In this exclusive Q&A, we talk with Dan Rowe, CEO of Fransmart, one of the largest restaurant franchise development firms in the world.
Franchise Chatter (FC): Welcome, Dan. Thank you for your time today. Can you give an overview of your experience in franchising?
Dan Rowe (DR): In total, I’ve spent more than 20 years in the franchising world – as a franchisee, franchisor, consultant, strategist and private equity investor.
Following the dot-com crash, I vowed to never put myself into a position where I felt financially unstable. I didn’t want the actions of anyone else controlling my financial future, or more importantly, how I felt about my financial future. That is when I got into the franchise industry.
Over the next few years, I focused my efforts on launching QDOBA, an emerging brand at the time. Despite its newcomer status, the concept had exploded during the dot-com boom and bust because I was building relatively low-cost restaurants that did high sales, and the ROI for our franchisees was great.
When I discovered Five Guys Burgers & Fries, they had even higher sales and even lower start-up costs than QDOBA, which I knew would lead to an even better ROI. Despite the uncertain economic climate, the risk profile was extremely strong. Franchising made sense because when I did the math, the return would be higher than putting the money elsewhere.
In addition to growing my own wealth and gaining financial independence, I wanted to help others become wealthy and financially independent. That’s when I launched Fransmart, which is now one of the largest restaurant franchise development firms in the world. We work to identify restaurant industry trends and work closely with emerging concepts to help them expand to become national and global chains. As of 2020, over 1,000 new restaurants are in development across our current portfolio.
FC: In your opinion, what area is the “place to be” for emerging franchise brands?
Dan Rowe: If you were to guess which city has the most fast-casual restaurant chains, you might think New York City due to the density and tourist traffic. However, the National Restaurant Association puts Washington D.C.’s restaurant saturation at a whopping 332.2 restaurants per 100,000 people, which is actually higher than New York City’s rate of 237.1 per 100K. D.C. is home to Five Guys, SweetGreen, Cava, & Pizza, Jose Andreas’ restaurant group, and many other household names.
I think D.C. is the “place to be” largely due to their tech-savvy residents and educated tourists, which both have disposable income and are always looking to try something new. With so many options available, loyalty is hard to earn and even harder to keep, so a concept in the D.C. metro area needs to be exceptional to thrive. Additionally, residents of the suburban areas surrounding D.C. have high standards for consistently delicious and fast restaurants. If a concept can satisfy both of these demographics, they can succeed anywhere in the nation.
FC: What brand do you predict is the “next big thing” in D.C.?
Dan Rowe: In my professional opinion, Bob & Edith’s Diner is destined for national success. Bob & Edith’s is a 50-year-old family-run institution, beloved by all who visit. Customers love Bob & Edith’s Diner not only for the delicious, made-fresh food, but the community and sense of belonging that the establishment provides at each of the locations. Regulars don’t come just for coffee and pie, they want to spend time there to chat with the friendly waitstaff, read the paper, or sit at the counter and watch the food being made. The concept’s business model also supports utilizing the D.C. market’s abundance of easily convertible units for a relatively low cost to generate very high sales.
FC: How have you seen franchise restaurant brands rising to the occasion to tackle COVID-19 challenges?
Dan Rowe: Franchise restaurant brands have had to adapt quickly and efficiently to survive the COVID-19 pandemic. Many have found that turning to technology is not only keeping them afloat, but actually helping them increase sales. For example, emerging brand The Italian Place leveraged self-serve kiosks to streamline its ordering process, maintain consistency and enhance convenience and safety for customers. Their significant upfront investment in technology, including ventless technology and portable self-serve kiosks, has enabled the store to remain adaptable during the pandemic – and even increase its revenue and profitability.
Another way franchisees are adapting is increasing off-premise dining. Statista pegged revenue in the online food delivery segment to just under $95 billion in 2019. It estimated revenue to show an annual growth rate of 9.3 percent, resulting in a market volume of more than $134 billion by 2023. Off-premise dining is the way of the future, and now it has become the new normal.
Pre-coronavirus, Bob & Edith’s Diner’s sales came primarily from in-house dining, but to-go orders now make up 50% of their sales. To accommodate this shift, they made updates to their off-premise packaging to keep the food hot and fresh, rearranged the BOH (back of house) by adding a designated delivery/take-out area to effectively package orders and created a personalized app through ChowNow that allows them to keep 100% of proceeds.
FC: Why do you think now is a perfect time to invest in franchising?
Dan Rowe: While it is devastating to see restaurant closures across the nation, it opens opportunities for new brands to emerge. With an under-saturation of restaurants and a widely available labor force, there will likely be a boom in restaurant food sales. Also, people cooped up at home are ready to eat something they do not have to cook.
In addition, interest rates are low right now and banks are looking for strong operators to offer great loan terms. Franchisees can get loans when no one else can, because lenders consider the financial history of the franchise to extrapolate franchisee sales expectations. The government is willing to back loans to jumpstart the economy, and they will cut interest rates to accomplish it.
Investing now isn’t for everyone, but there are always courageous entrepreneurs laying their money down. We have seen several downturns happen over the last few decades, and we always come back fighting into a booming economy. My advice – take the right risk and reap the reward.