Profitability at the Unit Level
Unless a brand can mark the bottom line of a franchise unit today and project where it might be tomorrow, there’s no trajectory for growth.
Obtaining 58 percent growth in same-store earnings during a recessionary economy, like we did at East Coast Wings & Grill, seems nearly unattainable, but with acute financial analysis and discipline you can move the needle.
Since I joined East Coast Wings & Grill 15 years ago, we have maintained an unwavering focus to develop the unit-level economics boiling it down to one successful unit at a time. The result? Nearly a decade of same-store sales quarterly increases.
Approaching data analysis, metrics development and quality assurance at the most simplified level has allowed us to jump into everything from menu sales analysis, unit-level marketing expenses and relative return on investments, as well as portion control, waste management and ongoing site and maintenance costs − all of which maintains a franchise unit’s bottom line, and ultimately the brand’s as a whole.
Navigation through all aspects of a unit’s economics is imperative to that unit’s success. In our industry, costs are ever-changing, based on market dynamics in the supply chain, challenging franchisees’ ability to consistently manage their unit-level economics. Franchisors have a responsibility to identify these changes at the corporate level to have the ability to predict and assist a franchisee in navigating his sales and expense relationship. This outcome is the difference between sustaining great unit-level economics and exceeding them.
Identify Key Performance Indicators, Use Them as Benchmarks
Ultimately, when working to drive unit profitability, the goal from instituting a new system is to establish predictability based on what you can already measure. Local business owners need the ability to determine where they stand and where they are heading. This can be done using a mix of simple core data sets to more complex measurements to capture the real value including food and recipe costs, movement of product and day-part traffic. Unless a brand can mark where the bottom line of a franchise unit is today and project where it might be tomorrow – in a week, a month, this quarter, and ultimately this year – it is not on a trajectory for growth.
Approach the Supply Chain More Effectively
Principally, effective supply chain management achieves a competitive advantage by being able to offer customers the best value. With a dedicated focus at the micro-or individual-unit level, the management of the supply chain becomes more actionable. Consistently re-evaluating each of the major vendors in the supply chain will uncover new ways to leverage relationships with manufacturers and suppliers that will drive down costs in the operational space. Additionally, with franchisees spread across different markets, we supply them lists of preferred vendors and suppliers in their areas that we, as a corporate team, hold accountable on their behalf, to provide upstanding service at a competitive rate.
Manage from the Outside In
This year, to accelerate the success we have had with our proprietary measurement system, we created a Unit-Level Economics Division – the first of its kind at the corporate level that is dedicated specifically to gathering and analyzing data, developing metrics and quality assurances at the franchise unit level. The division will assess areas such as profit and loss statements, preferred vendor expenses, cross-menu sales analysis, unit-level marketing expenses and relative ROIs, trend-setting and table-turn analyses, ticket averages, ongoing space and maintenance cost analysis and the accountability of proprietary models.
Franchisors working to improve the bottom line should do anything within their means to help franchisees be more successful by giving transparence into their cost structure. If you do not have the skill set in your existing organization, find and hire the right financial analyst to help. With the right talent, the investment will pay back exponentially. Your overall brand will, by default, be successful in turn. It can be time-intensive, but by remaining “hands-on” with the system through constant communication, complete transparency, ongoing support and recurring training, you can focus on the success of one unit at a time.
The quality of the unit-level economics is reflective of all moving parts – data, systems, structures and the like – with a clearly established result the entire system from corporate to individual units will hold the processes accountable.
Enduring franchises build upon the success of existing franchisees and the certainty of future units. Franchisors must always be asking: “How can I help the franchisee be more successful?” The focus on the franchisees must always be first, corporate success will follow.
Sam G. Ballas, CFE, is the CEO of East Coast