First Watch Takes On Franchising

The breakfast and lunch concept believes the time is ripe to sell franchises and open new restaurants despite the tough economic climate.

By Mary Boltz Chapman, Editor-in-Chief -- Chain Leader, 6/11/2008 9:43:00 AM

At a time when many restaurant companies are halting expansion and looking inward, First Watch, the Bradenton, Fla.-based chain serving breakfast and lunch in 76 restaurants in 11 states, announced in May that it would begin franchising. That's on top of the five company stores it plans to open this year. Chain Leader caught up with Chris Tomasso, chief marketing officer at First Watch, to talk about timing.

It's a tricky time to begin franchising, with credit problems and such. Why now?

We've been on our own timeline for this. We wanted to make sure it was a time that we were ready to franchise. We think that even with the economic climate that's out there now, our offering is very appealing.

The target that we're going for for a franchisee is not a mom and pop. It's not someone who's going to be as crunched in these economic times as others. We're looking for multirestaurant deals, not single units. We're really looking for more of an industrial franchise, if you will, somebody who probably has a portfolio of other restaurants right now and would like to add a complementary brand to that portfolio.

We have had a lot of inquiries from our customers, who love our concept, who want to have one restaurant. And that's just not that path we're going down right now. We're looking for experienced operators with a solid balance sheet and some infrastructure in place to help them pull this off.

Will you have new stores open this year?

Probably not franchise locations. Our goal for the rest of 2008 is to sign a couple of franchise deals. The restaurants may not open this year due to regular construction time.

We are still opening company-owned restaurants in markets where we already have penetration. You'll probably see us open up to five more company-owned restaurants before the end of the year.

It's also a hard time to open stores. Are there things that you're doing to try to be more efficient with construction and buildout?

Ironically we're starting to see a little bit of a softening of those front-end costs: the real estate costs and leases. For the last couple of years it's been pretty tough. Rates got pretty high, and developers could pretty much charge what they wanted to. Same with construction costs: When the construction industry was slammed, they just charged whatever they wanted to. Now with the slowdown of houses and even commercial buildings, our contractors are much more friendly on their pricing.

If the site meets our criteria, we think it's a good time to build right now. We've weathered this economic climate pretty well so far. We have a very low check average [$7.50], we think we put out a high-quality product, and our value perception is high with our customers. We think that's actually helping us. So far it's been OK.

You're not seeing declines in traffic or check averages?

We are not. We're actually on our 25th straight year of same-store-sales increases. We've had 24. You never want to say that you're recession proof, and we certainly don't think we are. All we're saying is that for the pressures that the consumer is experiencing now, we seem to be an outlet for that. We don't know if it's a trade from another dining occasion, trading off the expensive dinner to maybe a nice brunch on Sunday at our place. But we'll take that.

Are you finding sites fairly easily?

No, I wouldn't say fairly easily. We're pretty disciplined in what we're looking for, and we don't like to waver from it. So to find sites that match all that criteria takes a lot of work and a lot of digging.

I will say, over the past two years, we've opened 11 and 14 restaurants respectively, which from a percentage basis, we were opening a large percentage of restaurants. Those stores are starting to mature now. Most of them are performing where we want them to be. Some are in markets where we didn't have a lot of brand awareness, so we're working a little harder to get up to our average unit volume.

You appeal to a broad audience, but if there's a core customer, who would that be?

Typically higher-educated, upper-income folks. A lot of empty nesters. A lot of stay-at-home moms--because of our hours, they will get the kids to school then will come in for brunch even during the week. We get a lot of business meetings with our downtown locations. In a lot of our restaurants in bedroom communities, they meet in our restaurants for breakfast meetings. On the weekends we get a lot of families.

From a marketing perspective, what are your big goals for the year?

I also oversee menu, research and development. We're really focusing on the menu a lot, trying to bring in organic items if we can, stay aligned with trends. We're introducing some new items in July on our menu.

From a true marketing standpoint, we're looking at our communities and empowering our managers and their staffs to do things locally. We created something for them we call the EGG manual: effective grassroots guidelines. It basically gives them best practices on things to do locally. Like that gym membership partnership is in there, so they have everything they need from a tool standpoint to go to the manager of that health club next door and say, "Look, we have this promotion already laid out. How would you like to do it? Here's how it worked in other cities."

We like to sponsor local events like races, 5Ks, a lot of [the National Multiple Sclerosis Society] MS walks. We don't like to just write a check; we just fed 1,500 runners at a marathon with pancakes and muffins and fruit and juices. We like getting out in the community. We leased a fleet of nine Honda Elements that we wrapped with our message that will be going in our major markets that will be used for local marketing events and raise our awareness.

You're well versed in all these different silos. Corporately, you must work with all the other departments. Is it a team atmosphere?

We're a pretty lean organization. We only have about 20 people in the corporate office, four of which are the executive team. We all do everything. We're a very hands-on executive team. Everyone is involved in everything, rolling up our sleeves and getting into the restaurant business and all aspects of it.

We can think on the fly, and we can react on the fly. We did a lot in the last year. We changed our logo. We upgraded our coffee program. We totally changed our look. We have a new prototype. We didn't have brand consistency on the visuals; we identified a prototype, a logo, the brand voice. Now the stage is set for franchisees.