Management – March 2010
Franchising for Growth and Sustainable Earnings
by Richard Ungaro, owner of RU Investment, LLC, a business consulting practice that helps companies in transition
The larger successful brands may boast of “how we did it,” but few would admit to what they learned along the way that caused them to stumble.
I began my journey in franchising in 1972 as an Industrial Engineer for Burger King Corporation, in Miami. My contribution was to implement a Labor Scheduling System for store managers that also improved the proficiency for each store employee, created a much improved store layout which improved the overall sales-to-labor productivity. Years later, I became the first Vice President of Architecture and Construction where we designed all of our store configurations for maximizing our peak-hour capabilities (Customers per Minute). We focused our performance on our Sales-To-Investment Ratio and maximizing our store level profit because that was the common ground for company and franchise restaurants.
In 1981, I joined Wendy’s during their tenth year. Over the next nine-years, we opened thousands of new restaurants. During their peak growth years, Wendy’s opened over 500 new stores per year. Internally, the health of our system was not only gauged on the stock price and earnings per share – we were focused on the profitability at store level because that was the common ground we had between the Company-owned and Franchise-owned restaurants. We knew that if our franchisees were making more money – they would build more stores. If the company stores were making more money – we would report higher earnings and everybody would win. Our entire Senior Management Team was committed to constantly improving the External Guest Experience by focusing on the Internal Guest (most companies call them employees). Dave insisted on quality food, quick service and clean restrooms. To all of us, Dave Thomas was more than our founder and spiritual leader. He was also Wendy’s dad.
In 1990, I joined the Wayne Huizenga’s group at Blockbuster Entertainment, when we only had 900-stores open. During the next seven years – we never opened less than 700 new stores in any given year and when I left, we had 6,500 stores operating. That growth was due to company-owned and franchise-owned stores earning more money than they were expecting. Our entire Senior Management Team was focused on improving the “movie knowledge” so our store associates could match our members to the movies that they would like. Once again, the health of our system was gauged by the store level profits for our company and franchise stores for the same reasons mentioned earlier.
Our Wendy’s franchisees were a critical barometer to how we were doing. We had Two-Commandments regarding our franchisees.
- Never give a franchisee the simple privilege of paying more royalty without any incremental flow-thru profit.
- We don’t make money on royalty income. We only make money when the franchisee is building more restaurants and that won’t happen if you violate Commandment #1.
My time at Starbucks was a short one, but when I joined the Howard Schultz team at Starbucks Coffee Company, we had 250-stores operating in the US and had just completed opening 100-new stores the previous year. We were going to begin to reproduce the West Coast success on the East Coast and we opened 150-new stores in 19-months, always focusing on delivering The Starbucks Experience to every Guest, every day in every store. We did that by focusing on the job enrichment and training that we provided to all of our Store Partners (most companies call them employees). All of our growth was through company-owned stores, but store-level earnings were the key to what has become a very successful, quality brand.
Over the most recent years, some of these brands have lost their way, which I believe is due to their departure from what made them successful – Focus on Store Level Profits at in the Company owned and Franchise owned stores. Never build new stores beyond the ability of developing people to operate them.
What do all three of these brands have in common? How did they facilitate their “exponential growth” plans? Obviously, all three brands had access to “publicly traded” funds – but their successful growth rates were far more attributed to other commonalities.
All three brands had a point of difference from their competitors. They differentiating and exploiting that difference against the industry, while hiring and training the “internal customer” dedicated to exceeding the expectations of the “external customer”.
Dave Thomas said it the best, “Never open stores faster than your ability to develop people”. In fact, growing pains are simply the result of growing a business faster than your ability to operate. In all 3 of these companies, we had a “people-plan” as part of our “asset-plan” for growth.
Regardless of your industry, your customers are most essential to your business success and your ability to survive during a good economy and the poor economic times. Constantly upgrade your staff, especially during periods of economic slowdowns because if you are focused on outstanding customer service, mediocrity is most apparent when sales begin to slide.
Never expand by transferring experience managers into your new operation unless you are guaranteed that there is competent management to replace them. To do otherwise, you will experience “profitless-prosperity” – or negative-same-store-sales while you are growing exponentially.
Rich Ungaro has an extensive 40-year career as a Senior Executive with a special focus on turnarounds, differentiating brands and exponential growth which leads to sustainable competitive advantage.
He worked in a variety of leadership roles with Burger King Corporation, Wendy’s International, including Senior Vice President of Operations in the US and Chairman for Wendy’s of Canada. Rich also served a variety of executive positions with Blockbuster Entertainment Group and as Zone Vice President for Starbucks Coffee Company when the company only had 9 retail stores open within the East Coast markets and 250-retail stores nationally. Within 24-months, the East Coast team opened 150-new retail stores at a rate of one new market each month.
In 1999, Rich led a turnaround for Sara Lee Corp as President, CEO for Barnie’s Coffee & Tea Company – a $50 million dollar company with two-consecutive years of negative same store sales and losing $4 million a year. By 2003, Barnie’s Coffee was debt-free, earning $4 million in profit with positive same-store sales.
Currently Richard Ungaro owns RU Investment, LLC, a business consulting practice that helps companies in transition and in need of a turnaround plan. Rich is also a Director for Expense Reduction Analysts, a worldwide company that specializes in reducing overhead expenses. He can be reached at rungaro@expensereduction.com