Franchiser focusing on growth – Cousins on new course
Milwaukee Journal Sentinel (WI) – Sunday, December 23, 2007
Author: RICK ROMELL, Staff: Milwaukee Journal Sentinel
After a period of retrenchment, executives at Cousins Subs think the chain is poised for the sort of expansion that has eluded the franchiser in recent years.
“The growth for next year looks very significant,” president and chief operating officer John A. Pryor said. “We will have a minimum of 26 new stores were aware of right now, and I think well exceed that.”
That would reverse Cousins record of the last five years or so, when, the firms earlier projections of expansion notwithstanding, its number of restaurants declined.
But now, executives say, Cousins has weeded out underperforming locations, lined up area developers to speed franchise growth and sold company shops to focus more on franchising.
“Were really very pleased with where we are,” Pryor said. “The base is much more solid.”
Founded in 1972, Cousins has long had a strong presence in Wisconsin and particularly in the Milwaukee area, where its store count comes close to rivaling industry behemoth Subway.
Of the 149 Cousins shops up and running another dozen or so are either under construction or are significant seasonal operations 117 are in Wisconsin.
Arizona is home to another 12. The rest are in the Midwest except for two strays, one each in California and Texas the results of a wide-open expansion philosophy that Pryor said was common in franchising several years ago.
Pryor, a food services veteran who came to Cousins in late 2004, heads a team with a different approach.
“You have to be smart about the way you grow,” said John W. Campbell, vice president of franchising since June 2006. “You dont want to outrun your distribution.”
Cousins now wants to develop in Arizona and within 400 miles of Milwaukee.
Toward that end, the company this year has signed up four “area developers” people who agree to open their own stores and also sell franchises in a given territory. The typical agreement calls for each developer to produce 10 new restaurants in his or her territory over six or seven years.
“Its a faster way to grow the chain,” Campbell said.
In Wisconsin, Pryor said, Cousins hopes to open 50 new restaurants over the next five years.
Selling off shops The company is largely finished with a three-year effort to sell corporate-owned restaurants in the Milwaukee area to franchisees, several of them former employees. Where it once ran 41 shops, the firm now has 16 and probably will sell another by early next year.
Pryor said Cousins distinguishes itself from competitors in several ways, including larger sandwiches, a broader menu, greater bread variety and better quality generally.
That may be, but food industry consultant Ron Paul thinks the chain will find tough going as it seeks to grow in the sub sandwich world.
“Its a very, very crowded segment between (just) Subway and Quiznos, forgetting almost everybody else,” said Paul, president and CEO of Technomic Inc. in Chicago.
Ten years ago, the Milwaukee phone book listed about 35 Subways. Today in the same territory there are 70, plus about 50 Cousins shops and about 25 Quiznos.
Nationally, Subway has been especially aggressive. The chain tallies 21,200 U.S. shops, easily topping McDonalds 13,700 restaurants.
In the last four years, Subway has added 5,400 outlets in the United States more than three a day.
“Theres a big appetite (for subs),” Paul said. “But again, its being very well served.”
Financial statements Cousins netted $228,000 from its franchising operations last year, down from $322,000 in 2005, according to financial statements filed with the companys offering circular a key document that must be made available to prospective franchisees in any company.
Revenue in 2006 totaled $3.4 million, up from $3.2 million the year before.
The figures do not include revenue and earnings from Cousins corporate-owned shops. Nor do they show total sales for all restaurants, including the great majority that franchisees own.
Pryor declined to disclose those system-wide sales. Paul estimates them at about $65 million a year.
For restaurants open at least a year, total sales have shown year-over-year increases in 11 of the last 12 quarters, Pryor said.
Franchising companies license their name and business methods to franchisees. The franchisees, in turn, pay the company fees and, typically, an ongoing percentage of sales.
Cousins initial fee is $25,000. Once in business, franchisees pay the company 6% of gross sales, plus another 2% that goes into an advertising and development fund. Franchisees also must spend another 3% on local advertising.
Those payments are “very typical” of restaurant franchises, said Bob Purvin, chairman of the American Association of Franchisees and Dealers in San Diego.
Past plans Some of Cousins past statements about growth havent been borne out.
In March 2003, the company said it had 171 locations and that “new locations continue springing up in new markets.” Later that year, the firm said it planned to accelerate expansion.
“The goal is to be opening about one store per week by 2005,” the company said.
Pryor said Cousins had different leadership and a different strategy at the time of the statements. The decision to sell most of the company-owned shops was a key factor prompting a new course, he said.
“That changed the viability of where we wanted to grow,” Pryor said.
Local owners Three separate Milwaukee-area franchisees all spoke well of Cousins.
“Weve been able to have a comfortable lifestyle and do some of the things we wanted to do,” said Paul Shoman, who opened a Cousins in Greenfield in 1994 and bought a second franchise in Sussex three years ago.
Mike Laabs, a former Cousins supervisor who bought two shops 2 1/2 years ago, said he is enjoying business ownership and that the restaurants performance was meeting his expectations.
“The only concern we have with the open franchising right now, theyre talking about putting more stores in the Milwaukee area, which could hurt our business,” Laabs said.
Pryor said Cousins is mindful of franchisees territories, but also doesnt want to let competitors slip into prime locations that might emerge.
“Its not going to be a significant number of new outlets, but its not going to be zero,” he said.
ABOUT COUSINS
Founded: 1972
Headquarters: Menomonee Falls
Locations: 149, most of them in Wisconsin. Locations also in Arizona, California, Illinois, Indiana, Michigan, Minnesota, Missouri, North Dakota and Texas
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