Arby’s continues buying up small franchisees

Arby’s continues buying up small franchisees

Chain makes 19-unit deal in Knoxville, Tenn., signaling willingness to operate locations

At a time when many older restaurant brands are selling locations to franchisees, Arby’s Restaurant Group Inc. is going in the other direction: It’s buying locations itself.

The Atlanta-based quick-service sandwich chain announced a deal this week to buy 19 locations in Knoxville, Tenn., from longtime franchisee T.G.J. & Co.

Terms of the deal were not disclosed.

“We just think, with what has happened here the last five years, that Arby’s is a great investment,” Arby’s chief operating officer John Bowie told Nation’s Restaurant News. “So we put our money into acquiring a franchisee that wants to move on.”

In this instance, Tom Johnson Jr. opened his first restaurant in 1968, in Knoxville, and his family has been involved with the brand ever since. The family was trying to decide what to do next.

Arby’s already operated company locations throughout Tennessee, so acquiring the Knoxville market made sense. The company has been buying small franchisees in company-operated markets for the past year, and this fit that strategy, though this was the biggest deal. 

“It’s surrounded by company operated markets,” Bowie said. “It fit nicely into how we’re situated.”

Arby’s strategy goes against the grain in the restaurant business. Refranchising has long been a staple of industry comeback strategies. McDonald’s Corp., for instance, is refranchising restaurants. So, too, is The Wendy’s Co. Several other brands have done the same thing.

But Arby’s has avoided that temptation. It operates 1,031 of its 3,325 locations. 

Instead, the chain focused on rebuilding sales and unit volumes while closing underperforming locations. 

The company’s unit volume has grown 17 percent in the past two years, to more than $1 million, according to Nation’s Restaurant News Top 100 data. At one point its unit volumes were less than $800,000.

By holding onto its units, and even acquiring locations in company-operated markets, Arby’s is benefiting from the sales growth. But it’s also demonstrating confidence to the chain’s operators.

“It sends a very strong message,” Bowie said. “Every one of them knows we’re not in the business to drive top-line sales and generate royalty. They know we generate a substantial amount of income from the 1,000 restaurants we operate.

“They know we’re thinking of the top, middle and the bottom of the [profit and loss statement] when we make decisions.”

However, the improvement has also made fewer locations available through retirements. Older concepts are expected to have waves of franchisees leave the business, especially if they don’t have a succession plan in place to pass the business onto a son or daughter. 

But in recent years, as Arby’s performance has improved, Bowie said more operators have chosen to stick with the brand and renew their franchise agreement. 

“Where some time ago you saw more retirements, now more folks are saying, ‘I’m all in, I’m signing up, this thing is on a great trajectory,’” Bowie said. “We’re getting fewer people opting out.”

As these retirements happen, the company will consider purchasing the locations in markets it operates. Or it might help the operator sell to an existing franchisee looking to expand. “Our goal is to not close any stores but to put them into the hands of someone that wants to run them,” Bowie said.

While the company has avoided refranchising thus far, Arby's hasn't ruled it out as a potential expansion strategy — in which it could use sales of company stores to spur new unit development.

Correction: June 28, 2016 A previous version of this story included a quote from COO John Bowie saying Arby’s isn’t thinking about refranchising now. A company spokesman later corrected the quote, saying that the company is thinking about refranchising.

Contact Jonathan Maze at [email protected]
Follow him on Twitter: @jonathanmaze

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