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5 Tips for Success for Franchise Companies

Craig Dunaway

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5 Tips for Success for Franchise Companies

This year Penn Station East Coast Subs was named to the Forbes Best Franchises to Buy list for the third time in the last four years. It’s an honor and a privilege to be given the accolade, especially by an organization as respected as Forbes.

Achieving a spot on this list is a testament to the work our franchisees, their employees and our corporate team put in every day. The fast-casual restaurant business is extremely difficult, but with all of your organization rowing in the same direction, success is possible. Being recognized by an influential third party is truly an honor, and we are humbled once again by this selection. We put together a list of tips on how franchises—and other businesses—can succeed based on the same criteria Forbes uses for its annual ranking.

 

System sustainability

System sustainability comes down to one main point: consistency of operations. For franchisees, this means providing franchisees with a detailed operation’s manual and then establishing a monitoring system for enforcing that manual. At Penn Station, our culture is to have franchisees who are absolute zealots for the brand. These franchisees believe in micromanaging processes and following the stringent details in the operations manual explicitly. Their execution, while not glamorous, is what leads to system sustainability. Simply put, do what you are supposed to do all day every day.

 

Value for investment 

Penn Station has always been transparent in regards to franchisee profitability and returns on investment. To truly be able to point to value for investment, you should have strict rules for franchisees to report profitability. By requiring franchisees to submit an income statement by a set time each month in a prescribed format, we make sure they are focused on their profitability and we are able to compare apples to apples, so we can help franchisees that may be struggling.

To offer greater value, franchisors must also look at franchisee costs. Our food and paper costs are just 25 percent, which is some of the lowest you’ll find for a fast-casual restaurant. This gives our franchisees more room for profitability and returns on investment, even during sales slumps. To achieve lower costs and higher profitability, Penn Station never takes rebates from vendors as income and prides ourselves on our contract negotiation skills.

 

Franchisor support

All franchises provide support. It’s why you buy into a franchise instead of starting a business from scratch. That said, the level of support varies greatly. While most brands have area representatives who offer best practices, the workload of those employees varies. At Penn Station, we have a 20-person team who are a part business consultant, part cop, helping franchisees daily to execute the operations manual to our standard of excellence. While some brands may have one person for every 50 to 100 locations, each of our operations specialists have only about 20 restaurants. This allows them to spend more time with each location and prevents them from having to travel all over the Midwest; they have face to face time with owners and operators versus simply having windshield time. Brands that provide more support will be able to help franchisees execute the operations manual better, which leads to stronger sales.

 

Franchisor stability

Franchising is a marathon, not a sprint. Franchisees who are in it for the long haul, trust the franchisor and execute to excellence will succeed, providing the franchisor with stability. Many of our franchisees have been in the system for 10, 20 or even more years. In fact, one of our first franchisees who started in 1988 just opened a new restaurant, continuing to grow his business. Since our longstanding franchisees still see the value of the system, we’re able to show extreme stability. For brands that haven’t been around as long, partnering with strong franchisees that have the means and will to grow will establish a stable brand from the ground up. Don’t just accept any person off the street as a franchisee.

 

System demand

Penn Station isn’t a brand that reaches for huge, unachievable growth goals, but we grow at a steady pace and have outpaced the industry the last three or four years. In 2019, there are more restaurants and customers are eating out less. This means some attrition is bound to happen. The reason we’ve been able to continue to grow and create system demand is simple. It’s our focus and success with the other four things on this list: system sustainability, value for investment, franchisor support and franchisor stability. If you focus on those four things, demand will follow.

 

The criteria outlined above that Forbes uses to put together its annual Best Franchises to Buy ranking are the same things that we value in building our brand. We try not to toot our own horns too often, but it is certainly appreciated when people outside our office recognize what we offer as a brand. All the brands on the Best Franchises to Buy list put in the time and effort to excel in their industry, and that’s what makes franchising special. Franchisees can achieve great things by working with their franchisor, which in turn helps the entire franchise system succeed and grow.

Craig Dunaway has been president of Penn Station since 1999. Before joining Penn Station Inc., Dunaway was a partner at the regional accounting firm of McCauley, Nicolas & Company, LLC in Jeffersonville, Indiana, where he had worked since 1982 in various staff and managerial positions. Dunaway has a bachelor’s degree in accounting from Indiana University and is still a licensed CPA. Dunaway formerly had ownership interests in a Papa John’s® franchisee that owned 11 stores, and he served as the secretary/treasurer for that Papa John’s® franchisee. In addition, he had ownership interests in Coastal Cheesesteaks, LLC (headquartered in Raleigh, North Carolina) until June 2011 and in Louisville Cheesesteaks, LLC (headquartered in Louisville, Kentucky) until January 2014, both of which are Penn Station franchisees. While a shareholder in those Penn Station franchisees, Dunaway served as secretary/treasurer. Penn Station was named one of the Best Franchises to Buy by Forbes in 2016 and 2018 and one of the Best Franchise Deals by QSR Magazine in 2016 and 2017.

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