Focus Brands has a deep restaurant roster that includes shopping mall heavyweights like Auntie Anne’s and Cinnabon, so it may come as some surprise that the company had a record-breaking year in 2021 for both sales and franchise agreements.
The plight of the shopping mall was well documented prior to the pandemic due to the sharp rise in ecommerce. COVID-19 exacerbated the issue. Now, however, mall visitor numbers are exceeding pre-pandemic levels and the brick-and-mortar retail hubs are having a bit of a moment due to supply chain issues.
“Interestingly our brands that are mall-based, the performance was just mind boggling last year. It was not uncommon to see 30% daily comps growth year-over-year. I think the supply chain disruption worked in our favor. If you’re typically going online to shop and you see ‘out of stock,’ that’s when people start going back to the malls,” CEO Jim Holthouser said during a recent interview.
Cinnabon and Auntie Anne’s weren’t the only brands experiencing what he calls a “barnburner of a year,” however. Their sister brands, Carvel, Jamba, McAlister’s Deli, Moe’s Southwest Grill and Schlotzsky’s also benefited from macroeconomic conditions, investments in digital, product innovation, real estate upgrades and “explosive growth” from its licensing channel.
The combined factors yielded 561 new franchisees in the system and 175 new restaurant openings in the U.S. and Canada. Further, Focus Brands International sold more than 225 agreements and opened more than 215 stores.
“The only quote-unquote soft area we had was international and that was simply because of COVID and key markets going back under lockdown,” Holthouser said. “It didn’t hurt that there was $18 billion of stimulus money circulating in the economy. But I think we can take some credit, too. We put a lot of new capital into our restaurants to keep them fresh and current and that has really worked in our favor.”
It also helped that Focus Brands is a huge system with more than 6,000 units and 1,800 franchisees. A quick look at the landscape proves bigger systems fared better during the unprecedented past two-plus years.
“One lesson this business learned from the pandemic is the benefit and the need for scale. I think that was part of the psychology behind [record franchise agreements] is people understanding we need to be a little bigger to protect bottom lines,” Holthouser said.
He expects this momentum to continue as all brands generate strong unit-level economics. McAlister’s, for example, leveraged its early-mover status in digital to insulate itself during much of the pandemic, and Holthouser expects it to be Focus’ first $1 billion brand this year or next year.
“The unit-level economics are where they need to be and we’re ensuring good returns for owners. In the franchising business, capital chases performance and that’s what we’re seeing now,” he said.
Meanwhile, Schlotzksy’s benefited from a majority (85%) drive-thru system and simplified menu. Jamba upgraded its menu and added plant-based options last year as demand for the category skyrocketed. Moe’s also upgraded its menu and real estate availability.
Holthouser has big plans to sustain Focus’ momentum overall. Nearly 100% of its new-builds will have a drive-thru, for example. Further, the strengths of its brands, and its scale, has driven the company to accelerate co-branded locations. In 2021, Jamba and Auntie Anne’s opened a co-branded location in Texas, while Auntie Anne’s and Cinnabon recently signed a deal to bring 10 co-branded stores to New York City. Holthouser is especially excited about this opportunity, given the complementary nature of Focus’ concepts and the potential for operational efficiencies.
“The restaurant industry has not done [co-branded] very well. You just can’t take two restaurants and put them side by side. That doesn’t create advantages for the owner,” he said. “What we’re trying to do differently is reconcile all the SKUs, equipment and really think about the engineering process of making and packaging and delivering food in restaurant.”
If this reconciliation process works, he adds, a single, mall-based brand can cast a wider net, provide more optionality, and go from $600,000 in sales to $900,000 in sales as a co-branded unit.
“If you have the discipline to do it right, you can lower operating expenses. It’s a huge advantage simply because the economics work so well for the owner and because you’re giving customers more optionality,” he said.
Focus’ seven brands are also undergoing a digital upgrade this year. The objective is to turn on new websites and apps, complete with loyalty programs, that entice customers to engage directly with the brands versus third-party providers.
“I’m of the belief there is room for everybody. But the rules of engagement need to change in this industry and what I want to see is our channels growing faster than third-party channels. Our job is to own our relationship with our customers. If we can do that, we can get more meaningful business,” Holthouser said. “It will require a lot of investments and time, but I think it will help us win in the future.”
The process of rolling out second-generation digital products for all brands will be done in phases to ensure sufficient testing and learning. Holthouser anticipates it will be a multi-year process that, he hopes, will convert more digital traffic into sales and ultimately create lifetime customers.
By the time its digital and physical upgrades are completed, and its franchise agreements have yielded net openings, Focus Brands could be an even bigger company. Holthouser made it clear the company is in the market to add to its vast portfolio, referring back to the advantages of scale in this “new normal” business environment.
“I am interested in expanding into new categories of food that don’t overlap what we’re already doing. So I’m looking at pizza, chicken, burgers, Mediterranean, salad,” he said. “We’ve got the balance sheet to do it and it’s just a matter of finding the right deal and the right fit. We won’t grow for the sake of growing but to bring in the right brand for the right reason. The more scale I have, the more muscle I have to control supply chain and third-party costs and make better and bigger investments in technology. I can be a better franchisor.”