Big Subs: Multi-Unit Operators Fuel Rapid, Efficient Expansion
Subway continues to sizzle as one of the hottest franchises going. For the 15th time in the last 20 years, Entrepreneur magazine's annual Franchise 500 rankings have listed Subway as the number-one franchise opportunity. For perspective, when the chain was first named to the list in 1988, it had about 4,000 locations. Today, the chain operates 27,732 shops in 86 countries (as of June 2007).
Multi-unit operators are a big part of that expansion strategy. "We have encouraged multi-unit ownership since our early days of franchising because we understood that a solid group of experienced franchisees could help build the business quickly and efficiently," says Subway's Don Fertman, director of franchise sales.
"The advantages of the multi-unit approach are that experienced franchisees can open restaurants faster, they tend to be better operators, they have higher average unit volumes, and they can build an infrastructure to help decrease employee turnover," he says.
Fertman says the company looks for multi-unit owners in every market and, as incentive, offers reduced franchise fees to owners who are running their restaurants in compliance with the company's operations manual. "Over 60 percent of our franchises are awarded to existing franchisees," he says.
But he also points out possible downsides to multiple-unit ownership. "A franchise owner can grow beyond his or her abilities, and there are potential financing issues. Not all franchisees have equal abilities to build an organization."
Subway operators come from all walks of life. "The majority of our leads come from our existing customer base," he says. When awarding franchises, the company tends to give some preference to current owners, especially in markets with higher restaurant density. But ultimately, they are looking for people who are entrepreneurial in nature, have the ability to finance the business, and are willing to be hands-on owners and operators.
But, says Fertman, they can have other interests. "Some of our owners are involved in other concepts, though it's not necessarily encouraged," he says. He also thinks that in the near future, Subway may acquire some other brands its existing operators could participate in.
Subway does provide special training for its multi-unit operators, he says. "We have educational programs for our multi-unit owners and we conduct roundtable conference calls directly with our founder and CEO to encourage their input on any and all topics."
The company encourages input from its multi-unit owners, and Fertman says their experience helps make the entire system more efficient and effective. "We give great credence to our larger multi-unit owners who have grown up within our franchise system."
And what of the challenges those owners face growing beyond 50 or 60 units? Says Fertman, "Basically as a multi-unit franchisee gets to higher levels of development, the requirement is primarily to hire the right people to staff and maintain the infrastructure."
Hiring and retaining the right people, and maintaining an infrastructure are top priorities for Eric Werner, CEO of Fort Worth-based Texas Subs, which operates 62 Subways throughout central and north Texas.
The 43-year-old Werner says the company has been franchising with Subway since 1991 and that growth is snowballing: eight new stores in the last year alone. "Just a couple of years ago we had a goal of reaching 50 stores by 2012, so we're pleased with our progress," he says.
Operating 62 Subway stores is a significant operation, ringing up $30 million in sales annually. Werner says one of the keys with an operation this big is having all the right people in all the right places--and keeping them there.
"In addition to our officers, we have two directors of operations and two human resources managers," he says. One of the HR managers handles compliance and training issues, while the other oversees recruiting and retention.
"There are so many issues at work out there that make it tough to staff and maintain a consistency with 700 employees," he says--especially the challenges found in managing Gen X and Gen Y employees, and an increasingly competitive market for workers of this age.
Texas Subs starts every new employee with a two-hour orientation process that includes a comprehensive employee training workbook filled with the basics. "It's important for our employees to understand there's a certain way we do things and that we expect things from our employees," says Werner. Texas Subs augments Subway corporate training and retaining tools with some of its own.
Werner says employees throughout the system are rewarded based on performance, not just given a gratuitous raise on an arbitrary date. Area supervisors, who oversee several stores, also receive bonuses based on performance.
The system must be working. "We really don't have a lot of turnover with our store managers," he says--and their stores consistently outpace the average Subway store unit volume by 40 to 50 percent.
Currently, Texas Subs isn't operating or considering other brands or concepts. "I just feel like focus on what you're doing with one franchise. Be aggressive, run efficient stores," he says. "We're at 62. If we want to expand, I'd rather see us do more Subways rather than get into something else."
Having an established and functional infrastructure is a vital part of being a successful multi-unit operator, says Werner. "You need a proven plan in place, a certain method that makes it all work. Look at how you want to expand, where, and when." When you've systematically done that, he says, then you can move, delegate, and follow up to make sure everything flows properly.
"Just remember, the bigger you get, the more challenges you will face," he says.
Indeed, overseeing 62 stores is some feat. "I can't go in every store, but that's why I have area supervisors," he says. Each area supervisor is responsible for five to seven stores. The directors of operations are then responsible for four to six area supervisors. It's a matrix that has worked well for Werner.
"I have a hands-off management style, I want people to be empowered. I try to be fair and honest with everybody, and I think that earns respect." And respect helps motivate employees.
With those more than 700 employees system-wide, Werner is concernd about the effects of the minimum wage increase. "We'll just have to increase sales and cut other costs to cover the difference," he says. (See Tax Matters, page 57.) He had to implement a similar cost-cutting strategy last year when his contract with his electricity provider expired and the new agreement was significantly higher. "You just have to make the adjustments to continue to run a profitable ship."
Looking ahead, Werner says he's already focusing on another Texas territory he'd like to snatch up for development. He'd also like to continue increasing system-wide sales by 5 to 10 percent annually. And he says he'd feel good about expanding to 70 stores by the end of 2009. "We have a cookie-cutter approach to growing. I just want to keep applying that model," he says.
CloseUp: Eric Werner
Memorable first job: Working at a country club in El Paso. It was a diverse experience that exposed me to lots of people. I worked on the golf course and as a waiter. And, at the time, it was great pay.
Professional tip: Generate and review monthly P&Ls for your business. You should have an outside accounting firm do it--it's worth every penny you'll spend.
Key education: The two years I spent at Wal-Mart in the 1980s. The training was superb and I learned and absorbed everything I could.
Role model(s): Truett Cathy and Sam Walton. Both of them had great leadership abilities and people believed in them and followed them. Their energy was contagious. One of the keys to their success was they invested much of their time and energy identifying a niche business.
Currently reading: Rich Dad, Poor Dad by Robert T. Kiyosaki
Others say you are: Either very smart or very crazy
Business news sources: Restaurant News, Business Week, internal Subway publications
Favorite web sites (besides your own): I look at lots of web sites. Often I just do keyword searches when I'm looking for more information. I also look at eBay and various QSR sites.
Franchise systems (besides your own) that are creative: Taco Bueno, Salad Creations
Favorite quote: Do unto others as you would have them do unto you.
Best advice anyone ever gave you: Focus on one business at a time, devote your energy there.
Best advice you ever gave anyone: Life is short, make the most of it. Don't dwell on the negative. Your attitude dictates your life.
Biggest project for the year: Acquiring, growing, and developing Subway stores
What you do to unwind: Work out three times each week, get a massage once a week. Spend time with my family and go to movies.
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