Want To Grow Your Franchise? Focus On Profits


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Anybody paying attention to the restaurant industry recently has seen what can happen to a brand that doesn't focus on franchisee profitability early enough in its history. Quiznos, the Denver-based sub chain, filed for bankruptcy following mass closures of franchisees because they simply couldn't generate profits.

Still, it's worth a reminder. Profits matter in a franchise brand. Chains that succeed in helping franchisees generate profits can grow. They get loans for their operators, who are far more likely to develop new units than are those brands that aren't profitable.

At the Franchise Finance & Growth Conference, held by our sister publication, Franchise Times, lenders said that one of the primary things they look for in a brand is a focus on profitability. And that can't be just a superficial focus. It must be part of the brand's "DNA," they said.

That's been a major part of the success for a number of brands recently. One of them is Popeyes, the Atlanta-based chicken chain that has increased its share of the country's QSR chicken market by a third over just the past five years. 

The company has worked hard to make sure its franchisees are profitable, and that demands don't cost too much. That includes not demanding costly POS systems, for instance. Its relationship with operators is among the strongest in the industry, and we get that from the brand's franchisees.

That profit focus has made certain things easier. To wit: The chain expects to finish remodeling its entire system by the end of this year, and it just started that program in 2012. On average, remodels generate sales increases of 3-4 percent and while that's not on the same level as some other chains like Burger King or Wendy's, it's still a quick and relatively easy system overhaul. And that overhaul is helping the brand maintain sales momentum.

Of course, it's also much easier to be profitable when your system's sales are growing. In 2008, Popeyes average unit volumes was $1.2 million. By last year that increased to $1.6 million. That's a substantial increase in just five years. And when unit volumes grow, EBITDA grows with it. "As one of our franchisees said," said Grady Walker, the chain's treasurer and finance director, "If you don't add it on the top line, you can't bring it to the bottom line."

The result of all of this for Popeyes is a growing brand. About 20 percent of the chain's units have opened in the past five years. And 80 percent of the company's new units are being built by franchisees. 

It's not just Popeyes. Bojangles, the Charlotte-based chicken chain, has likewise earned steadily increasing unit volumes that are now more than $1.7 million, thanks to an ultra-strong breakfast business that represents 40 percent of sales. EBITDA margins average 16.1 percent. And franchisees are building: The chain is one of the fastest growing brands in the country. 

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