To Franchise, or Not to Francise
A restaurateur ponders taking the leap into franchising.
By: Rod Kurtz
Aaron Kennedy was walking home from dinner one night, his stomach full of pad thai, when something dawned on him: Comfort food always seems to involve noodles. Whether it's spaghetti, pork lo mein, or mac and cheese, the masses just can't get enough of them. "People grew up all around the world eating noodles," Kennedy says. "For centuries, this food has been appealing to peasants and aristocrats alike."
And so it was that Noodles & Company--a quick-casual restaurant serving noodle dishes from around the world--was born. In 1995, two years after his post-pad thai epiphany, Kennedy launched his first restaurant in Denver. Since then, the lifelong foodie and former brand manager at Pepsi has opened 79 more "global noodle shops" in nine states, all of them company-owned and operated. Revenue hit $68 million in 2003, up 36% from the previous year.
But Kennedy couldn't help worrying that the company wasn't growing fast enough. With new competitors coming on strong, he was determined to solidify Noodles & Company as the category leader. One way to do that was to alter the company's tried-and-true strategy, and attempt, McDonald's-like, to expand through franchising. But was Kennedy--a CEO who still sits down with patrons to see how they like their mushroom stroganoff--willing to take such a radical step?
From the outset, Noodles & Company "was less about an empire than the ability to serve these great bowls of noodles," says Kennedy, 40. He opened the first restaurant with $73,000 of his own money and another $200,000 from 24 friends and family members. Less than a year later, he launched a second location in Madison, Wis., where he had attended business school. But Kennedy soon learned that it's one thing to whip up a plate of penne in your own kitchen, and something else to serve it--at a profit--to hungry customers in two cities. Initial reviews were negative, criticizing both food and service, and the two restaurants soon began bleeding cash.
So Kennedy scrapped everything, revamping his operation with a $5-a-bowl, saute -to-order menu, better hiring practices, and a new design. Soon, he was operating in the black. Using cash from the now-successful restaurants, and new rounds of financing from his investors, two locations became six, and so on, and by February 2003, Noodles & Company had 60 restaurants in its fleet.
But soon, new competitors appeared. For example, Nothing But Noodles, based in Scottsdale, Ariz., was shooting for hundreds of locations within a few years. Noodles & Company began plotting a response. The company had already met with suitors interested in a buyout or strategic partnership, but could not find a good match on price or philosophy. Perhaps, thought Kennedy, it was time to explore franchising. Would-be franchisees had been knocking on the company's door for years, and a study commissioned by the board of directors found that tactic could help swell the company's ranks to 250 restaurants in less than five years. Best of all, franchisees would be shelling out their own money.
But franchising was also a scary thought. During his tenure at Pepsi, Kennedy had seen firsthand the adversarial relationships between the soft-drink giant and its bottlers. What's more, a brand that took years to build can take on a life of its own in the hands of far-flung franchisees. "My biggest concern was that we would lose control and customers would not have the same experience," Kennedy says. "That would tarnish the whole organization."
By: Rod Kurtz
Aaron Kennedy was walking home from dinner one night, his stomach full of pad thai, when something dawned on him: Comfort food always seems to involve noodles. Whether it's spaghetti, pork lo mein, or mac and cheese, the masses just can't get enough of them. "People grew up all around the world eating noodles," Kennedy says. "For centuries, this food has been appealing to peasants and aristocrats alike."
And so it was that Noodles & Company--a quick-casual restaurant serving noodle dishes from around the world--was born. In 1995, two years after his post-pad thai epiphany, Kennedy launched his first restaurant in Denver. Since then, the lifelong foodie and former brand manager at Pepsi has opened 79 more "global noodle shops" in nine states, all of them company-owned and operated. Revenue hit $68 million in 2003, up 36% from the previous year.
But Kennedy couldn't help worrying that the company wasn't growing fast enough. With new competitors coming on strong, he was determined to solidify Noodles & Company as the category leader. One way to do that was to alter the company's tried-and-true strategy, and attempt, McDonald's-like, to expand through franchising. But was Kennedy--a CEO who still sits down with patrons to see how they like their mushroom stroganoff--willing to take such a radical step?
From the outset, Noodles & Company "was less about an empire than the ability to serve these great bowls of noodles," says Kennedy, 40. He opened the first restaurant with $73,000 of his own money and another $200,000 from 24 friends and family members. Less than a year later, he launched a second location in Madison, Wis., where he had attended business school. But Kennedy soon learned that it's one thing to whip up a plate of penne in your own kitchen, and something else to serve it--at a profit--to hungry customers in two cities. Initial reviews were negative, criticizing both food and service, and the two restaurants soon began bleeding cash.
So Kennedy scrapped everything, revamping his operation with a $5-a-bowl, saute -to-order menu, better hiring practices, and a new design. Soon, he was operating in the black. Using cash from the now-successful restaurants, and new rounds of financing from his investors, two locations became six, and so on, and by February 2003, Noodles & Company had 60 restaurants in its fleet.
But soon, new competitors appeared. For example, Nothing But Noodles, based in Scottsdale, Ariz., was shooting for hundreds of locations within a few years. Noodles & Company began plotting a response. The company had already met with suitors interested in a buyout or strategic partnership, but could not find a good match on price or philosophy. Perhaps, thought Kennedy, it was time to explore franchising. Would-be franchisees had been knocking on the company's door for years, and a study commissioned by the board of directors found that tactic could help swell the company's ranks to 250 restaurants in less than five years. Best of all, franchisees would be shelling out their own money.
But franchising was also a scary thought. During his tenure at Pepsi, Kennedy had seen firsthand the adversarial relationships between the soft-drink giant and its bottlers. What's more, a brand that took years to build can take on a life of its own in the hands of far-flung franchisees. "My biggest concern was that we would lose control and customers would not have the same experience," Kennedy says. "That would tarnish the whole organization."
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