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Houlihan's prepares J. Gilbert's for franchising

Houlihan's prepares J. Gilbert's for franchising

CFO Rob Ellis touts the brand's unit economics and business model.

Leawood, Kan.-based Houlihan’s Restaurants Inc. plans to start franchising a higher-end growth vehicle it has kept in park for the past 25 years: J. Gilbert’s Wood-Fired Steaks & Seafood. That’s in addition to reaccelerating unit openings to between 10 and 15 per year.

The five-unit upscale-casual brand, named for legendary Kansas City restaurateur Joe Gilbert, is one of several specialty restaurant concepts Houlihan’s owns, in addition to its namesake casual-dining brand, of which it operates 36 locations and franchises another 47 units.

Houlihan’s will open J. Gilbert’s up as an opportunity to the right kind of sophisticated, multiunit operator, said Rob Ellis, the company’s chief financial and development officer.

“The reason why we thought about J. Gilbert’s [as a growth vehicle] is because we’ve enjoyed 17 consecutive quarters of comparable-sales growth,” Ellis said. “Some of that is beef inflation, but a lot of it is the service that has been driving repeat traffic. It has a compelling argument in unit economics, and there’s also an emotional appeal to restaurateurs of operating higher-end restaurants like this one.”

He added that the five J. Gilbert’s units produce an annual average unit volume of about $4 million, even without lunch service.

Ellis laid out several points of Houlihan’s growth strategy for J. Gilbert’s in a conversation with Nation’s Restaurant News.

Why franchise J. Gilbert’s now, after you’ve had five company-owned units of the brand over the past 25 years?

In the aftermath of the Great Recession, dining out is becoming more of a luxury item in America, at least at this point. We think there’s more growth potential targeting the higher average check. We’ve had this jewel of a small group of restaurants that we’ve enjoyed operating, but we’ve been putting a lot of our capital behind Houlihan’s, which is 80 percent of our system. It was a question of finding a way to grow the overall company. We looked at J. Gilbert’s and thought it might be a better fit for where the country is, and we have a compelling story to tell. The saturation of casual dining created an environment where those multiunit operators are also looking for something different.

Where are you going to find the multiunit operators you seek to grow J. Gilbert’s?

I think they’ll come from the bar-and-grill segment. They can apply those skills to a different segment. We operate five J. Gilbert’s units and 10 other upscale-seafood restaurants, so we have the means here to train operations, purchasing, IT and those sorts of things. We can allow those operators to move up in the dining world in terms of check average and experience. Our prototypical operator would be somebody who owns a lot of casual-dining restaurants and has run out of growth opportunities geographically and is looking for some diversification.

The real constraint on us being able to provide support is to work within the footprint of our existing system. We’re strong in the Midwest, Texas, and the Southeast and Florida. We tend to describe our territory as east of the Rockies but not in New England. But we could provide support to any of those markets we’re in.

Why go with this mixed model, instead of growing J. Gilbert’s through only corporate units or only franchising?

The real benefit is to grow it much more quickly. Because we don’t think there’s a gap yet in the marketplace between The Capital Grille or other $80-check-average places and the lower to mid market, we fit right into that segment. We’d like to expand our rate of growth because the opportunity is there. The way we describe the positioning is, if we’re spending our own money, we would go to J. Gilbert’s, but if we’re spending the company’s money, we might go to Morton’s.

We’ll get some business travelers, but J. Gilbert’s is a proposition with an average check of about $55, which is $30 less than the full a la carte steakhouse. It’s more than polished casual but well below the expense account driven price point.

Finding franchisees

(Continued from page 1)

Will it take Houlihan’s longer to recruit franchisees and train them for that type of a concept?

I don’t think it would be longer or more expensive. Houlihan’s restaurants are by far more complicated to run because it’s an all-scratch kitchen with 80 items or more on the menu every day. The training in the back-of-the-house and the server and manager education are the most complex.

By comparison, J. Gilbert’s is the easiest. It has 30 finished entrees for dinner, so there’s not much additional complexity there. We’ll have more training around the higher-end wine business. In terms of building costs, it’s almost the same amount per square foot, so we’re able to drive higher margins and sales through a restaurant that operates one shift. It’s a different business model than casual dining, but in a lot of ways it’s much simpler. At the higher average check, you can hire better staff and keep them longer, which is the key to delivering better customer service.

Was there a lot of the same re-engineering of the investment costs for J. Gilbert’s as Houlihan’s recently had done for its flagship brand?

Yes. We started the development of the prototype for franchisees based on our restaurant outside Hartford, Conn. That’s a 7,000-square-foot restaurant. We adapted its floor plan and built in better capabilities for private dining, and brought in décor elements from our previous J. Gilbert’s in St. Louis. It’s more “contemporary rustic,” which are two words that don’t necessarily fit together, but it combines nice rustic woods with contemporary lighting and glass fixtures, and nice custom wine cases.

Then we built that out and opened the newest restaurant in St. Louis to test whether it could be done for an efficient total cost. We took over the lease on an existing restaurant and opened this one for about $1.6 million total.

How do you grow J. Gilbert’s without letting the flagship Houlihan’s brand wither?

We should be able to handle it. We have a strong track record of supporting our franchise system, and we changed the focus on the franchise system on the Houlihan’s side to be separate from our corporate development, so now the regional managers and kitchen people are supporting their franchise markets directly.

It will probably be a fairly slow ramp-up on the J. Gilbert’s side as well. We would be happy to have signed one franchisee for it in the next few months, but we don’t have any public growth targets for it yet. It will be a function of finding highly qualified, enthusiastic operators.

Contact Mark Brandau at [email protected].
Follow him on Twitter: @Mark_from_NRN

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