Building The Perfect Franchise

The secret sauce of Boston Pizza’s incredible franchise success

Written by Eve Lazarus

As a 23-year Boston Pizza franchisee, Hank Van Poelgeest has seen his share of restaurant openings — but never one in winter. So he was relieved to wake up January 17 in St. John’s, Nfld. and look out the window to see no sign of snow and the thermometer hovering around zero. The day marked the official opening of the first Boston Pizza franchise on the island, and a winter storm would have wreaked havoc.

The restaurant launch was the culmination of months of planning. The location had been carefully chosen. As part of preparations to delight the desired throngs of paying customers, head office provided a team of nine to help hire and train staff. The restaurant had even hosted four grand-opening dress rehearsals and a party for 400 on the previous Saturday. And a national ad campaign combined with word of mouth helped snag customers from nearby competitors such as the Keg, East Side Mario’s and Mike’s.

When the doors opened at 11 a.m., any fears Van Poelgeest had of empty seats disappeared faster than the pepperoni on a six-year-old’s pizza as locals filled both the 180-seat restaurant and its accompanying 80-seat sports bar. More than 100 newly trained staff cooked and served pizza and pasta dishes throughout the day and into the night. “We wanted to use the first couple of weeks as a slow beginning,” says Van Poelgeest, “but we’ve never had a slow beginning.”

Supporting franchisees such as Van Poelgeest in just about every manner possible has played a huge role in making Boston Pizza International Inc. the king of casual dining in Canada. Since 1964, the Richmond, B.C.-based franchisor has quietly and steadily opened its outlets in small towns — mostly in Western Canada — wooing the appetites and wallets of families and teens looking for an inexpensive meal, and of young adults who hang out at the bar. In the past five years, Boston Pizza has opened more than 100 restaurants without closing any, giving it 226 corporate or franchised restaurants in Canada and another 40 stateside. Its system-wide revenue reached $435 million in 2004, up from $370 million a year earlier — giving the company a 17% growth rate in an industry that’s satisfied with 4%. (Even same-store sales, the key indicator in the foodservice business, have grown at an annual clip of 6.3% since 1995.) Excluding franchisees, the firm still turned a 2004 profit of $2.5 million on revenue of $40 million.

Few companies can grow this quickly on this scale. Even fewer can add employees, product lines and disparate locations while maintaining product quality, service levels and a healthy bottom line. But Boston Pizza achieves the dream of countless entrepreneurs by carefully selecting and supporting its business partners, picking the right markets to serve, marketing the heck out of its product and building an experienced management team. Its expansion formula is a textbook example for any company looking to grow.

Best in the business

As it chases its dream of establishing a Boston Pizza outlet in every country in the world, the company would do well to follow its own example. Whereas few Western-based restaurants have managed to push past the Prairies or across the 49th parallel, Boston Pizza has established a toehold in Ontario, Quebec and Atlantic Canada. Now it’s in the midst of a full-scale invasion of Eastern Canada, with plans to grow from four to 50 restaurants in Quebec over the next five years, and another 25 in Ontario this year alone. Wherever the company travels, says chairman George Melville, the vision is the same: to be the best franchisor in the restaurant business. “All the way along, we have built an organization that can serve its customer, which is the franchisee,” he says. “We’ll continue to do that when we go into new territories and grow. Our vision is to create an organization that will carry on forever.”

Boston Pizza’s history is already decades longer than most Easterners know. In 1964, Greek immigrant Gus Agioritis opened the first Boston Pizza and Spaghetti House in Edmonton. According to company legend, Agioritis had jumped ship in Vancouver six years earlier with just $26 in his pocket and the clothes on his back; Boston was the first and only name considered for his restaurant: “It only had six letters, it was easy to remember and it was a famous city,” said Agioritis. By 1970, the chain comprised 17 locations, 15 of them franchised. Ex-RCMP officer Jim Treliving was one of the franchises. Enamoured with the opportunity, Treliving recruited accountant George Melville, and the pair built a chain of 16 franchises in B.C. before raising $3.5 million in 1983 to acquire Boston Pizza’s corporate operation and the franchising rights that went with it. System-wide sales at the time: $30 million from 44 outlets.

While Melville describes himself as conservative and Treliving as more of a risk-taker, both thrive on the “personality of the business” and its ability to make money. “It’s a very exciting business and very much a people business to be involved in, but it is a very good business model as well,” says Melville. “We had good food and a fun environment and all those kind of things, so the real key to the business was simply driving volume and controlling costs, and everything else worked.”

Guided by the company mantra, “Think like a customer, deliver outstanding food value/quality and work closely with partners,” Treliving and Melville honed their business strategy in the 10 years following their takeover. Targeting rural areas, which offered residents plenty of fast food but little in the way of casual, sit-down dining, Boston Pizza aims to capture families and young adults with its dual restaurant/bar concept. The model allows the firm to generate business from lunchtime to last call, while its focus on pizza and pasta keeps food costs — and the average customer cheque — low. (Boston Pizza’s food costs equal about 25% of revenue, compared with 38% industry-wide.)

With a firm focus on franchising, Treliving and Melville established systems and standards intended to enhance Boston Pizza as it expanded. By 1993, the chain had swelled to 89 restaurants, and the partners brought in Mike Cordoba, a chartered accountant by training, to help perfect the formula. “Probably the biggest secret of our success,” says Cordoba, who is now Boston Pizza’s CEO, “is understanding franchising inside and out and understanding what it takes to be a successful franchisee.”

Fit like a glove

Face it: you can’t be in two places at once. So expanding into new markets with a new branch office or division means putting the right people in charge and trusting them to execute your vision. The stakes are high: the wrong person at the helm can dampen employee morale, diminish your company’s standards and damage its reputation-not to mention profit margins.

In fact, struggling franchisees threaten the franchise system and the core business itself. With so much riding on the relationship, choosing the right franchisee is critical. “It’s a fine line,” says Melville. “You want somebody who is entrepreneurial and yet can work within a system. A lot of times you need some business acumen and some money, but you also need a personality.” He recalls one franchisee who possessed only two of the three. “He was basically a jerk,” says Melville. However, management believed it could offset the franchisee’s lack of social skills by surrounding him with a talented general manager and support team. It didn’t work; within six months the GM had quit and the franchisee was failing. “The idea that you can build a team around somebody who isn’t a team-builder is a mistake,” says Melville.

Today, potential operators are subjected to a series of financial and background checks — even personality testing, if head office deems it necessary. Candidates also participate in multiple interviews with senior managers, eventually facing a panel of seven, that includes Cordoba. If there are any doubts about a candidate’s suitability, he or she is shown the door.

We want to hold your hand

Giving your new staff adequate tools and training not only helps them do their job right, it also creates loyalty and motivation by signalling your interest in their success. Despite their best intentions to start fledgling employees off right, many growth (read: underresourced) companies miss the opportunity.

It’s the same in franchising. That’s why, after the handshake and before the restaurant opens, Boston Pizza provides franchisees with operations manuals, menus and extensive training and support. Newcomers and their managers receive six weeks of training at one of two corporately owned training restaurants, and another 10 days at head office learning the business side. The hand-holding continues with in-store support, such as the nine-member training team parachuted into Van Poelgeest’s store in St. John’s. “If we have any problems,” he says, “they are there to assist us.”

The support — and supervision — continues long after a store finds its feet. “We go in four times a year and assess the operational performance on service levels and on food quality,” says Cordoba. “Then we rate them and look at their overall business performance, and we see if there are ways that we can enhance their performance.”

Additionally, secret shoppers drop in 12 times a year, while customers are continually polled on how Boston Pizza stacks up against the competition, how often they visit and why. “So we look at franchisees both from an operational perspective as if we were consumers,” says Cordoba, “and also from a business-performance perspective to see if we can help them make more money.”

Frequent meetings of a franchisee advisory council and semi-annual franchisee meetings provide a forum for reciprocal feedback between head office and the owner/operators. “The mentality of running a franchise operation as opposed to a corporately owned chain is quite a bit different,” says Melville. “You do need to listen to franchisees.”

Franchisees must also agree to renovate their restaurants every seven years at no small cost — about $800,000 — but the regular makeover has been shown to increase restaurant revenue by 10% to 15%. “It stops the concept from getting stale,” explains Cordoba. “You never run into a situation where seven years down the road you have 100 tired-looking restaurants. Typically, about 10% of the chain gets renovated every year, so it’s a constant evolution.”

According to Douglas Fisher, president of FHG International, a foodservice and franchising consultancy in Toronto, Boston Pizza’s franchise development costs are in line with those of competing chains, but its restaurants’ operating costs are much lower. “Generally, Boston Pizza is able to provide the franchisee with an operating profit that’s fairly significant when compared to operations like Kelsey’s, Casey’s and East Side Mario’s.”

Support for franchisees extends to a $10-million-a-year marketing program fronted by high-profile Canadian comic (and recent U.S. game-show host) Howie Mandel. Stephen Plunkett, Boston Pizza’s vice-president of marketing, says celebrity-powered advertising has been a costly but effective way to cut through the marketing clutter and create instant recognition of the brand in Eastern Canada, where the chain has little street-level exposure.

Don’t make the same mistake twice

Aggressive geographical expansion has been the death knell of many restauranteurs, even if they’re jumping only from B.C. to Ontario. “Eastern and Western Canada are very different, not only politically but in the food that we eat and how we market it,” says Fisher.

For instance, companies that are huge successes in Eastern Canada, such as Swiss Chalet and Harvey’s, have penetrated the west with great difficulty, if at all. Another challenge is ensuring high-calibre performance from a head office four provinces away.

That reality loomed large when Boston Pizza opened and then quickly closed three restaurants in southern Ontario in 1992. “The mistake that we made was we were global but we didn’t act local,” says Cordoba. “We didn’t set up an office there, and we were 3,000 miles away trying to deal with a franchisee in Mississauga.”

Now Boston Pizza puts in place regional support teams, which include experienced management, to supervise and support franchisees long before they build any restaurants. In its second assault on Ontario, Treliving moved to Toronto to set up and manage an office. When he moved on to Dallas to spearhead the company’s U.S. expansion, he was replaced by Mark Pacinda, a former president of Arby’s. And 18 months before opening a restaurant in Quebec in 2004, Boston Pizza set up an office in Laval, headed by Wayne Shanahan. The Quebec City native had three startups under his belt, including Jack Astors, a 23-store chain owned by SIR Corp.

“When we had 100 restaurants, we had a staff to support 200 restaurants. And now that we have over 200 restaurants, we have a staff that can support 400,” says Melville. “We keep that going because you always need to build ahead of the business curve. It’s not a cheap way to do it, but in the long run it is the cheapest way. We’ve all seen what happens when you have to pull back — that’s very difficult.”

Hiring smart local people and giving them autonomy is a key reason why the Eastern expansion is working this time around. “[Boston Pizza has] built an almost identical structure of what they’ve got in Richmond,” says Fisher, “so they are providing full support for the Toronto marketplace, and that’s done very well for them.”

Conscious of the unique regional tastes of Ontario and Quebec consumers, Boston Pizza spent several months analyzing the provinces, checking out the competition and conducting focus groups. Before signing the first franchise agreement in Quebec, the company had financing, structural development and training programs translated and ready to go. Says Cordoba: “The franchisees had all these systems and manuals as if we’d been in that part of the country for many years.”

This time around the company also “tweaked the brand” to suit local interests. In Ontario, that meant adding a meatball sub to the menu and changing the type of pepperoni on the pizza. Quebecers demanded poutine, maple sugar pie. They also wanted more wine choices, a sampler lunch menu and their salad served before the entrée.

Fisher says that attention to detail seems to be paying off. “The restaurants are reflecting or doing better than some of the stores in the West. They are highly profitable, and the franchises are truly in demand.”

The right recipe

Boston Pizza is following the right recipe, agree equity analysts who follow the firm, which went public in 2002 as the Boston Pizza Royalties Income Fund (TSX:BPF.UN). “Boston Pizza seems to have a formula that works extremely well,” says Leslie Lundquist, a portfolio manager at Calgary-based Bissett Income Fund. “It appeals to two separate demographics, and they know how to open new markets profitably.”

Fisher is also bullish on the chain’s future. “From what I understand from franchisees, they are making the money that they’re told that they will make,” he says. “The company is well positioned, it’s entering a lot of smaller markets and, as long as it can provide operational support [for franchisees], it will be okay.”

A few bumps could come down the road: such rapid expansion plans could lead to oversaturation, with the additional risk of new restaurants cannibalizing existing franchisees. But Cordoba says Boston Pizza’s rigorous research when selecting locations ensures new restaurants won’t take business away from existing franchises.

Its biggest expansion challenge could simply be convincing naysayers the concept will work outside the West. “The biggest thing that we’ve been told is we are not going to make it in Eastern Canada — we are a Western-based concept. So don’t bother going to Quebec, because none of our competitors who have ever gone to Quebec have ever been successful,” says Cordoba. “The three of us — George, Jim and I — are very much entrepreneurs and risk-takers. That just makes us more ‘We will, we will, we will’.”

Read: Top Of the Food Chain

© 2006 Eve Lazarus

Originally appeared on PROFITguide.com