Pie Hole Daniel Tayenaka
The Pie Hole has four franchised cafes and three corporate locations.

To franchise or not to franchise?

Early-stage restaurants are jumping into the franchising game. But is it a good way to grow?

There was a time when restaurant concepts had to prove their viability before franchising. Now opening one successful restaurant can bring potential franchisees knocking on the door.

Franchising can provide an attractive vehicle for quick expansion of a young restaurant concept. But those who have done it say operators should be prepared to make a significant commitment of both time and resources in order to transition from being an entrepreneur to being a franchisor.

Lindsay Heffner, a cofounder of The Pie Hole cafe chain based in Los Angeles, said she and her husband, Matthew Heffner, have learned the hard way that running franchise business is much more time-intensive than they had anticipated when they began franchising a few years after opening their first location in 2011.

“We are much more heavily involved with helping our first franchisees than we should be,” she said. “Our system wasn’t ready to be handed over to somebody else without any help from us.”

The Pie Hole began as a family business featuring sweet and savory pies and specialty coffees, run by the Heffners and their partners Becky Grasley, Matthew Heffner’s mother, and family friend Sean Brennan. When the company was approached by Fransmart with the offer to launch a franchising program in 2013, The Pie Hole founders decided franchising would help them be the first to market with the rollout of what they considered to be a highly original concept.

“We were still sort of flying blindly,” said Lindsay Heffner. “What we are finding out recently is that running our own stores and running a franchise are two completely different business models, and it is almost impossible to do both, unless you have enough corporate overhead. For us as a small business, we don’t have that luxury.”

With 50 percent of the franchise fee going to Fransmart, and only 5 percent of franchise sales coming back to The Pie Hole, the company has been unable to ramp up its staffing to the levels needed to support its franchisee partners, Lindsay Heffner explained. The Pie Hole team is committed to make it work, however, even if it means “no more days off, and no more weekends,” she said.

In addition to finding and vetting potential franchisees, Fransmart also partners with the Kitchen Fund, which invests in early-stage restaurants to provide capital and operational expertise to emerging brands.

The fund has invested in the Pie Hole, along with several other foodservice brands, including the Indian concept Inday and the Mediterranean Hummus & Pita Co. concepts in New York, as well as the bakery café Mr. Holmes Bakehouse in Los Angeles.

The Pie Hole now has four franchised cafes and three corporate locations, and has five leases signed for additional franchises to open this year. A franchisee in Japan recently opened its second location, and units are planned in Qatar and Dubai.

The challenge for The Pie Hole has been driving the same high level of customer experience at the franchised locations that The Pie Hole achieves at its corporate-owned cafes, Lindsay Heffner said.

The lesson: Look for franchise partners that have a strong background in the restaurant business.

“You might have been the CEO of a Fortune 500 company, but it doesn’t mean you can run a restaurant,” said Lindsay Heffner. 

Cinnaholic has 13 units.

Human capital

Florian Radke, cofounder of the vegan cinnamon-roll shop Cinnaholic, said finding the right partners — both franchisees and otherwise — is the key to making the franchise model work.

Franchisors need to be prepared to walk away from offers, no matter how tempting they might be, if the potential franchisee is not a perfect fit, he said.

“The absolute biggest learning for me has been that success is based on human capital,” Radke said. “There were times that people really wanted to do business with us, and it felt 99-percent right, but there was 1 percent missing, and we didn’t do it.”

Radke launched the first highly successful cinnamon roll café in Berkeley, Calif., in 2010 with his wife Shannon Radke and began franchising four years later. Now the chain has 13 units, but the franchisor has already had to replace one of its franchise operators that didn’t work out, he said.

The Radkes researched successful franchising companies to try to find a partner who could help them turn their business into a franchised operation. After being turned down repeatedly, they finally found the right partner — Daryl Dollinger, a co-founder of Moe’s Southwest Grill — who has been leading the company’s transformation into a 100-percent franchised chain. Dollinger, who oversaw the national rollout of Moe’s, now runs the Cinnaholic business as its president from the chain’s Atlanta headquarters.

“Team up with people who know what they are doing,” advised Radke. 

Kathryn Frakes

The Carving Board opened its first franchised location last year.

Create systems

Having a proven, easily replicable system in place is also key.

Founded in 2012, The Carving Board Sandwiches, a chef-driven sandwich concept based in Tarzana, Calif., last year opened its first franchised location, but only after careful examination and documentation of every aspect of the operations, said David Adir, cofounder and CEO.

The process of creating an operations manual that walks franchisees through every step of running a Carving Board restaurant forced the company to make sure that all of its procedures were replicable and teachable, he explained.

“The hardest thing is really perfecting your systems and making it as uncomplicated as possible,” said Adir. “It’s muscle memory at this point for us as operators, so we had to go back and look at every detail of what we do on a day-to-day basis.”

Adir had initially planned to secure financing for company-owned expansion. But after the opportunity arose to bring The Carving Board to Dubai, Adir took a closer look at the franchising model. He decided it provided a viable alternative to pursuing expansion capital from outside investors.

Rise has three corporate and 10 franchised locations.

Likewise, Tom Ferguson, founder of Rise Biscuits Donuts, Durham, N.C., also liked the financial aspect. Like The Pie Hole, Rise is working with Fransmart to help locate potential franchisees.

Rise was launched in 2012, and the company began working with Fransmart two years later. After financing several of his own companies in the past, Ferguson was ready to work with other operators who were willing to bet their own money on his concept.

“It frees me up from having to worry about the financial part of things — that went to the franchisee,” he said. “That was pretty liberating.”

The downside for Ferguson has been the loss of spontaneity he enjoyed as a chef. Previously he could concoct new donut flavors and put them on the menu on a whim. Now has to worry about menu consistency across his three corporate and 10 franchised locations. 

“Those things that you’re really good at when you were a chef and you own one restaurant are kind of taken off the plate,” said Ferguson.

The first Bacon Bros. franchise unit opened earlier this year.

Training and marketing

Mike Porter, president of Greenville, S.C.-based Bacon Bros. Public House Group, didn’t know anything about franchising when he and his partners debuted their farm-to-table, locally sourced restaurant concept in 2013.

The company’s first franchise unit opened earlier this year in Sugar Land, Texas, after Bacon Bros. spent more than a year crafting the franchise agreement and writing the operations manual.

To prepare for the opening, the first franchisee and his chef spent six weeks working every job at the company-owned Bacon Bros. location to learn how to handle all aspects of operations.

Then, Bacon Bros. sent a team of six to eight workers to Sugar Land to help get the first franchise up and running, and training at the store continued for the first two weeks.

“To open a baker Bros., it takes a lot of training,” said Porter. “It’s not just hamburgers and hotdogs — it’s much more complicated to prepare and plate our food.”

Another consideration for start-up restaurant brands is the time and effort involved in marketing the concept to potential franchisees.

As a veteran entrepreneur and business executive who lacked restaurant operations experience before launching Bacon Bros. with three other partners, Porter has taken the lead role in overseeing the franchise aspect of the operations, while his more foodservice-savvy partners have assumed responsibility for training and managing operations.

Once franchisees begin signing on, the franchisor needs to be ready to assist them in being successful over the long term, he said.

“It’s a 15- to 20-year commitment,” said Porter. “You’re going to be partners with these franchisees, and you have to be prepared to support them for that long.”

TAGS: Operations
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