Buffet operator CiCi’s Pizza has been offering a franchise investment program that creates an “equity partnership” for development of new units in some markets.
Coppell, Texas-based CiCi’s said the “Franchisee Partner Investment” program aims to stimulate restaurant development.
Under the program, CiCi’s will commit $100,000 in equity per unit to qualified new and existing multi-unit operators who sign development agreements. The franchisee will be required to invest a minimum of $125,000 per unit.
CiCi’s said the program is available in select U.S. markets and applies only to new or existing multi-unit franchisees who will develop two or more new restaurants within five years. It is aimed at new or under-served markets, including Chicago, Los Angeles, Miami and San Diego, as well as Salt Lake City, Washington, D.C., and St. Louis.
“Every franchisee wants to know that their franchisor has skin in the game,” CiCi’s vice president of real estate and franchise development Thomas McCord said, adding that the program, “provides the franchisee the ability to secure financing with a 40-percent equity position.”
CiCi’s, which has more than 500 restaurants in 34 states, will also offer additional incentives to franchisees who pay back the corporate investment early.
McCord recently spoke with Nation’s Restaurant News about the “Franchise Partner Investment” program.
Where did the idea for the program come from?
We asked, ‘Is there a creative way that we could put together a program that would allow our franchisees to build out more restaurants within a given geography?’ For example, say a franchisee is writing a development agreement for four restaurants, but we can clearly tell that the DMA [designated market area] can hold 10 restaurants. So instead of just doing four, can we become an equity partner with the franchisee so we can build eight?
What does your investment do?
The $100,000 of equity we put into the business does a couple of things. It allows franchisees to build out more restaurants, but it also provides them a preferred lending structure. They can go to the table with 40- to 45-percent equity into the business, and securing a loan at those percentages is much easier than 30 [percent or less].
The program was introduced just about a year ago. How’s it going?
It’s just gaining traction at this point. … It’s a total of a $5 million fund that we’ve earmarked for this program. We’re having some very productive conversations with our franchisees today, not only our existing franchisees, but new as well.
What are your expectations?
Our objective is incremental development. It’s allowing a franchisee to secure financing much easier. It’s allowing a franchisee to build out a market with our additional influx of capital that we put into the business. It’s all growth-driven.
What makes this attractive to the lenders?
We have our own operational criteria for a proven franchisee. We have our own financial criteria. Then we go out and layer on real estate-market planning criteria. Now we put together a development agreement that has on top of it $100,000 CiCi’s is putting into it. It’s a great position for the lender, who only has a few other boxes to check to feel comfortable lending money to the franchisee and helping them build that market out. It’s a strong program on multiple levels.
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