Backyard Burgers closed its company-owned restaurants in Arkansas in October 2012 after it filed for Chapter 11 bankruptcy protection, but nowadays the restructured company is in expansion mode and looking to move back into the state.
The hamburger restaurant closed eight company locations in Arkansas, including three in the Little Rock area, leaving four franchise operations, one each in Benton, Bryant, Fayetteville and Hot Springs, still up and running. The move was sudden, unexpected and left some of the remaining franchisees bewildered.
But with the economy on the upswing, a new leadership team in place and riding nearly two years of sales growth, Backyard Burgers is focused on re-entering the Little Rock market and it's not alone. Other franchise restaurants, both out of state and locally grown, are looking to gain ground in Arkansas' largest metro area or open their first restaurants there.
David McDougall, chief executive of Backyard Burgers, said the remaining franchise operations in Arkansas have been good stewards of the company brand and the time is right to push back into the state, particularly in Little Rock. Today the Tennessee-based company has 65 locations in 14 states.
"I think it's a good market and we have loyal customers there," he said of Little Rock.
Josh Powell is the owner of the Backyard Burgers franchises in Bryant and Benton. He says he'd add a third franchise in Little Rock if he can find the right location for the right price. He said he's been scouting the city.
He said Backyard Burgers' sudden retreat from the state was a huge surprise and it's taken a while to regain his confidence, but he believes McDougall's leadership has put the company back on track. Powell said his franchises weathered a tough 2013, but sales increased in 2014.
"Moving into Little Rock would be a great opportunity," Powell said.
The franchise industry was expecting strong growth for 2014 and 2015 as economic activity continues to accelerate, according to the Franchise Business Economic Outlook for 2015. The report was prepared for the International Franchise Association by IHS Economics, an analysis and forecasting firm.
The Conference Board Consumer Confidence Index stood at 102.9 for January, up sharply from 93.1 in December. Lynn Franco, director of economic indicators at The Conference Board, said in a release the index is at its highest level since August 2007.
Arkansas' unemployment rate was 5.7 percent in December, the fourth month in a row the rate declined. A year ago, Arkansas' unemployment rate was 7.4 percent.
The franchise economic report predicts U.S. growth in all franchise establishments of 1.6 percent to 781,794 in 2015, matching 2014's anticipated pace. It says strong employment and wage growth seen in recent years are good for restaurants in general and especially for quick-service operations.
For 2015, the report projects there will be 157,595 franchises in the quick-service restaurant sector, an increase of 1.6 percent. Twenty percent of all franchises in 2015 will be quick-service restaurants, the largest category for 2015. Full-service restaurants are expected to reach 37,536 in 2015, a 1.2 percent increase. About 5 percent of all franchises in 2015 will be full service, according to the report.
Quick-service restaurants will account for 3.3 million jobs in the sector for 2015, making up 38 percent of all franchise employment for 2015, up 3.2 percent. Output, or the total value of goods and services, is projected to reach $233 billion, a 5.7 percent gain. Sit-down restaurants will employ 1.1 million workers in 2015, according to the report, a 2.4 percent increase, and their output is expected to be $65.4 billion.
Scott Mellon, vice president for franchise development at take-and-bake pizza chain Papa Murphy's, said the publicly traded chain believes targeted and controlled expansion in select markets is the key to sustained growth. The strategy allows the Washington-based company to establish greater brand recognition and establish greater logistical support for existing franchisees.
"Little Rock is on our target list," he said.
He said there are four Papa Murphy's operations in the Little Rock area and they are performing well, but there is a lot of room to expand. Including the stores in the Little Rock region, there are 11 Papa Murphy's operations in Arkansas. He said the chain's focus on families, and with its marketing targeted toward mothers on-the-go, makes it a good fit for the city and the surrounding area.
Little Rock has seen the revenue of its restaurants of all types increase steadily in recent years, according to data from the city's advertising and promotion commission. In 2013, the most recent full year data available, the city's restaurants reported $476.2 million in revenue that was subject to the city's advertising and promotion tax, up nearly 3 percent from $464.6 million in 2012. Sales are up more than 12 percent when compared with 2010 revenue.
Dan Aronoff a consultant with Kentucky-based FranNet describes himself as a franchise matchmaker. He said franchises of all types have seen growth over the past five years, particularly the restaurant sector. He said the sector is capital-intensive compared with other franchise operation and often franchisers look for franchisees with experience in the field.
"It's a very complex business, and if you've not been in that environment before, it can be tough," he said.
Regardless of experience or the franchise type, the best franchisees tend to be smart and coachable, Aronoff said.
Location also is key in any type of restaurant franchise, he said. When compared with other franchise opportunities, a restaurant is much more dependent on parking, traffic flow and building design. Those challenges must be addressed for an operation to be viable, Aronoff said.
Chris Elliot, CEO of Beef O'Brady's, a chain of family-centered sports pubs, said the recession of 2008 hit the whole franchise restaurant sector hard and slowed down the company's expansion. Now, the company with headquarters in Florida, has about 200 locations in 23 states, including four in Arkansas and it's looking at further expansion in the state.
He said the state's configuration of many smaller cities plays well with Beef O'Brady's goal for making the restaurants community hubs. Little Rock, he said, while by no means small, still has a hometown feel that plays well with the restaurants overall theme.
"It's the right size and has the right customer base for us," Elliot said.
Todd Smyly bought the Beef O'Brady's franchise in Maumelle in June. He said the Beef O'Brady's model attracted him with its focus on family and sports. He said he's been an athlete and a sports fan all his life and notes with pride that his son is Drew Smyly, a pitcher for the Tampa Rays.
"The family thing differentiates it," Smyly said of Beef O'Brady's.
Fayetteville-based Slim Chickens has been expanding for more than a year and the fast-casual restaurant plans a continued push into Little Rock, where it has two locations. The chain has 17 locations in Arkansas, Oklahoma, Texas and Missouri and will soon open another restaurant in Oklahoma and two in Nebraska.
The company has a goal to establish 600 stores in the United States over the next 10 years.
Greg Smart, the company's chief marketing officer, said the franchisee who owns the Little Rock stores also owns the Hot Springs location and he's pursuing more opportunities in central Arkansas.
"We're bullish on the Little Rock market," Smart said.
SundayMonday Business on 02/01/2015