Franchise Management: Closer to Home

Canada-based Extreme Pita opens offices in Denver and Scottsdale, Ariz., to get closer to U.S. franchisees.

By Lisa Bertagnoli, Contributing Editor -- Chain Leader, 11/1/2007

With headquarters in Ontario, Canada, Extreme Pita, a 204-unit chain offering pita sandwiches, pizzas and salads, is set to expand on its home turf. And, since opening offices in Scottsdale, Ariz., and Denver, the QSR is ready to expand more aggressively in the United States as well.

Opening the U.S. offices and hiring a vice president of U.S. franchise development will help Extreme Pita be more effective in helping franchisees, plus help the chain more successfully navigate the U.S. market, says Alex Rechichi, co-founder and president.

"We were not oblivious to the fact that there are some market differences between the U.S. and Canada," Rechichi says. Among those differences: a more competitive franchise market and a public with a penchant for lively flavors.

A Call for Help

Extreme Pita had been operating in the United States for more than two years and had opened eight stores before hiring Vice President of Development Nick Schaefer to head U.S. operations in Denver.

Extreme Pita "was in place and doing OK, but they needed a strategy in the United States…somebody to develop relationships," says Schaefer, who came to Extreme Pita from Denver-based Quiznos, where he was vice president of nontraditional locations. Extreme Pita hopes to have 500 units systemwide, with 160 of those in the United States, by 2010.

The chain was not without a U.S. presence before hiring Schaefer. In June 2006, Rechichi hired Director of U.S. Operations Garth Moore and installed him in an office in Scottsdale, Ariz., two years after Extreme Pita opened its first U.S. store in Southern California. Before then, area developers were handling store openings, real estate and other matters, according to Schaefer.

Today, Moore oversees day-to-day operations, such as grand openings, while Schaefer attends to strategic matters, such as finding area developers and new markets.

Hiring Schaefer wasn’t exactly an afterthought, but it wasn’t precisely planned, either. "It didn’t make economic sense for us to put significant resources in place until we gained critical mass and gained momentum," Rechichi explains.

Rechichi also thought that a U.S. office wasn’t a dire necessity. "We initially thought we could manage area developers from here," he says.

That is, until the American franchisees and area developers requested an office closer to home. "There was a call from the field to embed some management in the United States, not just for their sake, but for a comfort level," he says. While Rechichi says Extreme Pita was always invested in and dedicated to U.S. expansion, an office helped the chain prove it.

Opening the U.S. office is "very good, a smart strategy," says Dan Rowe, president of Fransmart, an Alexandria, Va.-based franchise-development firm. As for the wait, "I think that’s normal," Rowe says. "My hat’s off to them that they didn’t wait four to five years. They saw the need."

Geographically Desirable

Extreme Pita soon saw the benefits of the Denver office. Schaefer was better able to communicate with area developers and franchisees with store-opening and supply issues simply because he was closer.

"It’s good to have an orchestrator," says Ray Zandi, an Extreme Pita area developer whose territory includes Northern California. Zandi signed on as an area developer two years ago and has three stores open.

Before Schaefer, "franchisees would call the Canadian office, and there was nobody to field that call and direct it to the right area developer," Zandi says. Now Schaefer vets and routes franchise leads, and handles Extreme Pita’s corporate markets.

Schaefer also handles nontraditional markets for Extreme Pita. "That’s been a huge help," Zandi says. "As he obtains these nontraditional locations, that brings attention to the brand."

Back in Canada, Schaefer’s presence permits Rechichi and his team to focus on long-term development for the entire chain, rather than franchising matters, Rechichi says. Schaefer has also helped the Canadian team cut back on travel. Prior to Schaefer’s hiring, Rechichi and other executives would have to fly to the United States weekly to scout locations and attend to other matters. Now the team flies to the U.S. monthly and quarterly.

Here Versus There

An American executive with restaurant experience will also help Extreme Pita handle some of the differences between the U.S. and Canadian markets. For instance, the U.S. franchise and real estate markets are much more competitive, Schaefer says.

The average Extreme Pita ranges in size from 1,100 to 1,300 square feet, with about 30 seats. The stores cost between $215,000 and $250,000 to open.

To court franchisees and area developers, Extreme Pita has altered its master franchisee model for the United States. The new model calls for a $75,000 flat fee instead of a fee of $5,000 per store, no small step because 50 is the minimum store figure for an area developer. The new model also allows area developers to opt out of opening a store, if their restaurant experience permits; in exchange, they get a smaller cut of royalties (40 percent compared to 60 percent in the original deal). The lower up-front costs "keeps more of the money in the developer’s pocket, so they’ll develop the area faster," Schaefer says. Not having to open and run a restaurant also allows area developers to devote more time to developing their markets.

Schaefer is also tinkering with the menu to add a few popular American flavors, such as a Buffalo- or Southwestern-flavored sandwich. "The American restaurant business is a little more demanding, and customers are more demanding of a broader taste profile," he says.