Chain Leader Mobile
Log In  |  Register          Free Newsletter Subscription
Zibb
FREE subscription
Email
Print
Reprint
Learn RSS

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

El Pollo Loco customers
El Pollo Loco, the 416-unit quick-service chain known for its marinated, grilled chicken, has been attracting a Hispanic audience for 29 years.
The future will be a rainbow. The Census Bureau expects minorities, now roughly one-third of the U.S. population, to grow in number to more than half of the population by 2042. Since the start of the century, Hispanics alone have accounted for 50.5 percent of overall population growth, according to the Pew Hispanic Center.

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

Franchising seminar
Aspiring franchisees, many of them racial and ethnic minorities, attend an all-day seminar organized by the International Franchise Association.
“[Ethnic markets are] an extremely large focus for us,” says Pam Price, vice president of domestic development for NexCen, a two-year-old company that franchises Great American Cookies, Marble Slab Creamery, Maggie Moo’s Ice Cream and PretzelMaker, and that plans to introduce its brands to underserved markets in 2009. Price recently attended an IFA meeting in San Diego, where she met with mayors of several cities. “What I am learning is that [the mayors] want us to go into areas that are economically challenged or that have more diversity,” she explains.

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 Community

At 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.

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.
Swad offers an example: “Say there are 200 people in a church lot. It could be a health screening prior to school starting. The church will do a lot of work getting kids ready for school, physicals and things like that, that you do not see in other communities.”

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 School

On 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

Pizza Pan restaurant
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.
Pizza Pan has ventured outside its region to Colorado, Michigan and Pennsylvania, though without much luck so far. Peters is taking another stab at expansion outside Ohio, hiring an area developer in Florida to introduce the concept there. In February, a Pizza Pan opened in densely populated Alexandria, Va., a Washington, D.C., suburb with roughly 128,000 people of various income levels.

“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.

Email
Print
Reprint
Learn RSS

Talkback

We would love your feedback!

Post a comment

» VIEW ALL TALKBACK THREADS

Related Content

Related Content

 

By This Author

Reed Business Information Resource Center

Featured Company


Related Resources


Sponsored Links

 
Advertisement

More Content

  • Blogs
  • Podcasts

Blogs

  • David Farkas
    Dave's Dispatch

    November 17, 2009
    "Structural Change" is Coming
    Here's a succinct analysis of what's hurting restaurant sales. It comes via Jeffrey Bernstein, a sharp restaurant ......
    More
  • David Farkas
    Dave's Dispatch

    November 16, 2009
    In the Realm of Kings
    This weekend I dropped by a Kings Restaurant in Monaca, Pa., some 30 miles northwest of Pittsburgh. I hadn't been in one of t......
    More
  • View All BlogsRSS

Podcasts

  • Blake Rohrabaugh
    Bottoms Up: Drink Menu Trends at Bar Louie
    When Beverage Director Blake Rohrabaugh joined Bar Louie, in 2003, the Glenview, Ill.-based chain had just nine units. It has since added 43 and now totals 52 restaurants in 17 states. Rohrabaugh, who describes the concept as a "hip, laid-back neighborhood bar" with a 50-50 food and beverage sales mix, talks about blunting the recession with promotions, getting help from vendors and winter drink trends. Hear It Now

    Sign up for the VIP Radio Podcast RSS feed

    View All Podcasts Subscribe Now to VIP Radio and never miss an episode
Advertisements





NEWSLETTERS

Get restaurant industry news, trends and business-critical information delivered directly to your inbox!

Chain Leader Executive Briefing
Quick Service Reporter
Newsfeed
Recipes & Ideas
eBurger, eBurger
Beverage Briefing
Regional Cuisines
Noncom Niche
In Balance
R&I and Chain Leader eMarketplace
Flashnews
Service Insights
The Specifier
When to Replace
FE&S eMarketplace
HOTELS' Daily News Service
HOTELS' eMarketplace

Please read our Privacy Policy
About Us   |   Advertising Info   |   Site Map   |   Contact Us   |   FREE Subscription   |   Useful Sites   |   RSS   |   Help
© 2009 Reed Business Information, a division of Reed Elsevier Inc. All rights reserved.
Use of this Web site is subject to its Terms of Use | Privacy Policy
Please visit these other Reed Business sites