Secrets of a Small Town Franchise
Editor's Note: This summer Blue MauMau will interview "extreme" franchisees, owners of established franchise concepts that are flexible and robust enough to do well in extremely small towns, away from large cities. Or franchises that survive in some of the most expensive cities on the planet. As the song goes, "If I can make it there, I'll make it anywhere." The first road stop is an interview with a Papa John's franchisee in beautiful blue grass country, where horses seem more plentiful than people.
LEBANON, Ky. (Blue MauMau) - Mr. Ray Hibdon, owner and operator of several Papa John's pizza franchises, started out delivering pizzas for Domino's to make enough money to marry. He did so well that he was promoted again and again, eventually becoming the area supervisor. He was hired away as trainer for a new and booming pizza concept, Papa John's. Then franchise consultant for store operations. And finally, he became the growing chain's regional franchise director in charge of assisting the operations of 450 franchised stores throughout 20 states. In early 2000, Ray took a leap of faith, leaving Papa John's Corporate to become a franchisee through his firm, Crestwood Pizza, Inc. He partnered with one of the franchisees he had worked with.
Mr. Blue MauMau: What do you think of your franchise experience after many years of service with Papa John's Corporate?
Ray Hibdon: I have been loving 23 out of 24 hours of it, seven days a week. It is very rewarding to be your own boss.
BMM: Funny! You obviously work quite a bit as a small business owner. So tell us about what you have built with all that effort. Tell us about your multi-unit franchise business in rural Kentucky.
RH: I have three partners. Two of them were brothers. They were the fourth Papa John's in the company. It was a two-store operation and I wanted to expand our horizons. We acquired two stores from another franchise group, and then paid cash for two more.
BMM: Did Papa John's corporate help you financially?
RH: Papa John's did not help with the financing.
BMM: What made you kick off the corporate shackles?
RH: I was tired of moving around so it was a good fit for me to work with a franchise here that had a previous track record.
We did well but not well enough to get enough capital to buy other stores, so we had to borrow. We took out a five-year loan, which was difficult and painful to pay back. Sometimes we had to put our own money into the company to make payroll. Now we are debt free and paid off.
We took over two stores that had difficulties. I had worked with the franchisee when I was with the corporation. I knew exactly what his problems were. He did not have good management staff. Sloppy books. We put in new management immediately. Sales started to go up immediately. When we took over the store, we were on a cash-only basis with a majority of our vendors because they had problems with not being paid in the past. We were on a cash-only basis with Papa John's and Coca-Cola. Within six months we were able to pay our vendors off. We started to break even then.
BMM: So you broke even within six months of buying the stores? That soon?
RH: Yes. Break-even points usually are two to three years [for Papa John's and other similar restaurants]. We did it in six months.
We were worried about the stores. The history of the stores were not particularly attractive but we were going to throw it [investment capital] against the wall to see if it stuck. Had it not worked, we would have closed it.
BMM: That's amazingly fast to break even. How did you do that?
RH: The knowledge that I had was pretty extensive. A lot of it had to do with luck — being in the right place at the right time.
BMM: How do you find good people in a small town?
RH: Higher unemployment rates usually convert to ease in hiring employees and keeping them. Part of the advantage of a small town is that there is less competition for the labor market. There are fewer restaurants and retail establishments. If people in small towns want to stay in town, it means they want to stay here. We don't experience the 300 to 400% employee turnover rate that a big town McDonald's might have. We [his rural stores in Kentucky] have 75% - 100%, which for the restaurant industry is very low.
BMM: This store is located in Lebanon, KY, which has a population of 5,700. Per capita income here is roughly $14,000, not exactly the wealthy spot of the state or the country.
RH: If we were to approach Papa John's today and ask them if we could put a store in Lebanon, they would tell us no because it is not big enough based on the acceptable demographic requirements, which is based on household counts of 9,000. Lebanon only has 5,000 people in town, nowhere near the minimum 9,000 household count. But the pizza business is built for such places - the middle of the road, low to middle-class areas. You don't find big steak houses and sit-down [restaurant] franchises here.
But we do well. And being in a small town, we have the advantage of knowing most of our customers.
BMM: Succeeding in franchising sounds like a bit of a numbers game. So from the beginning you were prepared to close the store fairly quickly if it was eating capital?
Yes. If you can't make it work, you've got to get out. You can't continue to shovel money in forever.
BMM: What sort of support does Crestwood Pizza, Inc., receive from Papa John's?
RH: In addition to commissaries, paper products - which is the brand - we get visits from people who do what I used to do: checking that the store is doing everything that the agreement says we are supposed to do.
Our food costs have gone down every year for seven years since I've been a franchisee. With higher unit numbers in a chain comes more buying power. The more stores that are open the more buying power the corporation has. Papa John's has brought down costs extremely well. I don't think a whole lot of companies can say that. An independent store would have a cost of goods sold that is four to five percent higher than ours.
BMM: How would you advise someone who wants to find the right franchise for Small Town U.S.A.?
RH: They should seek opportunities to franchise with a company with a proven track record. And they should talk to the local franchisees in their area about the success and failure the franchisee has experienced with the system. For the most part, franchisees will be open and truthful. If the company puts a stamp on the person and sends them, most franchisees will share the financial records.
BMM: What lessons have you learned as a multi-unit franchise owner in a very rural area?
RH: I've gotten burned by some people. If you don't have the right people, you'll not do well. Sometimes you pick the one that you think will do well and then six months later find out it is not the right person. A general manager can make or break you. We've had some outstanding success with general managers that have increased sales and profitability and others who have taken it into the opposite direction. The thing I have learned is to not wait too long to get rid of a bad general manager.
BMM: And how do you determine early on that the manager you hired is not working out?
RH: If sales are down. If profitability is down. If service is bad. If you are getting a lot of customer complaints. If the store is dirty. A dirty store is usually not a profitable store. If the manager comes to you with the excuse that I'm too busy in trying to make money than keep the store clean, then you know you have a problem.
BMM: Have you thought of multi-branding?
RH: We looked into other concepts. We looked at the barbeque and sandwich business. We dialogued with a couple of franchisors and nothing really panned out. We decided that we wanted to remain a pizza company and rely on what we know we can have success with.
Since then in 2005 one of my partners branched out and got into the barbeque business. Barbeque seems to be a fast segment of the fast-food segment. I would want to be in a metro market though.
BMM: Any other tips on how to become a successful franchise owner?
RH: Beware of what you are getting into. Know the business very well before you get into it. Maybe even go to work for the corporation for six months to a year to see if it is something you really want to sink your money into. If you learn on their dime before investing yours, it could be very valuable time spent for you.
BMM: It certainly seems to have worked for you. Mr. Hibdon, thank you for your time.
RH: You are welcome, and thank you.
Editor's Note: Crestwood Pizza, Inc., sold its Lebanon, Kentucky Papa John's franchise in April. This is evidence that there are indeed buyers of franchises, even in Small Town, USA.
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