How Newk’s will help FSC Franchise Co. become a billion-dollar platform
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FSC Franchise Co. wants to join the billion-dollar sales club, and its 2023 acquisition of Newk’s Eatery could help get it there.
Alongside Beef O’ Brady’s and The Brass Tap, the platform, which is owned by Capital Spring, currently has $500 million in annual sales. Acquiring a fourth brand in the next year or more will help it reach its goal, said Chris Elliot, FSC Franchise Co. CEO.
“Adding Newk’s has energized the platform because of what it brings in that fast casual niche,” Elliot said, adding that there has been renewed interest in the Beef O’ Brady’s and Brass Tap brand, the latter of which has a pipeline of 85 locations and growing.
“Being on the platform together, I think over the next four or five years is going to be good for all of these brands,” Elliot said.
Other multi-brand companies have been adding to their platforms this year as well, including Darden, which is buying Chuy’s for over $600 million, and One Group Hospitality, which bought Benihana for $365 million. Craveworthy Brands and Brix have also been growing their portfolios.
The benefits of creating a brand platform
With combined resources, brands under FSC’s umbrella can share purchasing power, culinary and development expertise and other services, all of which can help lower operating costs.
The consolidated culinary team has already driven some benefits across the three brands. For example, Newk’s uses a Parisian Roll for its sandwiches that is “incredibly good,” and Elliot saw a benefit in adding it to the other two brands in the platform. The culinary team has been looking for ways to make that happen, he said.
Newk’s also buys better shrimp and salmon, so the rest of the platform is now buying these same items, Elliot said.
“Over time, there’s probably going to be probably a dozen more opportunities like that to work together to improve quality, and when you improve quality and save money at the same time, that’s a home run,” Elliot said.
Post-acquisition, Newk’s also presents attractive financials for franchisees. In addition to franchisees receiving more support from a combined development team, the cost to operate is reduced, helping improve unit level economics, said Frank Paci, Newk’s CEO.
“We’ve got better service at lower costs for the franchisees in the Newk’s system,” Paci said.
The addition of Newk’s could create opportunities for existing FSC franchisees who own Brass Tap or Beef O’ Brady’s to add Newk’s to their portfolio or vice versa, Elliot said.
Newk’s strengths will continue to drive sales
Newk’s sees a lot of potential for growth and capacity, Paci said. A competitor like McAlister’s, which is already a $1 billion brand under GoTo Foods, has 500 locations compared to a little under 100 for Newk’s. It also offers an attractive real estate platform, off-premise program and value meals.
Paci sees the Newk’s brand expanding by 50% over the next five years, with its primary challenge finding the right franchise partners. Newk’s also has the option of building corporate stores that provide a good return on investment, Paci said.
Newk’s offers a 2,800 square foot unit, versus its historical 3,500- to 4,000-square-feet restaurant. This smaller footprint option is helping reduce construction and rent costs. With over 55% of its business happening off-premise, the smaller stores make more sense, Paci said.
“With the big square footage, the costs have gotten out of whack,” Paci said. “We don’t need that much space.”
The company has taken a much more flexible approach to development and has done well with inline locations. Previously it targeted end caps, which can be hard to come by.
“We can afford spaces that other people may have to pass up because they don’t have the top line that we’ve got,” Paci said.
The chain produces average unit volumes of $2.4 million, with its top third of stores doing $3.3 million in unit volumes, Paci said.
“I think those are very attractive numbers to potential franchisees,” Paci said.
Newk’s has worked closely with franchisees to streamline operations, given the ongoing challenges with finding labor. Previously it was using dough balls and then pressing the dough, and slicing cheese in-house. It partnered with a manufacturer to press the dough, instead and has shifted to ordering sliced cheese to reduce prep time and reallocate labor to guest service, Paci said.
The chain’s off-premise business, particularly its catering channel, continues to grow, creating another benefit to franchisees. Catering has grown three years in a row on a comp store basis, Paci said. The company has also been investing in third-party partnerships, seeing these not just as an opportunity to boost sales, but also to boost awareness.
Thirty percent of its sales come from combo deals with large pairings, like a large pizza and half salad or cup of soup, or a large sandwich and half salad or soup. It also offers family meal deals where you can get two pizzas and a salad, which helps boost the dinner daypart. In contrast to competitors that offer half-sized entrees with their combos, Newk’s has always offered large combos.
“We’re playing with the amount of food that we’re giving you for what you pay as value,” Paci said. “We feel like there’s value in the personalization as well as the price of those two items together.”