Life After Covid
Looking ahead while still dealing with today
While Eric Werner continues to take a one-day-at-a-time approach to navigate his Texas operations through Covid-19, the multi-brand franchisee also is focused on sustained recovery for future growth.
Werner, owner of 41 Subway restaurants and 8 Beverly Hills Rejuvenation Center spas, experienced more lows than highs in the early weeks of the coronavirus pandemic. His Subway sales were initially down 70%, and he was forced to shut down his med spas. Amid the unsettling fear of the unknown, he went to work exhaustively learning the nuances of coronavirus relief options, because, he says, information helps you make good decisions.
“What I didn’t expect was the support coming from the outside,” says Werner, who also is a franchisee of Little Caesars and the fast-casual seafood concept The Catch. “It was really cool. You got help from banks, landlords, suppliers, and franchisors. Everybody rallied around you—people who were there for us in truth.”
Perhaps never before has the popular catchphrase “We’re all in this together” meant more in franchising, where a brand’s network is only as strong as its franchisees. As operators from coast to coast begin the transition from survival mode to reimagining new ways of doing business, multi-unit franchisees are echoing Werner’s sentiments.
Omar Simmons, one of the largest franchisees of Planet Fitness, credits system-wide collaboration of best practices and strategies in areas such as landlord negotiations, marketing, and development as key to the brand’s ability to adapt to the changing landscape.
“Everyone attached to our business has pitched in to help us endure these unprecedented times,” says Simmons, founder and managing partner of Boston-based Exaltare Capital Management. “Our landlords, lenders, franchisor, other franchisees, and our team have been incredible. In the end, none of us is independent. We need each other to be successful.”
Planet Fitness partnered with its franchises to develop a Covid-19 operations manual focused on elevated sanitation protocols and safety procedures. The task force’s documented guidance paved the way to convince governors, medical professionals, employees, and club members that the brand could open its doors and operate safely, Simmons says.
Simmons is now entering what he says is “the most rewarding part of this struggle”: welcoming back furloughed employees and members at 103 Planet Fitness gyms in 6 states and Canada.
“I am blessed with an extraordinary team,” he says. “No business works well with months of zero revenues. Our team has minimized our burn rate, kept the team prepared, and helped co-create a strong reopening plan customized to keep everyone safe in a post-Covid, pre-vaccine world. We still have a lot of work to do as we reopen to serve our members, but I could not be more appreciative.”
Lobbying for franchising
Relationships built over years of advocacy with legislators and regulators have proved invaluable, particularly during the early days following passage of the CARES Act, says Robert Branca, a large Dunkin’ franchisee who chairs his brand’s government affairs committee.
The committee, in coordination with the IFA, NRA, and others worked to ensure that franchisees were not left out of the government’s PPP loan forgiveness program. Dunkin’ also held webinars and sent out “voluminous” amounts of email to franchisees to communicate information as it became available, and later as it continued to change, says Branca, who operates 89 stores in Massachusetts, New York, and Ohio.
“We had direct, often immediate access to decision-makers and were able to provide our perspectives and our experiences on the ground in trying to serve the public,” he says. “This was completely new to everyone, so no one had preconceived notions, and the ability to provide facts in real time was critical to us. This also allowed us to get prepared for the massive new programs that were rolling out, with the rules changing hour to hour, let alone day-to-day.”
Getting an early jump
David Barr, past chairman of the IFA and a multi-unit franchisee of 30 KFC and Taco Bell restaurants, also has been on the front lines to ensure that franchising obtained its fair share of the PPP loans. Barr, chairman of PMTD Restaurants and its affiliates, also is a franchisee of multiple brands, including Capriotti’s Sandwich Shop, The Spice & Tea Exchange, and The Lash Lounge.
Having seen the impact of the virus on business in China just 2 months before the pandemic reached the U.S., the seasoned franchise executive advocated for a focus on liquidity for every company he had a stake in as a franchisee, franchisor, or board member. He recommended “reviewing payroll needs in light of consumer behavior and government mandates, having immediate conversations with landlords, and being sure that lines of credit are available.”
Barr also worked to find lenders and assist with applications for franchisees associated with the 8 brands where he holds investments or board seats. “A franchise system is only as good as its franchisees, and on the other side of Covid-19, we believe it is important for franchisees to be well-capitalized,” he says.
The pandemic affected each of Barr’s businesses differently, requiring a tailored response for each. “In our KFCs and Taco Bells, we experienced immediate sales declines, but had a sense that delivery and drive-thru business would come back, and thus we did not furlough any employees. In other businesses, where we had to 100% close operations, we kept the managers on the payroll at their full wage and furloughed the hourly employees,” he says.
“As employers, I know many of us feel like we are competing against the increased unemployment pay. However, there is always good after bad. The good has been that we knew our furloughed employees were able to be safe and provide for their families. We now look forward to the economy reopening and having all of our teams back together.”
The nature of franchising also allowed franchisees to swiftly adapt and adjust systems and processes on the fly. When Dunkin’ limited store service to drive-thru, carryout, and delivery only, Branca quickly refined his business model, implementing a hazard pay/attendance bonus to reward employees who remained on the job; keeping crew shifts in teams and limited to a single store; and hiring a cleaning company with sanitation procedures in place to be on call if needed. He also ramped up marketing to promote the benefits of the brand’s On-the-Go Mobile Ordering app, which allows guest to order in advance and pay remotely.
“We tried to do the same thing everywhere so that practices were easier to implement, enforce, and follow,” says Branca. “That’s actually very much the DNA of franchising overall. We went to the strictest standard and provided masks, gloves, sanitizer, and doubled down on existing cleaning procedures. Food safety and sanitation is already second nature to us, as is serving through the drive-thru.”
Prepping for the next new normal
The need for operators to adopt an “information is power” approach remains vital to recovery as businesses emerge from the pandemic with more operational questions than answers. Tough decisions lay ahead for franchisees navigating in the next new normal.
“We have had a difficult time calling people back from unemployment, either because of the enhanced unemployment benefits, or genuine health fears for themselves or susceptible family members back at home,” says Branca. “I find it hard to tell a worker who is scared for health reasons that ‘doing the right thing’ is to come back to work, especially if it is less economically advantageous for his or her family.”
Werner, whose Beverly Hills Rejuvenation Centers are up and running with updated procedures as his restaurant sales edge back to normal, says owners will have to continue to tend with “mountains of misinformation” regarding the coronavirus, yet still honor the fact that the habits of some customers may be forever changed. And he, along with many other operators, is rethinking remodels and will look hard at the future development of drive-thru only shops.
Opportunities for the prepared
As with every big economic event there will be both failures and opportunities that come with consolidation and new availability of prime retail space.
“I’m in really good shape and we are big already,” says Werner. “I just want to protect the company. I wouldn’t shy away from investing, but it would have to make a lot of sense for me.”
Simmons—who already operated in an expanding health and wellness space before Covid-19 and who now sees a public with a greater appreciation of the mental and physical benefits of fitness—is cautiously optimistic regarding new club development and smaller acquisition opportunities. “We don’t think there is any shortage of ways to play offense,” he said on a recent episode of the health, active lifestyle, and outdoors podcast HALO Talks.
Barr, an optimist by nature, believes “all of us will get through this crisis.” Still, he says, there are many more chapters to be written on the impact of Covid-19. “With 40 million people unemployed, I worry that eventually government assistance will be pulled back and consumer spending will decline. If that occurs, the focus in 9 months will be on how brands bring value to the everyday lives of consumers,” he says.
Branca agrees, and says it’s tough to predict the forever changes, starting with how the government’s role in recovery will evolve. He projects severe budget shortfalls at the federal, state, and local levels as people take fewer business risks and tax revenues continue to fall short.
“Some governments may shrink, with less room for increases in public and quasi-public agencies,” says Branca. “Some may continue with the easing of regulations that allowed businesses to stay alive during the pandemic to spur growth and get people back to work. Others will double down and raise taxes and intensify regulations, even in the post-pandemic economic devastation. It won’t be boring.”
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