinion.

The restaurants now use Web-based controls accessible only to top managers, ensuring the air is on only during business hours and never gets cranked too high. Those moves saved $800 in a month at one location.

I agree with automating a reduction in heat and cool air during non-operating hours.  But I am very skeptical of over-managing the temperature during operating hours for morale reasons.

My previous post highlight the not-so-obvious hurdles of co-branding.  The omnipotent FuwaFuwaUsagi sent in photos of Brown’s Chicken attempts at co-branding.  See his Brown’s Chicken photos below.

Brown’s Chicken is trying to do the Chicago street food theme plus mexican.  It offers everything from pasta, ice cream, pizza, fried chicken, sausages, pasta, mexican, italian beef, and hot dogs.  The problem is not necessarily the menu, but the execution, presentation and customer experience.  It looks utterly silly to have so many brands in one cheap-looking tiny store. 

Offering multiple unknown brands under one roof requires significant investment in the seating, presentation and overall customer experience. I’ve only seen one successful Chicago street food restaurant and it is Portillo’s / Barnelli’s combination.  When you enter one of the premium stores you feel as though you have entered an old-fashioned carnival era.  It is plain fun and food is quite good.

The below photos provide a great illustration of what to do and what not to do – stuffing too many confusing brands under one roof.

WRONG WAY TO CO-BRAND:

RIGHT WAY TO CO-BRAND:

Image by RACINGMIX via Flickr

I’ve always been very interested in co-branding. It seems to just make sense to combine operations and leverage resources. An early co-branding franchisee of KFC and A&W speaks about his co-branding experience.

“I think the real lesson is, you’ve got to spend the money and do it first class,” he says. “If you try to go in and nickel and dime it, not buy all the equipment, not buy all the seating, not buy all the signage, not train all your people, not have a great manager—it’s just all the same things that we know will work in any restaurant. If we want to be successful, we’ve got to do it right.”

White’s results are exactly the same as what Tricon franchisees discovered when co-branding KFCs and Taco Bells. “When we started introducing Taco Bells into KFC in the multi-brand program,” says Gary Masterson, senior director of franchise development for KFC, “we referred to the early program as ‘lick and stick,’ where we just took a KFC and put a Taco Bell sign over the drive thru, changed the pylons from KFC to Taco Bell, and maybe a couple of minor changes to the decor elements, but nothing major. It was just an investment of maybe less than $50,000.

“The impact on sales was nowhere near as great as the current program,” says Masterson. “Today, if you want to build a Taco Bell in a KFC, you have to reskin it. You have to tear off the outside of the building and introduce the Series 6000 multibrand look, which is an equal mixture of Taco Bell and KFC. Those restaurants are performing at much higher levels of sales performance than the early ones.”

It would be nice if the story could end here, but co-branding isn’t just about real estate. There’s also the human angle. Combining two brands under one roof is more than simply putting up some appealing signage and attracting a lot more customers to your restaurant. Once those customers arrive, the folks behind the counter have to be able to service the increased demand.

The article then goes on to discuss the labor issues.

For both Tricon and Yorkshire, operational simplification will not only make a difference from a management perspective, but also at the bottom line. “Intuitively, you would think that if your sales go up 50 percent, your labor percentage ought to really drop dramatically,” says Feltenstein. “But it doesn’t. That is a challenge for us and many others with whom I’ve spoken, to get the labor percentage to drop so you can flow through even more. The fact is you’re flowing through a lot of incremental profits because the sales are so much higher—but it could be even better if we find more efficient ways to manage it so as to take more labor dollars out of the store.”