Subs, Burgers, and Tans: Lone Star Operator Continues To Add Brands

The last time we visited with Eric Werner, he had just signed a deal with the up-and-coming LA Sunset Tan franchise. That was 2008, and he had become one of the brand's first franchisees and an area developer for the Dallas area. He's quite familiar with the Texas market because he's been operating dozens of Subways there for almost 20 years. When we checked back with him recently to see how things were going, his vivacious response was, "Of course everything is going very well!"

He currently operates 56 Subways, with plans to open three more this year. Sales, he says, have been up dramatically the past 3 years thanks to the Any $5 Footlong promo and solid operations.

"I may have owned a few more Subways when you did the last profile, but I had some great offers to buy some of my stores so I sold them," he says. "However, my long-term goal is to own 70 high-volume Subway stores with strong operations and high profitability."

He's also happy with his LA Sunset Tan salon, which he said took some time to reach a revenue goal he was satisfied with. "This last year was an incredible record-breaking year, so now I plan on opening at least one LA Sunset Tan every year in the DFW area for the next 20 years. Within the next 10 years I should have 15 salons open in the DFW area."

He says LA Sunset Tan has in some ways turned out to be his most satisfying endeavor because it's "a fun business that's so easy to operate," he says. "It's totally different in that you have to build your membership up just like a gym, but by the time we entered our third year we were extremely profitable," he says. "I truly can't wait to see what happens in 2012! It's one of the best kept secrets out there in franchising."

As if all of this was not enough, he recently opened a Mooyah Burger & Fries in his home base of Killeen, Texas. "I like the concept and the food is way better than 5 Guys Burgers and Fries and Smashburger." He's taking a wait-and-see approach to additional Mooyah locations. He wants to see how his Killeen location--home to the Army's Fort Hood--does after all the military return from deployment.

And that's just the business side of Werner. On the personal side, his wife is pregnant... again. It's their ninth.

Name: Eric Werner
Title: CEO
Company: Texas Subs (Subway); DFW Tanning (LA Sunset Tan); Benchmark Burgers (Mooyah Burgers & Fries)
No. of units: 56 Subways, 1 LA Sunset Tan with a second scheduled to open in 2012, 1 Mooyah Burger

Personal

Age: 48
Family: Married 11 years, with 8 children and one more on the way.
Years in franchising: Started with Precision Tune in 1987, moved to Subway in 1991.
Years in current position: CEO of Texas Subs since 1997.

Key accomplishments:
Our company has made the Inc. 5000 list of the fastest-growing companies in America for four years now. We have won the Subway worldwide contest for the fastest sandwich maker in the world several times. We have been awarded Subway Franchisee of the Year five times. And we've been recognized as one of the largest QSRs in the country.

Biggest mistake:
I opened a unit under the franchise brand Orange Cup Yogurt and it just didn't perform to our expectations. But you learn that not everything you do is successful and you can learn from your mistakes.

How do you spend a typical day?
Looking at how we can grow the company, working on strategy to implement ideas to increase sales or decrease operating costs, determining whether we have the right contingency plans in place, and communicating with my upper layer of management. I also analyze financial reports looking at costs and revenue numbers, watching for red flags on a weekly basis. Being the face of the company by providing leadership and vision.

Work week:
A typical week is filled with all kinds of activities that pertain to plotting, planning, and strategizing. I meet with my COO and other department heads biweekly. It's my responsibility to maintain a beneficial relationship with our lenders and our landlords. I will look to secure financing for a project or finalize a lease for a new store. And it's likely there will be a board meeting in there somewhere with Subway FAF or other organizations. I do try to balance my work week between work and family, so you might find me coaching football or basketball or meeting my kids for lunch.

Favorite fun activities:
Working out with weights, playing adult soccer, coaching kids' sports teams, playing poker, and chess. I like to travel, especially with my wife and kids!

Exercise/workout:
I work out with free weights three times a week for 45 minutes to an hour. I will do cardio two to three times a week with the HIIT method on the treadmill. It serves as a great stress reliever and makes me feel good to be taking care of myself. I have been working out for 18 years!

Favorite tech toys:
iPhone 4, iPad

What are you reading?
I just finished The Shack by William P. Young. I use audio books a lot. Business pubs like Inc., yours, and Franchise Times.

Do you have a favorite quote/advice?
The Golden Rule: Do unto others as you would have them do unto you.

Best advice you ever got?
"Sometimes being quiet is better than speaking" and "No decision can be the best decision."

Formative influences/events:
When I graduated from Texas Tech University I started working as a manager at Wal-Mart. During this time, I completed their entire training program, which helped shape my style and approach to business. My two years of working for Wal-Mart was like getting another business degree as it helped my success with franchising. I thought that I should work for a very successful company to see what makes them successful and really admired Sam Walton at that time.

How do you balance life and work?
It's a juggling act and comes down to prioritizing. Each day I go through what has to be done at work, then what is most important to me in my life that day. It might be more important for me to spend time with my wife than work that day if there are no emergent issues. At work, I am very efficient and always have a plan of action in mind once I am in the office. There are many instances in which I will take "homework" with me. This is work that I can do at my house at my own discretion. My belief is that time and what you do with it is what is most important as you age.

Management

Business philosophy:
A couple of key terms here: empowerment, open and candid, honesty, fair, and follow up. First, empowerment is an atmosphere I try to create where employees can make their own decisions and excel. I want them to have an attitude as if they were the owner. The backbone of our management philosophy is centered around being honest, open, up-front, and fair with everyone. You will receive more respect from your peers. Whatever decision you make for one employee you should be willing to make for another employee. Finally, follow up on everything you have delegated to make sure it gets done! This is the weakest link for most managers.

Are you in the franchise, real estate, or customer service business? Why?
Definitely all three; however, if you're not operating at a profit then you don't have a business. Even though we are a food franchise, we are in the business of taking care of our customers. Sales solve a lot of problems. As a franchisee I do own some real estate including eight of my Subway locations.

What gets you out of bed in the morning?
A love for life. I appreciate life and I love what I do. Life is a blessing for all of us.

What's your passion in business?
Developing people and growing the company. Seeing people who are a part of this organization succeed is rewarding. Growing the company, efficiently, is exciting because you never know where you will be in 5 years!

Management method or style:
Coaching. I like to empower people to be in the game, but I can help lead and direct them to carry out their tasks. My experience allows me to see the big picture, while sometimes employees may only have a more narrow or myopic view of what's going on. I provide guidance and support.

Greatest challenge:
Finding good people who want to make something of themselves. Also, time management.

How close are you to operations?
I try to be around so my people know that I am out there and do exist. However, it is virtually impossible to be in all my stores. That's why I have a COO and several area supervisors. They are my eyes out in the field and we connect daily by text, email, or in person. I also schedule biweekly meetings with them to cover manager and store performance as well as to review customer comments.

Have you changed your marketing strategy in response to the economy? How?
Subway has promoted the $5 Footlong sandwich, and it has been effective as people search for more value. As for LA Sunset Tan, we've discovered that we can text coupons to our core group of customers and prompt them to come in to the store for products and services.

Personality:
Outgoing and like to have fun--work hard, play hard. I am direct and expect a lot from people because I give the same in return.

How do others describe you?
Generous, fair, funny, but can be to the point at times.

How do you hire and fire?
My people handle this, unless it's a key top position in my company. I can't do everything or I'd go crazy.

How do you find good people?
We have a window cling in all of our Subway stores that reads, "10 Reasons to Work for Texas Subs." So we look to our customer base as well as our website, CareerBuilder, and SnagAJob for finding people. Times have changed; the newspaper isn't as effective as the web.

How do you train and retain?
We have an employee training workbook that we created, and each new hire sits in on a 1.5-hour new employee orientation to cover the basics and fundamentals of our company and Subway. We also emphasize Subway's online training, so we reward our people financially when they complete these courses. Financial incentives are performance-based on an employee's ability. I try to provide good benefits like a 401(k), health insurance, and employee scholarships.

How do you deal with problem employees?
First, we let them know there's a problem and we provide an opportunity for them to correct the problem and a timeline to do it by. If the offense is repeated then the employee is generally suspended, and a third time would be grounds for termination. If an employee is let go we want them to know that we have no other choice after trying everything we can to help them be successful. Always document any incident or counseling as well.

Bottom Line

Annual revenue:
$36 million in 2011

2012 goals:
Opening our second LA Sunset Tan location, and three more Subway stores. I'd like to see us do a 5 percent increase in same-store sales at our Subways and 25 percent over the previous year at our LA Sunset Tan store. It can be done!

Growth meter: How do you measure your growth?
Three ways: sales, customer traffic, and profitability. You have to factor in all of these. And we analyze these numbers weekly instead of waiting for monthly P&Ls. We know exactly whether food or labor is trending in the wrong direction weekly.

Vision meter: Where do you want to be in 5 years?
Own and operate 70 Subway stores. Continuing my development agreement for LA Sunset Tans. And now I've added Mooyah Burger; I hope to have more of those units opened in the next few years.

How has the most recent economic cycle affected you, your employees, your customers?
I think it actually helped us as Subway had the $5 Footlong sub and people were trading down and looking for value when eating out. Customers are willing to spend the money if they believe it has value. I think employees are more appreciative to work and to work for a good company.

Are you experiencing economic growth/recovery in your market?
Texas has not been hit as hard as other parts of the country. We did see our turnover rate decrease because people were content to have a job. Honestly, I believe the presidential election has the potential to bring about a significant economic recovery.

What did you change or do differently in this economy that you plan to continue doing?
We slowed down our unit growth to level out the balance sheet. At our rate of growth we should be debt-free in 4 years.

How do you forecast for your business in this economy?
It's difficult but that's why we review our financials weekly and monthly. We try to make adjustments and keep doing what's working. Every year we do a SWOT analysis of our company to know where we stand currently and in the future.

Where do you find capital for expansion?
We've used local banks to fund growth. Having liquidity, or cash, is extremely important these days. I don't mind taking on manageable debt if it allows me to keep some liquidity in the business. If I borrow, then each business or store has to be able to make its own loan payments.

Is capital getting easier to access? Why/why not?
We haven't had much trouble locally. We have a track record and documented success. The banks know us, they like us, and we provide the kind of information they are looking for whenever they request it. It helps that I have a CFO who can provide any detailed financial information requested. We also provide an annual report to our banks along with current tax returns.

Have you used private equity, local banks, national banks, other institutions? Why/why not?
We work exclusively with 10 area banks. It has just been the best solution for us. National banks and SBA loans just wouldn't work for us. With a local bank you can get approval instantly or receive a line of credit.

What kind of exit strategy do you have in place?
There is no sense in selling a business for 5 to 6 times EBIDTA if I am already operating it because you could get your money back by staying in business for another 5 or 6 years. I do have a contingency plan in place for my key employees, especially in the event of my death. As my kids age I will help them either buy a business from me or start a business of their own.

What are you doing to take care of your employees?
We try to treat every employee with respect and trust and provide an environment where they can excel. Beyond that, we've been known to help employees who are short on cash with advances that they pay back. We offer excellent benefits as a company as well.

How are you handling rising employee costs (payroll, healthcare, etc.)?
Good question! Eventually, you have to raise prices to overcome the increasing costs of food and labor. I will focus on sales more than anything, because as sales increase fixed costs usually decrease.

How do you reward/recognize top-performing employees?
We have a year-end Christmas party where we recognize the store of the year for each region (four regions), and then we present the President's Award to the top store in the company. During this event, we conduct our "Deal or No Deal" game where an employee has drawn a winning ticket and has the choice to receive money or the wrapped present--prizes like an Xbox, iPad, or a cruise. We also have a midyear company meeting at Winstar Casino providing our managers lunch and a $100 gaming token to do whatever they want with it.