David Ostrowe has over 18 years of Senior Executive experience in operations and consulting. His extensive experience in all phases of business development, through years of field and corporate level, multi-unit managerial positions has provided him with a diversified practical business experience based strongly upon people and financial development. Current and Past holdings include: Personalized Management Associates, a national executive search firm, Ostrowe and Associates, a candidate marketing service, O&M Restaurant Group, a multi-unit franchise of several national restaurant chains, and 180 Business Solutions, a Consulting and Acquisition Group. David Ostrowe’s focus is providing leadership and incite both employers and affiliates. He is completely focused on leading the industry in development, quality and service. Listed as a top 50 Growth Company in Oklahoma, Ostrowe Companies has grown through acquisitions and through the development of original concepts.
Multi-Unit Franchising Articles
Managing the numbers
THE KING IS BACK
Debb Lowe talks to David Ostrowe, a multi-unit and multi-brand franchisee in the United States. Debb caught up with David in Scottsdale Arizona, at a multi-unit franchising conference in April 2008. As a multi-unit and multi-brand owner, David has put in place a management structure where a multi-unit operator is responsible for running a group of stores. This discussion covers the following topics:
Let's Make A Multi-Deal!
When it comes to evaluating a potential area developer, don't marry for money, say franchisors. With money as a given, look for that indefinable "fit" and you're --GOlden for the long haul.
When it comes to evaluating a potential franchisor for a multiple unit deal, verify the numbers, say franchisees. If they're --GOod, see how you get along with the "family" you're about to join. If all --GOes well, you'll be working closely and making money for decades to come.
When it comes to marrying for love or for money, in the franchise business it had better be both. Unlike real-life marriages, where someone will get rich eventually, even if both parties are miserable, in franchising you'll get neither. Money does not buy success in franchising, even if you outlive or outlast your "spouse."
"You can have the greatest partner, but the unit economics have to work," says Rocco Fiorentino, a Krispy Kreme area developer with a deal for 27 units in the Philadelphia area and western Pennsylvania. "The relationship is important from an operator perspective; brand affinity and unit economics are important from an investor perspective."
Assuming the unit economics work, there are the intangibles, the "click" that happens (or doesn't) when people meet. "It's one of those things," says Darin Harris, VP of franchise development for Captains D's Seafood. "If you or I are looking for employment and --GO into an interview, there are questions we ask about each other and our background, our objectives and long-term --GOals. You immediately see where there's a marriage or where there's not."
Looking for Mr. --GOodDeal
Several of the operators interviewed for this story had cashed out of successful multi-unit operations-bagels, burgers, tacos-and were in the "flirting" phase, shopping for the right deal but sitting pretty enough to be patient and ne--GOtiate on their terms.
"We originally were looking at several different markets," says Clarence A. Mitchell III, who in 1998 was majority owner of 15 Taco Bell franchises in Charlotte. In 2001 he sold his holdings and started looking for another restaurant concept. Mitchell, who has spent nearly 30 years in the restaurant industry, began as an 18-year-old employee and worked his way up.
Along with his three operating partners in Serve Holdings, Mitchell soon found Captain D's an attractive potential partner, but they didn't tie the knot until 18 months after their initial meeting. They closed the deal on Nov. 3, 2003, agreeing to buy 20 corporate locations in the Memphis and Jackson, TN areas, and to build 15 more in the next 5 years. The territory includes sites in Arkansas and Missouri.
"When we first sat down with Captain D's, we zeroed in on this market as the ideal location for this organization," says Mitchell. It was a large deal, and they needed to be certain it was the right area and the right market at the right time.
"We have a buy-and-build strategy," says Mitchell. "As we started looking for the next move for our company, we wanted to be sure there was an acquisition opportunity big enough to be a springboard for growth."
With the other deals they considered, the necessary elements did not fall into place. Some franchisors didn't have enough restaurants they were willing to sell, or the ones they did want to sell were not generating the cash flow they wanted. "We buy cash flow," says Mitchell. Some offers were simply in the wrong part of the country.
"We're extremely happy with the results thus far," says Mitchell, who will remodel the 20 stores with Captain D's new prototype. "From a pricing standpoint we feel that we --GOt an excellent opportunity. We have a lot of upside left in the market from a growth standpoint with the existing locations. And from a developer's standpoint it's not oversaturated."
Another reason is that Captain D's is not another burger chain. "It's a niche concept, where there's limited competition for the product. When I ride down the street I don't see a lot of competition," says Mitchell.
"They're able to --GO into a market where they may have other restaurants of their own, but no additional territory they can develop," says Captain D's Harris. "They can build out a brand that's not competitive with their brand. That's something we see a lot." This also gives area developers a way to retain valuable employees by providing them with a new opportunity for growth within the organization.
Four Is Enough
Michael McCracken also began early in the restaurant industry, starting with burger chains in high school in the late ' '60s and moving continually upward. By 1995, after 20 years as a Hardee's franchisee, he owned 31 restaurants and knew it was time to get out. "I saw the crash coming for hamburger chains, especially Hardee's, and sold out on top," he says.
When a bidding war for the units ensued between two Burger King franchisees, McCracken took the best offer to Hardee's corporate in July 1995, which matched the offer plus $1 million. Time to retire at 43? Couldn't do it. Too Type A, he says.
After shopping around, he climbed aboard the Krispy Kreme bandwa--GOn and spent two years with the company, working at a franchise and --GOing to school. But when it came time to award the franchise for central Illinois, he was offered a corporate job in Winston-Salem instead. He declined.
"It's a great company. I love 'em, but they made a decision to --GO with one of their best operators. I have no regrets. They made the right decision," he says. It was time for the free agent to begin his search anew.
"I looked at 50 different franchises. I looked at every franchise there was," he says. Some of the concepts that caught his eye included Zyng Noodlery, Bear Rock Cafe, Atlanta Bread Company, and Jason's Deli. "I wanted to be in the restaurant business, and I knew I could run anything."
In late 2002, during the Christmas holidays, his wife found Camille's Sidewalk Cafe on the Internet. "It was in an article on the top 50 franchises. She looked at every one of them and thought this made sense," he recalls. They traveled down to Tulsa a month later, met with the founders, David and Camille Rutkauskas, and decided to --GO with the concept.
"They gave me a one-store deal. It turns out I'm --GOing to build four stores for them. That's all I want, to run those four very, very well. I've done the 30 stores across Illinois. Now I want to do four great stores." He has one open already in Peoria, which is Camille's top performer. Two more were scheduled to open in January 2004, one in downtown Peoria and one in the southern suburb of Pekin.
Why Do Area Developers Fall in Love? The reasons Fiorentino chose Krispy Kreme, Mitchell signed with Captain D's, and McCracken opted for Camille's differ for each developer-as they do for the other developers FranchiseUPDATE surveyed, and for the franchisors who signed them. The predominant reasons can be boiled down to two: 1) money, and 2) people. Both parties see a great opportunity to make money together, and to do it by developing a long-term relationship with like-minded people.
But it's the nuances, the variations, the individual chemistry and corporate culture, along with the vagaries of the marketplace (think Mad Cow) that makes life interesting in the franchise lane. We've sorted out the "wish list" of what franchisors want from multi-unit developers, and what those developers seek in a franchisor into handy, bite-size bullets (see table). Now let's see what the players have to say.
Money Makes the World --GO Round
"Being a banker at heart, we looked at the numbers, the financials," says David Ostrowe, president and CEO of Ostrowe & Associates in Oklahoma City, discussing his purchase of four Captain D's company stores in October 2002. The biggest appeal, says Ostrowe, was the undersaturated, underperforming market. "We knew we could turn this market around fast."
Ostrowe remodeled all four stores in 9 months to reflect the new look of Captain D's. He also ran 26 weeks of TV last year, in a market where Captain D's previously had zero TV exposure. "Our commitment financially to this market has been tremendous, and the sales have paid off," he says.
As a franchisor of the four former company stores, Captain D's has earned more money in royalties than they earned in net profit when they owned the market themselves, says Ostrowe. "Both parties are making money now. Both parties have to win."
"When you have a concept with great unit economics, you want as many as you can have. Krispy Kreme has allowed me the opportunity to build units within 3 states," says Fiorentino. He signed a development agreement for 16 locations in the Philadelphia market, which includes the state of Delaware, and southern and central New Jersey. Later, he signed a second agreement for 10