Restaurant Expansion: Serving the Underserved
Franchisors discover that ethnic and low-income markets suit their expansion plans.
By David Farkas, Senior Editor -- Chain Leader, 4/1/2009
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| El Pollo Loco, the 416-unit quick-service chain known for its marinated, grilled chicken, has been attracting a Hispanic audience for 29 years. |
True, many of you won’t be here then. And your businesses won’t, either—unless you’re setting an agenda for the inevitable shift in customers.
“If you are planning five to 10 years ahead, you have to be thinking: Where are franchisees coming from? Where will they be located? Does my franchise development team reflect the changing demographics? Does my company focus on diversity, and is it inclusive?” says Miriam Brewer, director of diversity and education for the Washington, D.C.-based International Franchise Association. About half of IFA’s members are foodservice franchisors.
To gear up, IFA has been running one-day diversity seminars across the country since April 2007, attracting aspiring franchisees, forward-looking executives from growth-oriented restaurant companies and local officials. Says Brewer, who organizes these events: “We like to partner with mayors and community organizations to bring all stakeholders together.”
A Tailored Fit
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| Aspiring franchisees, many of them racial and ethnic minorities, attend an all-day seminar organized by the International Franchise Association. |
Yet she first has to decide if a tiny layout she designed for nontraditional sites such as hospitals and airports will work in inner-city locations, which may involve conversion of existing space. As it stands, her 300-square-foot to 500-square-foot co-branded layout, which will sell cookies, ice cream and pretzels, requires off-site storage.
Price is eager to test the model. “I would absolutely go into inner cities and downtown areas if we can make the numbers work,” she declares.
Making the numbers work is something Brewer is used to hearing when she alerts franchisors to a seminar in a specific city. “My first discussion is all about dollars and cents,” she says. After that, she talks about diversity and inclusion. “The only way to accomplish that is having individuals at headquarters that mirror the changing demographics,” she adds.
Commitment to CommunityAt 84-unit Pizza Patron, these individuals are also in the stores, because the franchisor requires franchisees to hire Hispanic store managers who live in the neighborhood. “If the manager doesn’t live there, he needs to move there,” CEO Antonio Swad explains. “That is in the franchise agreement. We recruit and hire people in the community who live within walking distance of the store.”
Franchisees are not required to live in the area or be Hispanic, though Swad claims about half are. Living outside the neighborhoods they serve, however, often makes it tough for franchisees to boost sales by engaging in events outside the restaurant—a tactic that’s likely to win appreciation.
“We try to get [franchisees] to understand the work to build their business doesn’t just take place within the four walls or by being a checkbook diplomat or buying direct-mail pieces. It is community service. If you don’t have that in mind, particularly in the Hispanic community, you are not for us,” he explains.
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| NexCen development executive Pam Price is hoping that a three-brands-in-one model can produce a return on inventment that's attractive to minority franchises. |
The closest Pizza Patron to the church would arrange to supply pizzas to the volunteers and help create a festive atmosphere by giving away balloons and playing games. “It’s where we do business. There is nothing too small for us,” Swad insists.
Swad and his franchisees were in a festive mood themselves in early March, having posted a 7.9 percent same-store-sales gain through February. (The sales figure cannot be checked independently because Pizza Patron is a private company.) “At a time when zero is the new plus sign, we are happy with our spot right now,” Swad says.
He attributes strong sales to the value-oriented menu. “I’ve been waiting to get the full value of the business model,” Swad explains. “We’ve always said the concept is positioned to be pretty good, with quality food but sold at an unbelievable value. But now, finding the lowest price has become a necessity.”
Old SchoolOn the other hand, another value player, North Ridgeville, Ohio-based Pizza Pan, isn’t having the greatest of years. Founder and CEO Fred Peters claims this is the first year franchisees, most of which are in blue-collar areas of northeast Ohio, have closed stores because of the economy.
“We’re down, no doubt, like the rest of the country,” he says. “If you were doing $7,000 to $8,000 a week and it drops to $4,000 to $5,000, you’re just getting by.”
But the entrepreneur’s expansion strategy could keep the remaining franchisees afloat. Peters, like Swad, opens units mainly in minority markets, where people who are rarely in hock to credit-card companies or banks live. Pizza Pan’s offer is also compelling: three pizzas or slabs of ribs for one price if the order is picked up; delivery is a two-for-one deal.
“I like areas where you have people coming and going, owners and renters, a high density of every kind of life,” he says. He adds that the outlet in an area of Cleveland known as Slavic Village, which was settled in the early 1900s, is among the 65-unit chain’s busiest. “I like older areas in many ways,” Peters adds.
The suburbs, where franchisees have opened several units, hold little promise for Pizza Pan. “The houses are far apart; couples both work and go to bed at 9 p.m.; and pizza is a Friday-night-only treat,” he says.
Looking for Opportunity
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| Pizza Pan CEO Fred Peters says this franchised unit, in Cleveland's Slavic Village, is among the chain's best performers. He credits the surrounding blue-collar neighborhood. |
“The economy is not bad, and there’s a ton of traffic,” he says. “Lunch is doing better than nighttime business.”
Peters likes the Washington, D.C., area, which includes parts of Maryland in addition to northern Virginia. Many of the neighborhoods are demographically similar to those Pizza Pan does business in now. “I can open 60 to 70 stores there in a heartbeat,” he boasts.
Maybe so, but he should keep in mind the diversity of customers and franchisees if he’s building a business to last, advises Brewer: “Franchisors need to be looking at who will be supporting their businesses.”
MORE: Latino-focused restaurant chain Pizza Patron and its CEO Antonio Swad epitomize diversity efforts.
MORE: El Pollo Loco CEO Steve Carley gives pointers on identifying a site in an ethnic market.





























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