2013-02-20 / Business News

Scaling up

Franchised businesses are growing again in SWFL
Growth after recession

James P. Gyarmathy owns 10 KFC and two Famouus Dave’s restaurants. James P. Gyarmathy owns 10 KFC and two Famouus Dave’s restaurants. The late chicken baron and franchise pioneer best known as Colonel Sanders once taught James P. Gyarmathy to cook a bird Kentucky Fried style at his father’s restaurant in Clearwater. After driving up in his Rolls-Royce, Harland David Sanders provided a cooking demonstration and asked for royalties of “a nickel a chicken.”

“He was really a salesman more than anything else,” recalls Mr. Gyarmathy, who now owns 10 KFCs in Lee, Charlotte and Collier counties, as well as two Famous Dave’s barbecue restaurants. “And a good cook,” he adds.

Franchise companies have exploded in growth since his father invested in fried chicken in the early 1960s, offering investor-owner-operators a proven, money-making business model already honed by years of trial and error.

“What a franchise does for you is it makes you immediately scalable, immediately capable of moving into that business — barbecue, yogurt, whatever it is — and running the business as well as the seasoned professional,” said Brett Larrabee, director of franchise development for Famous Dave’s.

Scott and Diana Willis own five Jason’s Deli restaurants. Scott and Diana Willis own five Jason’s Deli restaurants. At least that’s the idea. But even with a proven business model, wearing the many hats of ownership is “more complicated than it looks,” said Gene Barber, franchise director for Jason’s Deli.

And entrepreneurs who are naturally disposed to “surviving with their own wit,” Mr. Larrabee noted, will find that signing a franchise agreement also means towing the company line in the name of consistency, like it or not.

Mr. Gyarmathy, for instance, never agreed with changing the name from Kentucky Fried Chicken to KFC back in the 1990s to de-emphasize the word “fried.” He lives with it.

The California Closets franchise is witnessing a rebounding market. The California Closets franchise is witnessing a rebounding market. “It’s fine, people know what it is,” he said. “KFC is still Kentucky Fried Chicken.”

In Southwest Florida’s Congressional District 19, there were 1,517 franchised businesses in 2007, creating 36,000 jobs, according to the International Franchise Association. Since then, franchisees that took a hit in the Great Recession’s aftermath are expanding again.

Suzy Woods, a California Closets franchisee, was running a $5 million per year business at its peak during the boom. Sales are slowly climbing back to that realm, said Ms. Woods — but this time more slowly, which may actually be good for her business.

“It was growing so fast,” she said, “and not being able to have the systems and processes in place — we’ve certainly had the opportunity to do that and fix that over the last couple of years.”

Besides her showroom at the Miromar Design Center in Estero, she’s working on opening a new showroom in Naples at the Hibiscus Center. The company sells closets and home organization materials of all kinds as well as expert interior design services.

Scott and Diana Willis, who own five Jason’s Deli franchises in Sarasota, Charlotte, Lee and Collier counties, said the depth and duration of the recession was unexpected. But they, too, are considering opening one or two more Southwest Florida locations in the next 18 months. The couple opened their first location in Fort Myers 11 years ago.

“None of us could have predicted it would have been so bad,” Mrs. Willis said of the recession.

They survived by deciding to “not change,” to not cut corners on quality or portions, to increase their involvement in the community, including helping feed the hungry and take care of employees.

“Taking care of them was the best business approach, just knowing we were all in it together,” Mrs. Willis said.

And Mr. Gyarmathy just opened a new Famous Dave’s in December at Gulf Coast Town Center and is planning to open in Naples a smaller, quick-service version of the sit-down restaurant.

Mr. Gyarmathy’s only sibling, a brother, owns Wendy’s franchises in central Florida. Their father passed away 14 years ago, he said, longer after retiring with the funds from a profitable KFC enterprise. His mother will be 95 in June.

“Still sharp as a tack,” he said. “She calls me up to ask political questions.”

Big business

Franchising has become an industry that generates more than half a trillion dollars in sales every year, according to IFA. And Florida is a leader among the states in franchise businesses.

More than 1.1 million or about 12.5 percent of all private non-farm jobs were created by franchises here as of 2007, the latest numbers available. The figure includes both full and part-time positions. That’s third in the nation behind California and Texas.

Projections on how the industry has fared since then show slow, steady growth coming out of the recession with 162,000 jobs being created nationally by franchises this year, the IFA says.

The rapid growth of franchises in the last 50 years is mostly apparent in quick-service eateries, but also in numerous other businesses. The IFA lists 75 categories of franchise under every letter in the alphabet except for D,N,Q,U,Y and Z.

“Typically when people think of franchising, they think of food and beverage related, but there are all kinds,” said Robert Zarco, a Miami franchise attorney.

That doesn’t mean they’re all successful, of course. One of the common mistakes people looking at buying into a franchise make, said Mr. Barber of Jason’s Deli, is that “they don’t ask enough of the right questions or tough questions.” He adds that talking with other franchisees, both successful and struggling ones, is important when doing due diligence.

Mr. Gyarmathy agrees.

“Most people are very very willing to share their grief and share their glories, either one,” he said.

Ownership styles

Franchisees take different approaches to ownership. Some owners are mostly in it for the investment, Mr. Gyarmathy concedes, taking a hands-off approach similar to buying stocks.

“The real money to be made in most free standing restaurants like KFC or whatever, it’s the real estate,” he said. “If you get into the real estate at the right time — which would be now — and hold it for 10 or 20 years you’ll make money. It’s sort of a common joke among franchisees is the big money is in the land.”

Some companies, though, look for specific qualities in owners. Buying into a Jason’s Deli franchise takes an investment of roughly $300,000 for one location and $1 million in savings. “It’s not just an investment,” said franchise director Mr. Barber. “That’s not who we are.”

Instead, the company looks for franchisees like Mr. and Mrs. Willis, who are integral parts of running the restaurants: true owner-operators.

Mrs. Willis makes a habit of making the rounds and talking to her staff as she visits the restaurants. Her favorite part of the job, and she adds the most challenging, is doing the work at the deli as it’s running: “Truly a day in the deli is the best day — that’s where the magic happens.”

Less magical but no less keys to success, she adds, are many other hats they wear. Advertising deadlines, negotiations with a landlord, and employee health insurance questions are examples of some other concerns that occupy their time.

With hundreds of stores in the United States, Jason’s is a small organization compared to a fast-food chain with thousands of restaurants. That helps keep lines of communication open with upper management, Mrs. Willis said, and allows owners to have their say with corporate culture.

Mr. Gyarmathy observed that larger franchises sometimes “insulate themselves from reality and live in the marketing fantasy land of surveys and studies and they try to make decisions based on that information. A smart franchise will say, ‘let’s listen to our franchisees, what do they think?’”

That doesn’t mean there aren’t disagreements with the company on the details of day-to-day operations, added Mrs. Willis of Jason’s Deli.

“Sometimes we agree to disagree,” she said. “But I think that’s healthy.” ¦

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