Multi-Unit Franchisee Magazine Issue IV, 2011 | Page 53
Sink or Swim?
Mesa, Calif.-based Gala Corp., which operates 25 Applebee’s and Famous Dave’s
restaurants in Southern California and
Phoenix. “The franchisee is now shouldering 90 percent of the risk associated
in the business. Previously it was closer
to 50 percent.”
These financial challenges, heightened
by lackluster sales, governmental regulations, taxes, healthcare uncertainty, labor
costs, and tight credit, mean multi-unit
franchisees today have much less operating margin for error, says Gala, whose
company also provides consulting and
management services to franchisees.
Data-based prayer?
Can you control what is ailing your business?
Franchise attorney J. Michael Dady, whose
Minneapolis-based firm Dady & Gardner
has represented more than 350 franchise
and supplier organizations, says that when
a unit underperforms this is a great first
question to ask. His firm even provides a
kind of franchisee “Serenity Prayer” that
seeks the wisdom to be able to determine
what can, and cannot, be changed and the
courage to know the difference, move
forward, and make changes—even after
you’ve been told there is nothing more
for you to do.
If a unit’s location is good and the
brand is solid, problems with operations
can usually be fixed, says Thomas. The
swiftest way for a multi-unit operator to
get a feel for a unit’s controllable issues
is to know its numbers—and study every line. Thomas likes to look at P&Ls
month-to-month, rather than annually.
“I concentrate on sales, sales, sales—
nothing else,” says Thomas, who operates
32 Great Clips units with partner Grant
Simon. “I know how much money each
store should be making, and if it’s not
making that much money I raise prices.
If my store is not growing double-digits,
I want to get rid of it.”
The numbers also help Thomas target
his strategy during the acquisition stage.
A look at the P&L of one struggling unit
pointed to internal theft. He fired the
suspected employee and sales instantly
“When
something is
distressed,
saving a few
nickels, dimes,
and pennies
doesn’t do
anything.
You have
to increase
sales 25 to
50 percent
overnight.”
—Greg Thomas
rose 25 percent. Cash flow at another
poor performer was positive within a
week after Thomas took over, just by
reconfiguring employee pay.
With a restaurant, for instance, says
Gala, analyze the core operating costs of
goods, food, beverage, merchandise sales,
and labor and compare them with locations that have similar volume. If there
is a disparity, there is a problem.
If your portfolio is smaller, don’t be
afraid to seek guidance from someone
muf4_f_distressed(50-52,54).indd 51
you trust within your brand. When Gala
suggested this tactic to a client, the restaurateur initially balked, concerned that
revealing this information would somehow undermine his recovery efforts.
Once that hurdle was cleared, the client
met with another franchisee within the
brand and the two operators shared menu,
pricing, and sales data. The client also
sent managers to his fellow franchisee’s
restaurant to train for three days, a move
that instantly raised service and quality
at the struggling restaurant. The result?
“Everyone’s sales went up,” says Gala.
Also, when studying the numbers
of a struggling unit, don’t overlook the
middle of the P&L sheet, says Gala. A
lot of wastefulness can occur over time
when