Starting Points
A healthier economy spurs restaurants to make the leap from concept to chain.
By Jamie Popp, Senior Editor -- Restaurants & Institutions, 5/1/2005
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When Nancy Roskin and her husband, Jeff, moved from Connecticut to Scottsdale, Ariz., in search of warmer weather, they found not just sunshine but also inspiration and impetus to enter the restaurant business. The couple’s first 3 Tomatoes & a Mozzarella—a Tuscan-style bistro concept—opened five years ago. Now, with a second having opened in March in Owasso, Okla., they are embarking on a franchise journey that they hope will take the concept across the country.
The Roskins are not alone in their casual-restaurant franchising endeavor. Rosemont, Ill.-based NPD Foodworld finds that chains increased their share of the restaurant industry—at the expense of independents— by 3 percentage points between 2001 and 2004. The improving economic environment has inspired not only franchise owners, but also prospective franchisees, who are “better capitalized, have better management experience, better education and are increasingly diverse investors,” according to the 2005 Franchise Business Development Forecast and Industry Trends Analysis recently published by Franchise Recruiters Ltd., Crete, Ill., an international executive-search corporation dedicated to franchising.
Furthermore, as a testament to increasing interest in franchising, the International Franchise Association, Washington, D.C., hosted the largest delegation of new members at its recent annual meeting and an overflow crowd for the third year in a row. “Franchising in general seems to be extremely strong,” says Jerry Wilkerson, founder of Franchise Recruiters Ltd. and former president of the International Franchise Association. Franchise concepts such as 3 Tomatoes are discovering a ripe environment for growth.
Finding a Niche
An accountant by trade, Nancy Roskin admits she started the
restaurant with no industry experience. But she believed
she and her husband could make a better pizza than what they
found in Scottsdale. She trusted her gut instinct that pizza
with a great crust would translate into good business in
the snowbird community.
“I think pizza has to have a thin, chewy and crisp crust,” she says. “It has to have a bite and pull. Without a great crust you have nothing.”
Building on that simple premise, the couple flew in their favorite pizza chef from Connecticut to show them how to create the “perfect” dough, after which they bought the recipe. To ensure the restaurant’s success, they hired not one but multiple culinary school-educated chefs and worked with consultants and public-relations experts to help open the first 3 Tomatoes in 2000.
In addition to focusing on the back of the house, the Roskins wanted to create the right ambience in which to serve pizza. “A restaurant has to have more than great food,” she says. “Part of it is making people feel special, almost as though they are part of the restaurant.”
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Reminiscent of a Tuscan villa, 3 Tomatoes is outfitted with copper-topped tables, trellises and candles; Italian music plays in the background. Diners can watch meals being prepared through a glass-fronted kitchen. In addition to indoor seating for 65, a patio accommodates 35.
“We fit a certain niche,” she says. “We have a beautiful restaurant but prices are not high. If the economy is slow, people use us as their high-end restaurant. If the economy is good, people come two or three times per week.”
At the Scottsdale location, items range from pizza and pasta to salads. It menus two different red pizzas, one with a smooth cooked sauce and one with chunky tomato sauce. Diners have a choice of whole-wheat or white crust and 23 toppings.
Menu items price from $7.50 for panini sandwiches to $22 for the largest “Specialita” pizza. The Scottsdale unit offers wine and beer for its dinner-heavy service. The Owasso location and future units are expected to do a larger lunch business and be geared for happy-hour specials with full bar service.
Using simple recipes and efficient systems of preparation in which every ingredient has multiple uses, the restaurant operates at 20% food cost, according to Nancy.
Keeping Control
Though the Roskins knew they were on to something with the first
restaurant and wanted to expand, the process wasn’t entirely
clear to them. “Two years ago we decided the way to grow
is to franchise, which is hard for me because I am very fussy
about my product. I watch everything that goes out of the kitchen,” she
says. “I am in the restaurant talking to people every night
as though each of them is the only person in the store. That
personalized service is a lot of my concept.”
Working with Scottsdale, Ariz.-based Global Restaurants Development Co., a consultancy headed by former Brinker International executive George Krotonsky, the Roskins are relying on professionals to help sell franchise locations and manage growth.
“We’ve sold four restaurants in Tulsa and five in Las Vegas,” Nancy says.
Although the Scottsdale unit measures 2,000 square feet, franchised locations will be 50% larger to accommodate as many as 90 customers. Turnkey packages for potential franchisees call for an initial investment of up to $425,000 per store, which includes equipment and leasehold improvements.
The company depends on its partnership with Global Restaurants for marketing to potential franchisees, done both online and via newspaper ads. The Roskins also market the restaurant to out-of-town customers to build its franchisee base. The consultancy also evaluates the viability of franchisees from a financial and experience point of view, based on criteria established by the Roskins.
“Global has come up with a sliding pricing scale,” Nancy says. “They wanted a minimum of a five-restaurant investment in one location or across the country. If someone invests in five restaurants, then each restaurant is $25,000 per franchise unit and we receive 5% of the growth for royalties.” Start-up fees include use of the 3 Tomatoes trademark, real estate development and assistance with location, contractors and marketing from the development group, she says. Other costs include paying for the build out.
Once a franchisee is ready, training begins. Part of the process involves a visit by the prospective franchisee and staff to the flagship Scottsdale restaurant. After 31/2 weeks of training, the franchisee is visited by the Roskins for one week to ensure all systems are running properly.
In addition to Nancy’s direct involvement, Jeff Roskin, Director of Operations Nicole Libman, who oversees franchisee training and store openings, and Corporate Chef Nola Krieg, who handles menu creation and staff development, are instrumental in supporting franchisees.
Having recently opened the second 3 Tomatoes location, Krieg spent three weeks in Owasso, Okla, a town just outside Tulsa, Okla., with 18,500 residents.
“It opens your eyes to the small towns that don’t have restaurants,” Krieg says. “I think they’ll do very well.”
Franchising Basics
Opening
company-run stores is expensive and
involves capital investments that many restaurant operators
cannot afford. Franchising is an attractive alternative
for owners who believe they have a concept with growth
potential. Knowing how to franchise can save headaches
and money in the long run.
“Foodservice operations that are doing well always have the idea that they want to be the next McDonald’s or Subway, which I think is great,” says Harold Kestenbaum, a Uniondale, N.Y.-based attorney who works with restaurant franchisors such as Sbarro Inc. and a number of chain start-ups. “The problem is they don’t understand how those larger companies got to where they are. It is monumental in terms of what it takes to get there. In order to do it you need enough capital, good outside guidance and smart managers.”
On average, Kestenbaum estimates that a prospective franchisor can spend $125,000 working with consultants on legal documentation, operations manuals, marketing plans and other business development. The marketing budget can eat another $5,000 to $10,000 per month to attract the right franchisees. Additionally, franchise registration fees can be as high as $5,000 if the company registers its idea in more than one state at a time.
“Franchising is a different business unto itself. It is not the same thing as running a pizza restaurant,” cautions Kestenbaum. “You are going to be working with franchisees who are spending $100,000 to $300,000 to open a store versus a person who buys a $5 lunch.”
For first-time franchisors, Kestenbaum suggests hiring someone who has experience franchising to manage the franchise company. He also offers these additional recommendations:
- Establish the business. A restaurant with more than one profitable unit in operation for more than one year has greater potential for success. Additionally, a franchisee is going to want to inspect the restaurant before investing in the idea and opening a location.
- Get involved with a good franchise attorney. Using a corporate attorney or a family friend, although possibly less expensive, can lead to disaster, he says.
- Find a good consulting group to help manage operation and marketing materials. A consultant can help the franchisor develop manuals, marketing brochures and a Web site, which should include such things as a franchise opportunity link.
- l Understand state requirements to register the franchise. In order to submit and have a franchise approved you have to have a financial statement, or form a new company to function as the franchisor with an opening balance sheet, which costs less than a three-year audit.
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