Find out
how Schlotzsky’s Deli has grown from a one-sandwich concept to a nationwide
restaurant franchising success story.
For all business owners, each new day brings with it a fresh
set of challenges. From raising capital to hiring the right employees to
staying ahead of the competition, the hurdles are many. But for John Wooley,
CEO and president of Schlotzsky’s Deli,
sometimes it comes down to just finding the right barbecue sandwich recipe for
his franchisees. “When you’re doing business with individual entrepreneurs in
38 states, you’re dealing with a lot of different personalities and tastes,”
says Wooley. “We have about 500 different business owners. In Georgia, barbecue
is pulled pork with barbecue sauce, and in Tennessee, they use pork with
another type of barbecue sauce, but when you get to Texas, they use beef with a
completely different type of barbecue sauce.”
But finding solutions to
such problems in all in a day's work for the head of a national restaurant
franchise chain.
The now-famous
Schlotzsky’s Deli franchise chain was founded by Don Dissman in 1971 in Austin,
Texas, with one sandwich: the "Original Schlotzsky's," inspired by
the New Orleans-style muffuletta, a sandwich made with a large round roll of
Italian bread split in half and filled with layers of hard salami, ham,
provolone cheese and olive salad. Schlotzsky's version of this regional
favorite combines three meats, three cheeses and a blend of marinated black
olives, lettuce and tomatoes, onions and mustard, all layered on a unique,
baked-from-scratch bread.
People came from all over Austin and the far corners of
Texas for Schlotzsky’s Original sandwich. The demand was so great that the
company started franchising, and by 1981, when Wooley purchased the chain from
the now-deceased Dissman, its sandwich shops could be found in 13 states -- a
reflection of customer demand, brand loyalty and a growing market.
Twenty-eight years after
its inception, Schlotzsky's Deli has grown from a one-sandwich concept into a
national chain dedicated to quick-service, upscale, adult food. With system wide
sales currently at $348.5 million, Schlotzsky's operates 755 restaurants in 38
states, the District of Columbia and 15 foreign countries. The publicly held
company, which employs 159 persons at its corporate headquarters, has coined a
motto to celebrate its humble beginnings: "Funny name. Serious
sandwich."
Neither Wooley nor his business partner, brother Jeffrey,
had experience in the restaurant industry when they purchased the Schlotzsky's
chain, but the duo decided it was a sound financial investment. Wooley says
what he saw in the opportunity was a product that was in high demand. “You can
build on that and make a business out of it," he explains. "What it lacked
was a sophisticated business organization and systems. The company was making a
little bit of money, but we felt there were a lot of things that needed to be
improved upon.”
With that, Wooley set out to grow the company, which already
had annual system wide sales of about $18.5 million. Initially, he made few
changes, opting instead to seek input from franchisees. “We found that we had
to move very slowly because the stores were spread out in a lot of states, and
the many different people involved had many different ideas,” says Wooley. It
took a full decade before any significant changes were implemented -- partially
because Wooley wanted to take his time, doing research and experimenting with
various ideas. At the same time, the nation’s economy was in a major slump, and
interest rates were at an all-time high.
Then, in 1991, Wooley began implementing the changes he had
been slowly developing. “I think we’re much better off that we took 10 years
just to get ready,” he says. “While we weren’t restaurateurs when we came in,
10 years later -- with the help of our franchisees -- we gained a lot of
experience. Plus, it was a much better economic time to make changes.”
The changes that Wooley implemented at Schlotzsky’s included
a renewed commitment to the roots of the concept’s origin: the muffuletta
sandwich created in a little Italian grocery store in the French Quarter of New
Orleans. “Whenever you can go to the point of original inspiration of
something, you can learn a lot,” Wooley explains. In 1992, Schlotzsky’s also
expanded its menu to offer 15 sandwiches with four varieties of bread, 10
pizzas (which feature the same bun mix used to make the restaurant’s bread) and
five salads, in addition to the soups and other offerings already on the menu.
Finally, Wooley
implemented the idea of regionally appropriate sandwiches to satisfy the
diverse tastes of Schlotzksy's customers across the nation. While that may
sound like a logical solution, it wasn't the right solution, according to
Wooley. He explains: “We have a standard menu that only allows for slight
variation. We do this because the consumer gets confused if a restaurant has 50
different types of products. That’s the power of branding: You have to be the
same everywhere to avoid confusing consumers.”
To overcome the problem of satisfying myriad tastes, Wooley
says he and his management team listen to their franchisees, while also
educating them about how the different franchisees and the franchiser itself
fit together to complete a successful puzzle. “We have to pick one formula and
stand for it,” he says. “We listen, we educate, and then we decide on a way
that we can all sell Schlotzsky’s in the same manner.”
To roll out all of these changes on a national level, Wooley
needed capital. The first step was to get venture capital, which occurred in
1993. Then, the company conducted an initial public offering in late 1995,
which raised $25 million; a second round in 1997 raised another $29 million.
The next step involved an ambitious effort to attract more franchisees. To do
this, Wooley and other Schlotzsky’s employees worked around the clock, seven
days a week, for two full years, attending trade and franchise shows. And the
effort paid off: Altogether, about 350 additional franchisees came on board to
help drive the company’s growth.
As the concept and menu at Schlotzsky’s evolved, so did the
restaurant’s appearance. In 1997, a new concept prototype was unveiled in
Bastrop, Texas, which was the culmination of 25 years of research, testing and
operations experience. Warmer and friendlier than past models, the new design
concept features wood furniture, burnished copper table bases, an expanded
drink station and a larger front-counter service area. “The dining room is
especially inviting, illuminated by natural light pouring in from windows on
three sides and the soft warmth of tonal lighting,” describes Wooley. “All in
all, the new prototype is just what we wanted it to be: home.”
At Schlotzsky’s, the parent company takes on the expensive
and time-consuming chores of building the restaurant. About 40 percent to 50
percent of new franchisees take advantage of the opportunity in which the
franchisee assumes a mortgage, eventually owning the location once it pays down
its debts. This mortgage-backed system recently replaced a lease system.
Franchisees also have the option of doing their own financing and building
their own restaurant to Schlotzsky’s specifications.
Throughout the restaurant’s history, the Schlotzsky’s system
has embraced a philosophy of giving back to the community, an involvement
shared by its growing number of licensed operators. Sponsorship of high-profile
charity events, like Bun Run® races around the United States, has led to what
Wooley calls “ferocious customer loyalty.” And the Austin Bun Run 5K Race is
now one of the largest of its kind in the country, raising more than $500,000
for local children’s charities.
In an effort to get its name in front of new customers, the
28-year old Schlotzsky's recently announced the launch of its first-ever
national network television advertising campaign. Four, 15-second network
television spots were developed to help enhance brand awareness and to
reinforce the quality and originality of the Schlotzsky's product. As a result
of the advertising, Wooley says he’s “pleased to see significant movement in
same-store sales in several less-established markets, far from our base in
Texas.” For example, he says, sales in Fresno, Calif., were up 13 percent, and
Chicago was up 8.4 percent.
The first ad run premiered to an estimated 25 million
viewers, and ran until May 2, 1999. A second and third flight of network
advertising followed in July and October, with spots airing on prime time,
late-night and early-morning programs on major national broadcast and cable
networks. Research indicated that the $14 million campaign would reach an
estimated 50 million target consumers.
Throughout his years in the restaurant industry, Wooley has
provided business opportunities to hundreds of franchisees, then watched as
they’ve not only become successful entrepreneurs, but also vital components of
their communities by employing thousands of people across the nation. And while
the successes have been many, the lessons have often been tough. Many of those
lessons, he says, have come in the form of dealing with franchisees.
“If someone is looking at coming into a franchise, they have
to think about their own personality and attitude, and decide whether or not
they’re willing to work within a system,” says Wooley. “Even though you own
your own franchise, there are still going to be a lot of ‘rules of the road’ to
follow, and you won’t always get to do exactly what you want to do because
you’re a part of a brand. For some people, this is a tough pill to swallow.
Others just go with the natural flow." Wooley explains that good
franchisees have to be willing to collaborate and cooperate. "People tend
to overlook this fact, which leads to difficulties in the long run,” he says.
Because Wooley speaks frankly to potential franchisees about
the company's expectations, many of those who attend Schlotzsky’s training
classes do go on to run their own successful restaurants. For example, Charles
Reed, a former human resources manager at an international oil company, along
with his wife Clara, set out to make it in the business as Schlotzsky’s Deli
licensed operators back in 1993. So the pair bought an existing Schlotzsky’s
Deli in Plano, Texas, 30 miles north of Dallas. Today, they have five
restaurants. “My experience in human resources has helped a lot with the
franchising endeavor,” says Reed. “To be a good franchisee, it all starts with
the people you hire. They determine how successful you will be.”
In another Schlotzsky’s success story, Don and Tina Stitt of
Amarillo, Texas, have opened four restaurants in the last seven years. Their
decision to become franchisees was based on their belief that the concept was
sound: “The strength of the concept is what makes Schlotzsky’s Deli unique,”
says Don Stitt. “I could see it was an organized company, and heading in the
right direction.”
According to Wooley, much
of his franchisees’ enthusiasm is a result of Schlotzsky’s original, unique concept.
He explains: “There is no other similar product out there in the quick-service
restaurant arena. It’s as simple as this: People want something that tastes
good, and they want a variety.” “We offer quality, and every restaurant bakes
from scratch (as opposed to the frozen dough that many fast-food chains use)
everyday, and uses a variety of ingredients. If you want a hamburger, there are
many different places where you can get one. But if you want Schlotzsky’s-style
products, we’re the only place that has them.”
Company: Schlotzsky’s Deli
URL: www.schlotzskys.com
President/CEO: John Wooley
Industry: Food Service
Location: Austin, Texas
Employees: 159 (corporate), plus franchise employees
Revenues: $348.5 million
Copyright © 2000 by Virtual Advisor, Inc. All rights reserved.