The Advantage of Being in the Middle

By STEVE COOMES   Giant companies often dominate their respective industries because they benefit from unbeatable buying power, sheer numbers, market saturation and operational depth of knowledge. By contrast, the smallest players are envied because of their ability to adjust quickly to market demands. Smaller operations aren’t bogged down by corporate policy and bureaucracy. So where does that leave mid-size companies? In an advantageous position, say franchisors of companies ranging from 100 to 500 units. Their brands are large enough to have an extensive knowledge base and well-proven systems. Plus they’re not so large that if market conditions warrant, system-wide changes can be made with relative speed and agility. We talked to three mid-size franchise concepts to ask what they thought were their competitive advantages in the marketplace, and we’re shared their insights.   Better Real Estate Selection Kent Taylor, Founder and Chairman Texas Roadhouse  A restaurant can serve the best food and drink the world, but if a location stinks, it’ll be out of business quickly, said Kent Taylor. Ever since he founded the steakhouse chain, he’s become an expert in site selection, a man whose boots are on the ground at every neighborhood the steakhouse chain examines for expansion. “I get great data from our research team, but I like to go see it myself and talk to the people in the neighborhood,” he said. Within a midsize system, he has the chance to gain firsthand knowledge—insider info that has led to correct choices on 99 percent of the 400-unit chain’s site choices since it opened in 1994. “I made some mistakes when I first started, and I hated having to close those restaurants,” Taylor said. He’s lost only three so far. “I made sure I learned quickly how to choose sites, because I didn’t want to let that happen again.” Having a large enough company that can cash flow well-located bargains when Taylor green-lights them gives him the confidence to choose shrewdly. An easy talker, Taylor visits nearby businesses and starts up conversations with strangers to learn about possible locations and their competition. “It doesn’t take long before I know what I’m getting into. Sometimes that research is the best you’ll get,” he said. Without big chain paperwork and multiple approvals in his way, “the process is quicker because I get to have the final say.” While that “see it before I believe it” approach hasn’t led to explosive growth at Texas Roadhouse, it’s kept the company from bad site choices and lost revenue. Such surefootedness in the market, Taylor said, keeps the company healthy and shareholders happy. “I like the fact that if something goes wrong in a real estate decision, I only have myself to blame,” he said. “That forces me to make sure my choice is the right one. And so far, I’m doing pretty good.”   Localized Marketing Programs: Jim Jacobs, Director of Franchising Tuffy Auto Service Centers In a world of auto service giants such as Midas, Meineke and Goodyear, one might think it difficult for 375-unit Tuffy Auto Service Centers to compete. But according to Jim Jacobs, a major brand presence isn’t everything in an industry that boils down to taking care of customers cars well. Where Tuffy has an advantage, he said, is in its highly tailored local store marketing campaigns. “One of the key differences with us versus a Midas or Meineke is that you send in a big percentage of your sales to (the franchisor) for ads,” Jacobs said. “Those companies determine how those dollars are spent, and a lot of times it’s to buy national TV ads. We don’t do that.” He said Tuffy actually was started by two ex-Midas franchisees who hated spending dollars on national campaigns. They thought their bucks were better spent speaking to local communities and potential customers in their trade areas. “It’s a lot more work for our marketing folks to have to focus on individual markets instead of blanket ads for national campaigns,” Jacobs began. “But we know there’s a lot bigger bang for your advertising dollar when it’s focused on the 3- to 5-mile area around your dealership.” Not only does that lower marketing costs—which means better franchisee profitability—he said it ensures dealers have a say in the marketing they think will be best. “We say, ‘Here are our thoughts. What are yours?’” Jacobs said. “If they want to do a brake special, we have the ability to tell them what worked well in other markets and then let our marketing department put together a program for that.”   The Ability to Innovate: Brian Ognian, Senior Vice President, Franchise Development Hungry Howie’s Flavored Crust Pizza With about 550 units to its credit, Hungry Howie’s is one of the U.S. pizza industry’s largest players. Yet compared to Pizza Hut’s 6,500 stores, Domino’s 5,000 stores, and Papa John’s 4,000 stores, it’s still a small player. But that size difference is not a disadvantage, said Brian Ognian, because Hungry Howie’s is large enough to have the capital to keep pace technologically with segment giants, while staying well ahead of smaller competitors that can’t cash flow innovative system upgrades. During the recent recession, when many chains lost stores, Hungry Howie’s made the best of the soft sales environment improving its brand image, upgrading store designs, investing in better computerized POS systems and further developing its online ordering platform. Those changes, Ognian said, can roll out quickly in a midsized company with a united franchisee base. “While we weathered that storm, we were working diligently to prepare our brand for future growth during that slow time,” Ognian said. “I don’t think a lot of companies invested in the things we did, like training and systems. And we’re happy to say our sales continue to move up.” Anticipating legislation will eventually be passed that will force pizza chains with 20 or more units to provide nutritional information to customers, the company bit the bullet, spent the time in the tedious effort of tabulating all that data, and put it on the web for any customer to see. “We’re still concerned that the proposals we’re looking at now will force us to post that information on menu boards in the store—which is nearly impossible to do with all the pizza combinations that are possible,” Ognian said. “But we’re fortunate that we’re large enough to have already gotten that done. That might be a real problem for smaller chains.”