The following are some highlights and selected quotes from the comprehensive article “Sink or Swim?: Dealing With Underperforming And Distressed Units” written by Helen Bond for Multi-Unit Franchisee. The advice contained in this article is useful not just for multi-unit franchisees, but for any small business owner faced with an underperforming, troubled or distressed store. To read the full article, please click here.
Greg Thomas, who operates 32 Great Clips units in the Southeast with his partner Grant Simon:
- If a unit’s location is good and the brand is solid, problems with operations can usually be fixed. The fastest way for a multi-unit operator to get a feel for a unit’s controllable issues is to know its numbers. Thomas looks at every line item of the P&L monthly, not just annually.
- “I concentrate on sales, sales, sales — nothing else. I know how much money each store should be making, and if it’s not making that much money I raise prices. If my store is not growing double-digits, I want to get rid of it.”
- Analyzing these numbers helps Thomas decide whether a particular unit would make a good acquisition target. A look at the P&L of one underperforming unit revealed internal theft. He fired the suspected employee and sales instantly increased by 25 percent. By simply reconfiguring employee pay, cash flow at another poor performer was positive within a week after Thomas took over.
Anand Gala, who operates 25 Applebee’s and Famous Dave’s restaurants in Southern California and Phoenix, and also provides consulting and management services to franchisees:
- With a restaurant, analyze the core operating cost of goods; food, beverage, and merchandise sales; and labor and compare them with locations that have similar volume. If there is a disparity, there is a problem.
- If your portfolio is smaller, don’t be embarrassed to ask for advice from someone you trust within your brand, such as a fellow franchisee.
- When analyzing the P&L of a distressed unit, pay close attention to the section on operating expenses. A lot of waste can occur over time when no one is watching these numbers carefully. Cutting unnecessary expenses can boost the bottom line by up to 3%.
- Gala encourages franchisees to use a guest service measure to gather performance information; a mystery shopper program; or hire someone to look for customer-service quality indicators such as clean restrooms, consistent food quality, and friendly employees.
J.R. Cottle, who operates Andy’s Burgers, Shakes & Fries in North Carolina (including the chain’s top store in Locust, N.C.):
- When J.R. took over the Andy’s Burgers, Shakes & Fries in Lumberton, N.C. in 2009, the restaurant’s performance was at the bottom of the nearly 100-unit chain. “The store was dirty, equipment faulty, and the employees uninspired.”
- Cottle hired a former employee to manage the unit, fired the entire staff, and invested in new equipment. “We had the wrong people in place. We were not looking for the best people, but for the right people who would be invested in the company’s success. You don’t have to be the best waitress, you just have to be a good person. It’s harder to teach character than talent.”
- In just six months, he rebuilt relationships with the community and doubled same-store sales. Healthy growth and the highest turnaround in the company continues today.