Arooga's success built on frequent investments, never being 'satisfied'
Whether it's a unique concept or a twist on a classic, there is never a shortage of dining options.
Some restaurateurs connect with their progressive food and drink menus, others with their atmosphere, service and price. The successful ones hit on all elements.
Some of these establishments become destinations, while others expand to a second or third location.
If they're consistent, they develop a strong regional following or grow beyond state lines. Maybe they even take the leap into franchising and expedited growth.
The latter is not for all, and the key is getting it right, which means identifying the right partnerships, according to midstate chains that have made the leap or have considered franchise opportunities.
Nearly tripling the business
After six years and eight locations — with a ninth on tap in Shippensburg — Susquehanna Township-based Arooga's Grille House & Sports Bar signed its first franchise deal in May with the Mohegan Tribe in Connecticut, owners of the Mohegan gambling empire, for 15 restaurants in the New England market.
The first stand-alone restaurant in the multimillion-dollar venture broke ground last month at the Mohegan Sun in Uncasville, Conn. It is expected to open in early 2015.
“We're happy, but not satisfied,” co-founder Gary Huether Jr. said of the company's growth.
He and partner Mike Murphy are always on the hunt for new corporate restaurants, while pursuing franchise opportunities that will help them reach their goal of 50 locations within the next five years.
“I think the validity of the partnership with the Mohegan Tribe will help with franchise sales,” Huether said, citing potential deals in North Carolina, New Jersey, Tennessee, Virginia and even Mexico, as well as corporate locations in Lancaster County and State College.
The partners are hoping to add six locations by the end of the year. However, Huether also said he is more concerned about growing “slower and right, rather than faster and wrong.” The corporate growth is about having “skin in the game” and testing concepts before forcing franchisees to invest.
The team is very selective about potential franchisees, because they know a few wrong decisions will stain their reputation and could end their franchise business.
That's how Lancaster-based Auntie Anne's Inc., the world's largest hand-rolled soft pretzel chain, approaches each new deal.
Part of Focus Brands, Auntie Anne's has more than 1,600 locations worldwide — about 30 in Central Pennsylvania.
“Every time we grow a store, it's a case-by-case basis,” said Okey Reese, vice president of real estate. “It's not a one-size-fits-all approach.”
From the start
A business grows because it has great products and great people. It's that simple, Reese said.
“Our number one focus is to grow a franchise partner's business profitably. We don't grow for the sake of growing,” Reese said. “And it all starts with the initial relationship and partnership.”
That means listening to franchisees and doing something with that feedback, he said.
Brand innovation — investing in everything from training to store image and mobile technology — is just as crucial, Reese said.
“You want to constantly be innovating and investing in resources that support your franchise partners. Those are investments that pay off in the long term,” he said.
Arooga's has stayed at the forefront of industry trends — from craft beer to becoming a certified green restaurant. Its owners are constantly upgrading the menu and kitchen equipment, as well as technology in food preparation areas and at the tables, to ensure dining consistency and keep the brand current.
“You've got to keep up with everything. It can be daunting,” said Shayne Edmunds, co-owner of Neato Burrito, a fast-casual burrito chain with seven locations in Cumberland, Dauphin and Lancaster counties.
Neato Burrito started in 1994 with a 300-square-foot space in Harrisburg. Today, it is eyeing regional expansion and bolstering its online presence with a mobile ordering system and loyalty program to make dining more efficient for patrons and keep up with the national chains that have been growing in the midstate.
Edmunds, who also is working to enhance his menu, said he flirted with the idea of franchising about five years ago. He said he isn't against it, but providing franchisees with the same growth opportunities he's had in building the business is hard when the margins are already so thin.
“The model alone negates that,” he said, citing franchise fees and royalties that take a percentage of gross sales off the top.
The average gross sales per restaurant for Arooga's ranges between $2.2 million and $2.8 million, depending on size, according to the chain's franchise disclosure documents.
By spending less capital and generating a constant share of sales from each new store through franchising, the partners will be able to invest even more in the brand, Huether said. They have been growing the retail side of the business, which includes sauces in grocery stores and gift cards through wholesalers.
The owners also have been on the hunt for real estate, hoping to buy at least 20,000 square feet for a new headquarters, warehouse space and a test kitchen.
Successful chains are the ones that go with change, not against it, Huether said. They are proactive, not reactive, because they invest the time and money into processes that help them with inventory control and a better finished product that took less time to prepare.
“Taking the money you are making and making some reinvestments could be the difference,” he said. “If you are not doing that, you are not growing your business.”
The average Arooga’s Grille House & Sports Bar costs $592,500 to about $1.7 million to open, according to Arooga’s. The draft house model’s initial investment costs range from $362,500 to about $1.1 million. This includes the initial franchise fee, three months’ rent, leasehold improvements, equipment and three months’ working capital for the location.
Arooga’s has a royalty fee of 5 percent of gross sales and 1 percent for brand development in the U.S. The international franchises would pay 6 percent of gross sales and 1.5 percent for brand development.
“It would be a million to multimillion-dollar investment per unit,” said Gary Huether Jr., co-founder of the chain. “Each store will vary on cost, whether they are all new builds or retrofits or the location of them.”
Two left for the Gingerbread Man
Richard Phelan opened the first Gingerbread Man restaurant in Mechanicsburg in June 1973.
He never drank himself, but he liked the casual dining business and wanted to expand.
By 1974, he opened a second location in Carlisle.
The concept took off and eventually grew to 19 locations by the end of the 1990s, including five partnerships Phelan established in State College, Altoona, Johnstown, Indiana and Cumberland, Md.
“At the time, we were the (TGI) Friday’s or the Houlihan’s that everyone wanted,” Phelan said. “Everyone was looking for casual dining with atmosphere.”
His brother, Joe, designed them all.
Phelan, who is now retired, said that the family had enough to run by 1999. They didn’t want to grow the brand any larger.
“I had three homes, I lived a wonderful life,” he said. “I didn’t need to have more.”
At his peak, Phelan owned 28 restaurants, including the Gingerbread Man chain.
The cost of running the businesses, especially the liquor licenses, was also a deterrent in Pennsylvania, he said: “That is a big financial commitment to get started.”
Slowly, he started to sell off the local restaurants, which went from Hershey to Shippensburg and Gettysburg. His children maintain ownership of the Carlisle and Mechanicsburg locations.
Phelan never formally franchised the Gingerbread Man concept, although he considered the five aforementioned partnerships to be franchise stores. He collected a percentage of gross sales.
“They liked my name and the brand,” he said. “It was known in Central Pennsylvania and spread west.”
Those restaurants have closed up because of strong locations: Larger companies bought them out.
Pittsburgh’s famous Primanti Bros. is taking over the G-Man in State College — the most recent deal. That location opened in 1984.
“As big companies go into the third- or fourth-tier markets, they are willing to pay for locations. We had a lot of good locations,” Phelan said.
His advice for the growing local chains and franchise restaurants: “You have to change with what’s out there and what the competition is doing.”