Private equity investments have been abundant in recent years, with large companies investing in small, emerging concepts. While an influx of cash can help companies reach new heights, some companies are changing the formula with a hybrid model that is more practical and combines the roles of investor, incubator and master franchisee.
Scott Mortier is the president of one such company. Earlier this year, he and David Lopez founded the Miami-based Whales franchise, which invests in concepts and leverages efficiency gains together to drive growth.
Franchise Whales invests in a brand and takes over the franchise development. Not only are qualified franchisees found, but support services such as strategic planning, marketing, management, legal advice, architectural services, operational training, public relations and human resources are also provided.
One reason this model works better than the traditional franchise, according to Mortier, is that the interests of a franchise broker and a restaurant founder do not always match. “They are only interested in their commission,” says Mortier. “They sell to whoever and whatever and then they’re gone and they take 100 percent of the franchisee fee as commission.”
One brand in the Whales franchise portfolio is Gyroville. The concept’s COO, David Kurlander, says the brand “wasn’t going anywhere with franchise” before Franchise Whales got on board.
“The first thing we get from the whale franchise is the right candidates,” says Kurlander. “A regular broker sends unqualified leads just to make money, but the franchise whales are invested in the franchisee so they weed out those who aren’t serious candidates.”
According to Mortier, buying 30 percent of a concept is the company’s sweet spot.
“We usually look for brands where the founder is involved in day-to-day business operations. somewhere between 10 and 50 units, ”he says. “We are looking for partners who know what they don’t know. They trust us and we trust them. “
The Whales franchise portfolio of fast casuals includes Gyroville, Froots, Tikiz, and Miami Grill. When a new brand comes on board, Mortier says: “You immediately have colleagues you can rely on – people who were where they are today maybe two years ago and can share their experiences.”
Utah-based Four Foods Group is another restaurant development company that both invests in and incubates brands, but operates a little differently than Franchise Whales.
The four founders of the Foods Group, Andrew and Shauna Smith, put together a platform of experienced people to provide the operators of Kneaders Bakery & Café stores with the support they need to be successful. In 2008, the Four Foods Group began with one Kneaders location and now operates 43 units with franchisees in four states. Another 11 are in development.
The incubator investor achieved this growth by giving franchisee partners a stake in the business. Each operator invests $ 100,000 and receives a 30 percent stake in a Kneaders business. The Four Foods Group handles property purchases, equipment procurement, employee recruitment and training, legal services, and other operational aspects of the business.
“The operator is a shareholder,” says Andrew Smith. “There is a corporate mentality where you have to have everything at the top. We believe you have to trust people and make them feel like you own. If you give justice to people, they will bow backwards for you. “
Four Foods Group partners with another concept in Utah, R&R Barbeque, as the next brand to grow. The announcement came earlier this year after Four Foods raised $ 35 million in capital.
Whether you offer European-style baked goods or smoked meat, restaurateurs who are busy all day serving guests can face the risk of financial control.
“When you’re out and about with your crew all day, trying to get out of there at night to spend time with your family, the things you don’t get are finances, sales taxes, property taxes, and paying sellers,” Smith says. “We’re taking this off your hands.”
He adds that the Four Foods Group employs world-class accountants, carries out preventive maintenance, and negotiates the best service and product deals with vendors.
Danny Deaton has been a Kneaders franchise partner in West Jordan, Utah for seven years.
“We’re partners who wake up in different places with the same goal,” says Deaton of his relationship with the Four Foods Group. “It’s an interesting dynamic that people like me can get into a company of this size and size because of this partnership.”
Smith said it would cost about $ 2.7 million to build a kneader bakery and a kneader café from scratch. The $ 100,000 investment opens up ownership to more candidates.
Deaton runs the front line of its Kneaders business, while the Four Foods Group handles human resources, maintenance and finances.
“I’ve seen people in the same industry try to do it themselves and fail,” he says. “Every business is stressful, but running a restaurant is different because food is always used and consumed.”
The operator receives a salary to run the business and financial dividends and equity are shared between the operator and the Four Foods Group. According to Deaton, partnering with Four Foods Groups provides an incentive to stay in business for the long term.