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Upstart concepts conquer new markets with caution

Upstart concepts conquer new markets with caution

This is the fourth in a series of seven articles exploring the growth cycles of some of the industry’s hottest concepts. Each story looks at a different facet of the evolution of emerging chains, from conception to financing to expansion into new territories. The series also is investigating pitfalls to avoid, ways to stay hot and operators’ quest for The Next Big Thing.

Whether growing at breakneck speed or expanding more slowly, former winners of Nation’s Restaurant News’ Hot Concepts! Award have had at least one thing in common: They known exactly where they’re going and why.

Atlanta-based Moe’s Southwest Grill, a division of Focus Brands Inc. that has about 400 fast-casual units in 34 states, recently completed work on a brand positioning so that “we actually know where we fit in the marketplace right now with our competitive set,” says president Paul Damico.

In the past, expansion was often based on a “gut feel or someone’s idea” of which new markets to enter, he explains, but Moe’s now uses the Strategic Mapping and Modeling System, a market analysis tool, to guide its growth.

“We are now starting to use tools, information and facts to make the decisions where we go and who we go with,” Damico says.

Moe’s has divided the nation into three tiers, each with its own potential for successful growth. Tier 1 is the core market, which has more than 250 locations that can be filled in with units. Tier 2, which has 300 potential locations, is a “strong” market but it’s not the core, Damico says. Tier 3 is “everything west of the Mississippi [River].”

Tier 3 is a big market, he says, but Moe’s won’t expand there unless it finds a strongly capitalized, experienced multiunit franchisee to develop the concept.

By the end of this year, Moe’s will have signed 114 new construction deals and opened about 54 or more new restaurants, Damico says. The chain is almost 100-percent franchised, and if a franchisee wants to open a store in tiers 1 or 2, “we love you,” he says.

“If you want to move into Minnesota, we’re not interested,” he adds.

Moe’s also is expanding into nontraditional venues, such as airports and universities.

Moe’s, a 2004 Hot Concepts! winner, has strong aided and unaided brand awareness, but when it enters a new market “there’s a large learning curve” because consumers have heard of Moe’s but they haven’t been to one and don’t know what to expect, Damico says.

When a unit opens in a new market, it gives free burritos to the first 100 customers, and a long line of people often waits for hours to get a freebie, he says.

When restaurants enter a new market, they’re perceived often as “just another chain” moving into the area, and how they execute their core efficiencies is the true measure of brand strength, says Arjun Sen, president of Restaurant Marketing Group in Centennial, Colo.

In a new market, restaurant chains don’t enjoy the “home field advantage” that made them successful in the first place, he says, and they have to be prepared for the inevitable: Some stores will perform well, but that success will be offset by others that do poorly.

Some chains make the mistake of trying to “complicate” their operations in new markets, thinking that will make them better, Sen says, but it usually doesn’t.

Another big question, he says, is how to maintain operational consistency in new markets.

Chicago-based Stir Crazy has the answer to that: Don’t franchise.

“Right now, our ability to control every aspect of our concept is critical for us,” says president and chief operating officer Greg Carey. “We’re a group that’s not averse to making changes. To be wholly owned gives us the authority to do that.”

When the chain opens a unit in Brookfield, Wis., in September it will have 14 restaurants in seven states, all company-owned. Stir Crazy has opened five units during the past 10 months and would like to open six to 10 restaurants a year “for the foreseeable future,” Carey says.

Stir Crazy, an Asian concept with interactive stir-fry stations, is a 1998 Hot Concepts! winner. It takes a “hard look” at demographics before entering any market, Carey says, and executives make repeated trips to markets to analyze their potential for success.

“Our team will make four or five visits to a market before signing any documents,” he says. “The critical thing about expanding is not only do you have to know who you are and who your guest is, you have to understand the market inside and out.”

Although Florida is among the states hardest hit by the current economic downturn, the new Stir Crazy units there have “worked out real well,” Carey says, and the chain plans further expansion in the state.

“You get the benefit of tremendous tourism and a strong resident base,” he says. “For us, they seem to get what we do.”

Stir Crazy relies on public relations to get the word out on store openings. It invites local TV and radio stations to do remote broadcasts from the restaurant, and “we’ve been very good” at generating media coverage, Carey says.

As Moe’s Southwest Grill and Stir Crazy focus on specific regions for expansion, Pizza Hut’s WingStreet concept, a 2007 Hot Concepts! winner, is looking at national expansion.

“We believe we can have a WingStreet everywhere,” says Lisken Lawler, director of WingStreet concept development. “There are definitely wing fanatics out there.”

That’s basically what’s driving WingStreet’s expansion. Buffalo wings are popular throughout the country, and the Dallas-based chain differentiates itself from competitors by delivering wings.

“People can’t get wings delivered from other chains,” Lawler says.

WingStreet has more than 1,600 units now and plans to add more than 4,000 within the next four years, she says. The units will be placed in existing and new Pizza Hut restaurants.

Most existing WingStreet units are company-owned, but the “huge majority” of new locations in the coming years will be franchised units, Lawler says.

As the chain expands across the country, its marketing efforts will follow. WingStreet spots are on the air now in 14 TV markets, but the chain plans to go national with advertising within 12 to 18 months, Lawler says.

NPD Group recently recognized WingStreet as the fastest-growing quick-service chain.

“We want WingStreet across the country,” Lawler says. “It works in every region. That’s why we have an aggressive growth strategy.”

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