Franchisers' growing appetite

Fast-casual, other segments expanding as economy rebounds

by Lindsey Robbins | Staff Writer

Brian Lewis/The Gazette

Seventy-five hot sauce varieties, 120,000 newsletter recipients and countless passwords — "fresh," "variety," "signature," "I love Election Day" — that could earn customers free food depending on the date are just part of the self-described "spunky" atmosphere California Tortilla works hard to create for hungry visitors throughout its 37 locations.

"We've always had a great loyal following. When we send out an e-mail, people will respond. They might tell us an experience they had in our restaurants, they might tell us a joke or they might make suggestions. We get thousands of e-mails," said Robert Phillips, president of the Rockville restaurant chain that specializes in fast Mexican food.

The 15-year-old chain is set to target 20 more locations by 2011, as the economy grows more favorable for the restaurant industry.

Many Maryland franchising restaurants are eyeing expansions as they gauge their improving sales figures, especially those in the fast-casual markets, which promise the speed of fast food plus the higher quality and atmosphere associated with sit-down restaurants, without the price or tipping requirements.

"The fast-casual market is doing pretty well. It's a hot segment right now," said Paul Hartgen, past president of the Restaurant Association of Maryland, which advocates for the 911 restaurant locations in the state. The food and beverage industry contributes about $40 billion annually to Maryland's economy, Hartgen said.

The fast-casual market makes up about 4 percent of the national restaurant industry's total sales but has been seeing the most significant growth, said Mark Kalinowski, restaurant analyst for Janney Capital Markets in Philadelphia. He said the restaurant industry, in general, has been seeing steady growth over the last six months.

The National Restaurant Association projects restaurant industry sales to reach $580 billion this year, up from $566 billion in 2009 and $558 billion in 2008.

‘Positioned to do fairly well'

California Tortilla experienced double-digit increases among its comparative store sales from last year, Phillips said. The company is negotiating for its 38th restaurant in Lancaster, Pa. Each of its franchise restaurants employs about 25 people, mostly part-time.

"We're positioned to do fairly well in the economy. Eating out at California Tortilla is not an expensive venture," he said. "Our customer traffic and average checks have increased since last year."

Phillips joined California Tortilla in 2002, when the company had only two locations and saw a potential for franchising. The company then spent a year documenting every aspect of the business, from how to make the chips to the correct way to ring up a sale, he said. The first California Tortilla franchise opened in College Park in 2004.

Since then, the company has focused on franchising along the East Coast to ensure it had the infrastructure to support its expansion. Phillips called the process "growing in concentric circles."

"Just as we want our franchises to engage customers, franchisees are our customers," he said.

Since the Great Recession began, when it has been difficult to get financing for new projects, the company concentrated on solidifying its customer base, improving its menu and starting loyalty programs for its franchises. California Tortilla still faces some trouble finding capital but remains confident it can reach its 2011 goal, Phillips said.

"We want to serve great-tasting quality food in a fun environment. We don't want to be a boring lunch place," he said.

Ira Levy, founder of Buffalo Wings & Beer in Gaithersburg, lacks the master franchising plans of other chains but is anticipating big returns from his company's first-place showing in this year's National Buffalo Wing Festival in Buffalo, N.Y.

"I am ready and I am pumped. It's great that we're also in football season, which helps business, and then there's catering in the holidays. With all this recognition, we will do even more sales," Levy said. The company already has experienced a 5 percent sales increase at one of its company-owned stores over the last year.

Buffalo Wings & Beer, which opened in 1995, has two company-owned stores and six franchises in Maryland and most recently Leesburg, Va., which opened in October.

The tanking economy led to shuttered stores in Rockville and Southern Maryland, but those losses have been offset by the Leesburg franchisee's plans for four locations in Virginia. Levy said he also is eyeing Columbia and Laurel and has met with people in Washington, D.C. Levy's franchises each employ about 13 people.

"I don't push my franchises; I don't go to the expos. They just come to me," he said. "We've been here so long and have great regulars like a Cheers bar."

Levy said he never dreamed about going into franchising until businesspeople started wanting to open Buffalo Wings & Beer restaurants. That soon led to him learning the hard way about licensing agreements. His franchisees are now offered 90 days royalty-free sales and pay $20,000 per franchise.

"Right now, I'm just enjoying my life and my customers," he said.

Mark C. Goodnow, CEO of Wings to Go in Severna Park, has come full circle in his franchise career, starting out as a company franchisee in 1992 and then taking over in 2001. His chain has locations in 12 states, including Maryland, and is preparing to open one in Ohio.

Although the total store number dropped to 76 from 92 as a result of the recession, Goodnow said he is always looking to build new franchises.

"We believe people are still going out to eat, but maybe not as much as they used to," he said. "Here, we stress customer service. People are looking for more than just ‘Hi, how are you?'"

He said Wings to Go trains employees to recognize problems such as customers picking at their food and how to respond without getting defensive.

Wings to Go also tries to offer franchisees some decision-making opportunities through encouraging them to match their décor to the local community instead of providing a décor package. Wings to Go franchises employ about 25 people each.

Goodnow said the company now is focusing on growth along the I-95 corridor into Virginia and North Carolina.

What restaurant franchisers look for in franchisees:

"We want to know if they buy into the culture we're trying to establish. Are they customer-centric? When we meet someone who gets it, it's very apparent very quickly." – California Tortilla

"The three biggest keys are commitment, financial wherewithal ... and restaurant experience. A lot of people are coming from the 9-to-5 business world. They need to learn the changes." – The Greene Turtle

"It's difficult because what can make the best franchisee can also make the worst franchisee. What we look for entrepreneur spirit. The restaurant business is 24/7. ... What we tell them is if everyone else is off, you're probably working." – Wings to Go

"We tend to look for well-financed area developers. We don't do many onesies." – Phillips Seafood

U.S. restaurants by the numbers

-$580 billion: projected sales in 2010, up from $566 billion in 2009 and $558 billion in 2008

-73 percent of adults say they try to eat more healthfully at restaurants than they did two years ago

-57 percent of adults say they may choose restaurants based on their community contributions

-52 percent of adults say they would be more likely to visit restaurants with customer loyalty and reward programs

-$1.6 billion in restaurant-industry sales, typical day in 2010

-12.7 million employees

Source: National Restaurant Association