To Franchise, or Not to Francise Part 2

The Decision

Franchising would only work, Kennedy decided, if the relationship between headquarters and franchisee was a true partnership, rather than the usual fiefdom. So he and his team set out to create a "new-school way to franchise."

The nuts and bolts are relatively standard: Franchisees pay a $35,000 up-front fee and 5% of their annual revenue. But Noodles & Company is doing other things differently. Franchisees are carefully screened--they are even given psychological tests. In addition to a how-to manual called "The Noodles Brain," all franchisees receive a "Noodles Buddy"--a seasoned corporate manager who serves as a mentor. The company also assists with real estate selection and acquisition, as well as restaurant design and construction. "They won't be successful if we just mail them a binder," Kennedy says.

The company only considers operators who already run several restaurants and are interested in opening 10 or more Noodles & Company locations. The first franchisee, A.O. One--an affiliate of Great Circle Family Foods, the largest Krispy Kreme developer in the nation--signed on for 56 Noodles & Company shops in southern California over the next seven years. "The company places a big emphasis on the people side of the relationship," says Roger Glickman, CEO of A.O. One. "It wanted to understand our culture as an organization and get to know our team. I think that really bodes well for the quality of the system."

Kennedy also is willing to move slowly. Only eight franchises will open in 2004, compared to 20 company-owned stores. That will enable the company to devote sufficient resources and attention to the franchising effort, though Kennedy expects the franchise growth rate to outpace that of his own stores by 2006.
Where will it lead? An eventual IPO is an option, Kennedy says, and the door is still open to strategic partners. Until then, Kennedy plans to keep "bringing the noodles to the people," and in the process, may just end up with a noodle shop on every corner after all. "I think we have thoroughly proven that people love Noodles & Company," he says. "And the hospitality side of me, the hospitality gene, wants to share that even more."

The Experts Weigh In

Don Boroian
Chairman and CEO Francorp, an Olympia Fields, Ill., consulting firm

A lot of companies elect to franchise when they're too small. Very few companies wait as long as Noodles & Company. So what it has done is position itself to attract sophisticated, multiunit franchisees that probably wouldn't have been attracted to the concept before. I really don't see a downside, provided it goes with experienced food-service operators. I think it will find this is an easy transition. If the buying power of the company is passed along to the franchisees, the economics allow them to work as well as company stores. It also helps with visibility in the marketplace, because it gives them more name recognition.