Togo’s, the 242-unit sandwich chain, is adding company-operated units after nearly a decade of exclusively franchising its restaurants.
“We are not planning on making a large investment in company restaurants, but we want to get into the business with our franchisees to test and to learn and, obviously, by doing that we also can generate additional cash flow for the company and its investors,” said Togo’s chief executive Tony Gioia.
Gioia said Togo’s began its return to company-store operations in June when the franchisor acquired control of a restaurant in San Pedro, Calif., and turned it into a training location. That move was in advance of the November opening of a new franchisor-operated restaurant incorporating the chain’s newest design elements in Pleasant Hill, Calif.
“We’ll have by early January four company-owned restaurants, pretty much in the [San Francisco] East Bay area,” Gioia said.
“We’re not going to expand into different markets. I want to have a cluster of tight stores in the Northern California area that we can control and manage well,” he added.
Gioia, along with private-equity firm Mainsail Partners, formed Togo’s Holdings LLC to acquire Togo’s from Dunkin’ Brands in November 2007.
Dunkin’ Brands ended ongoing company-store operations within Togo’s in 2003, when the number of such locations had dwindled to four from a high of 25 in the late 1990s. Since then, Gioia said, Togo’s from time to time has temporarily held ownership of selected restaurants that it was in the process of transferring to franchisees.
Gioia remarked that Togo’s franchisees appreciate that the franchisor again “has some skin in the game” and that “together we’ll learn a lot by sharing knowledge and information.”
Franchise disclosure documents filed by Togo’s Holdings affiliate Togo’s Franchisor LLC show that among the 169 conventional Togo’s restaurants operated by franchisees, annual sales in 2010 ranged from $179,268 to $1.25 million per location. The average of annual sales per unit across those restaurants was about $582,000, according to the documents.
The chain faced some “tough slogging” into 2010, given that most Togo’s restaurants are in California, which was particularly hard hit by the recession and continues to suffer higher unemployment rates compared with most other states, Gioia said.
“But 2011, for us, was better than 2010, and I expect 2012 to be better than 2011,” he said.
“This is one of the examples of my being cautiously optimistic about the business and the economy,” Gioia said. “I am bullish on the industry and I’m bullish on Togo’s, and so I do think it is a good time to invest in company restaurants.”