With a new franchise model and an aggressive expansion plan, Andy’s Frozen Custard Inc. has drawn bull’s eyes well outside the Springfield market.
From a single Osage Beach store in 1986, the company has grown to 25 stores in five states. Now, the target is 75 stores across nine states by 2018, with its latest model in play.
“The model shifted toward something like a Panera [Bread], which means less franchisees with more stores,” Andy’s Controller Mike Carroll said.
Panera doesn’t sell single stores, preferring to open multiple units, typically 15, over a six-year period.
Carroll said Andy’s, which last year posted three-year revenue growth of nearly 80 percent to $24.7 million, plans to bolster corporate-owned markets in Chicago, Dallas and Kansas City. Currently, 15 stores are corporately owned and operated, but officials are leaning on franchisees to open over 30 stores within five years.
“That type of operator is not going to be someone who works in the stores day-to-day, but someone with greater financial resources and business experience who can oversee that from a distance,” Carroll said.
Andy’s signed its largest deal with Eric Reed, the company’s former director of field operations.
Under Ranchers Custard Co. LLC, Reed plans to open four stores a year for the next five years. With a decade of experience facilitating, inspecting and training staff at Andy’s franchises, he’s going after Oklahoma City, Tulsa, Okla., Nashville, Tenn., and Orlando, Fla. The franchisee is splitting the Dallas-Fort Worth market with corporate, and each party has two sites expected to be fully operational within six months.
“In our opinion, those markets can support 75, maybe 100, stores based on average population densities per unit,” Reed said. “The goal is to be bigger than that sooner rather than later.”
A former H&R Block senior vice president also is in the franchise mix. Ken Treat is managing member of Southwest Frozen Custard LLC, which committed to open seven stores in five years in Phoenix. Carroll said a similar agreement with another franchisee is in place for Denver, and those presently in St. Louis and Little Rock, Ark., plan to add units to the brand.
“A lot of people think they are entrepreneurs and want to get into franchising, but as a franchisor you don’t want an entrepreneur. You want someone who will follow the system you have already created,” Treat said, estimating Southwest’s costs between $1.5 million and $2 million per store, with fees totaling $200,000.
First-store fees are $32,000 – then $28,000 per store – with royalties starting at 6 percent of gross sales.
Reed said Ranchers Custard is budgeting $1.2 million-$1.8 million per store in startup costs. The company made a down payment of more than $200,000 for franchise fees, with the roughly $364,000 balance to be paid in increments upon openings.
Both franchisees hope to bring down royalties to 5 percent through a combination of multiple stores and breaking the $1 million mark in per-store sales.
Andy’s franchise operations began in 2004 with eight stores opening between 2005 and 2006. Carroll said the company didn’t approve another franchisee until 2012, developed their expansion model and eventually bought back three stores, starting with Branson in 2007 from a struggling owner-operator, then Rogers and Fayetteville, Ark., in 2012.
“Part of it was their desire to exit and not wanting to build additional stores,” Carroll said of northwest Arkansas franchisee and Springfieldian Ed Powell. “Our goal is not to have just two stores there. We think that area could easily withstand four to five.”
Carroll said the Fayetteville store, now closer to the University of Arkansas campus, formerly was housed in a remodeled Fazoli’s in a low-populated area, two things he said were not likely to be approved under the current model. Now, new buildings resemble the Springfield stores, and population densities between 250,000 and 300,000 are the norm. Also, franchisees must have net worth of at least $1 million and $500,000 in liquidity. Three-store deals are the minimum.
“If you franchise one store to an individual, in a lot of cases they have bought themselves a job and they don’t run it like a business,” Treat said. “When you have larger groups managing multiple stores, you tend to have businesspeople running a large organization and treating it that way.”
Andy’s 10-year outlook could take the brand into the 300-store range.
“All of that is contingent on finding good managers and employees,” Carroll said.
Treat puts that weight on corporate staffing.
“As they franchise out more cities, they’re going to need more people,” he said. “Expansion is going to be a problem in the future if they don’t expand personnel along with the model.”
Even with an aggressive marketing plan and trained staff from a Tulsa store willing to relocate, Reed said a concern is finding some 400 part- and full-time employees.
“It sounds like a lot to open a store every other month, but there are companies out there opening a store every week or even more,” Reed said, citing Chick-fil-A and Starbucks Corp. (Nasdaq: SBUX).
According to Chick-fil-A’s website, the company opened 10 stores in the United States in the past six weeks, and will open another 19 nationwide in the next two months. Starbucks, which operates nearly 7,500 stores in the U.S. – about a third the global total – announced at its March shareholders’ meeting it plans to have 30,000 stores worldwide by 2020.
“We’re never going to have 10,000 stores, but they’ve done a lot of things right and they’ve been able to grow quickly,” Reed said.
“I think we can, too. It’s just going to take a lot of planning and effort.”
