Since joining Lexington, Ky.-based Fazoli’s in June 2008, president and chief executive Carl Howard has overseen a turnaround effort meant to elevate the chain from quick-service Italian to a hybrid concept resembling more of a fast-casual restaurant. His team’s “Expanded Service Program,” or ESP, encompassed a complete overhaul of the menu the past few years, as well as interior and exterior reimaging and service upgrades like food runners and real plateware.
While same-store sales have been trending positively at the chain’s 220 restaurants in 27 states the past two and a half years, momentum in Fazoli’s new-unit development also has picked up recently, Howard said. Agreements for nine new locations to open over the next six to nine months are in place, with both new and existing franchisees, he said, and Fazoli’s could accelerate that development further with possible deals for nontraditional franchise units.
Howard recently spoke with Nation’s Restaurant News after Fazoli’s reported an 8.1-percent increase in same-store sales for its franchised restaurants for October, which lapped a 4.1-percent increase from October 2012. Franchisees outperformed the 1.9-percent gain from Fazoli’s company-operated system, which has had ESP’s upgraded elements in place longer, Howard said.
He credited new food items like a limited-time offer of Chicken Marsala with Mezzaluna Ravioli, as well as the updated look and service at Fazoli’s, for recent sales growth, and he added that the chain’s new positioning was fueling optimism for growth.
Franchisees are all on board with our new menu and interior design and service upgrades, like real plateware. We did so many variations on our menu throughout 2011 and 2012, and the franchisees didn’t roll it out completely until July, when the company-owned system had it down cold 100 percent. They’re now fully ESP, and they lagged us by about a year in some items.
We move fast, so sometimes we don’t bring franchisees along right away. I read something recently in NRN about Burger King and Panera doing menu simplification, and we’re doing a major simplification test right now. We’ll have it [in company-owned units] in January and bring the franchisees along by July. It would be great to say it’s all food-related, but some of it is residual.
But the Chicken Marsala limited-time offer performed well?
We see a lot of our hard-core consumers converting over to these new items, and they give them something new to try. Our infrequent guests usually get what they got last time, but heavy users go for these products. When a new user comes in and tries a chicken Marsala dish for $6.99, you can’t beat that. Who else is doing this right now? We have to be better about getting the word out and it and executing it perfectly.
We’ve changed nearly everything on our menu, and we’ve even made our breadsticks better by getting them to be lighter and fluffier. We are an acceptable trade-down alternative now, and we’re all fresh, so everything has been updated within the last 24 months on the inside. We’re continuing to put more money into our facilities, and franchisees are spending more money on exterior ESP renovations.
Innovation and franchise development
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What has this past fall season been like for Fazoli’s? The results in the rest of the quick-service industry have been decidedly mixed.
We were aware of the economy remaining sluggish, and that’s been going on since 2008, because there hasn’t been a key catalyst moment where everyone said we’re completely through the tough period. Everything going on with the government makes it harder for the consumer to understand the day-to-day rules they have to play by.
I can’t control the weather, the government, the economy or consumer confidence. All we can do is to continue to upgrade our experience, which we look at every day. The bag’s not empty; we have so much stuff going on to make us best in class. We’ve changed the way we help an unhappy guest with more management training in the dining room than ever, under what we call the ‘Guest Ambassador’ program for our general managers. We’re trying to give our customers the $15 casual-dining experience for $6 or $7.
Do you think you’ll ever reach a point where the brand transformation is complete and it becomes a matter of accelerating unit growth? How do you approach that balance?
Meaningful innovation is always important. Things that are meaningful to the guest and your core consumer will be important, and we’ll continue to try and find the next big thing. But yeah, we think our menu and what we’ve done don’t need to be tweaked a lot further; now we need to make it easier for our consumer to understand and for our employees to operate. So we’re working on simplification, from our kitchen equipment in the back-of-the-house to the layout of the menu board. We’re going back to ensure greater accuracy and consistency in our recipes.
We continue to work on meaningful innovation, but now we’re working on expanding in that way that franchisees aren’t overwhelmed by a brand that’s close to operating like a casual-dining brand.
What’s the state of your franchise development pipeline right now?
We have nine new locations committed with six under construction. We’re going to open next in Ohio, Indiana, Colorado, Iowa and Texas. The majority of those will open in spring and summer of 2014, and we’re building the recruitment group of new franchisees behind that.
What’s been different for this turnaround is that for a long time we didn’t have a franchisee base that was growing. I tell that to Sun Capital all the time: We’re not like Bruegger’s Bagels, because when Jim [Greco, former chief executive] got there, he had 10 franchisees that were growing and opening stores. I didn’t have any. Now, we can encourage our operators to start growing again, and two have already opened new units, with a third partner kicking the tires on a new development deal.
Will we see a balance of traditional and nontraditional units in the next several Fazoli’s openings?
Ideally, we’d love everyone to take a new piece of land and put up a shiny, new freestanding location, but that would be a slow way for us to develop, given the amount of capital needed. You’ve seen a lot of people slow down that way, because people are having a tough time with startup capital.
I do see gas-and-convenience locations being the majority of our growth moving forward, but certainly not all of our growth. We’re very close on working with an airport group and a college campus group. We’re getting interest from a lot of different avenues.