A&W lowers fees for franchisees as it looks to expand
- The fully-franchised A&W will lower fees for new operators from 5% to 2% for the first year, increasing 1% per year until reaching the standard rate of 5% in year four, the company announced Wednesday.
- Franchisees of a store clocking $1 million in sales will save $60,000 in royalties, A&W president Paul Martino said in a release.
- Following Yum Brands' sale of the chain in 2011 to two large franchisees, A&W has opened more than 60 restaurants with 15 planned for 2019.
With a complicated combination of rising minimum wages, a tight labor market, evolving consumer tastes and the delivery boom, chains are feeling the pinch in same-store sales and foot traffic. To combat that trend, franchising seems to be the way forward for many chains, shedding company-owned restaurants to allegedly boost same-store sales.
A&W is approaching its second century in business with a modern take on the franchise model. Yum originally tried growing A&W through co-branded stores with Long John Silver's after it bought the brand in 2002, but failed to turn a profit, selling A&W to an international franchisee and the company's U.S. franchisee association nearly a decade later. A&W started pursuing growth in early 2017, shortly after reporting systemwide revenue growth for the first time in a decade, largely driven by positive sales from franchisees. Martino told Nation’s Restaurant News at the time that franchisees trusted leadership because it was't hidden behind a large corporation.
In December, Potbelly returned to franchising as a means to expansion after slow, but steady growth shortly after its 2013 IPO. Despite growing 8% since 2017, the sandwich chain hasn't cracked the top-five of a category that has blossomed into a major force.
Last week, Del Taco announced a push to grow franchise-owned units from 45% to 55%, shifting about 60 company-owned count to franchisees by 2020. The 55-year-old chain hopes the strategy boosts growth at new restaurants and volume at existing stores, Nation’s Restaurant News reported. The plan also calls for the sale of 13 Los Angeles locations to experienced franchisees, while the company will acquire three high-volume ones.
Some chains have mixed up the typical franchisee search, too. In business for 33 years, Saladworks has developed a specific franchise program for veterans, offering 50% total franchise fees, according to Franchising.com. The fast casual salad pioneer also has targeted mid-sized cities and college campuses that lack quick and healthy options as well as grocery stores, partnering with ShopRite in Philadelphia.
Large-scale franchisees also have played a role in this shuffle. After buying more than 350 Arby's in December, Flynn Restaurant Group became the largest franchisee of any kind in the U.S. valued at $2.3 billion.
Chains with higher concentrations of franchisees have faced backlash in the past year, due in part to more expensive labor and company insistence on high-ticket remodels. McDonald's franchisees went so far as to form an association for the first time in company history, and remodels have all but slowed to a halt because of owner anxiety. In November, a jury sided with El Pollo Loco franchisees who claimed the company was subverting their sales by opening company-owned stores nearby franchised restaurants.
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