The dynamic duo behind Utah-based Four Foods Group, Shauna and Andrew Smith, are heading south. The duo is looking to take control of wide swaths of the Alabama market with the profit- and equity-sharing model they used in the Kneader’s Bakery & Café system.
This time, the Smiths are growing in the Little Caesars system after acquiring 48 restaurants from Bravo Food Service. Smith said they would be slowing down expansion of the Kneader’s concept to focus on the new market and the handful of other brands Four Foods Group picked up in the past year.
“We’ll grow at a prudent pace and see how they perform before we really hit the gas,” said co-founder and CEO Andrew Smith.
Prudent, of course, means different things to different groups. To the Smiths, it means 25 to 31 restaurants a year and possibly setting up another recent acquisition—the Soda Shop—for franchising.
“So we have five R&R BBQ going up and will do five to seven of those a year; Kneader’s will be five to seven a year, Little Caesars 10-12 a year. Soda Shop, that’s one we’re considering franchising right now, we’ve gotten a lot of interest on that in the cookie and soda segment. It’s popular with both the hipster and soccer mom coming through to get a drink and does incredibly well on the unit-level economics,” said Smith. “We see ourselves growing about five of those as well.”
If the company hadn’t grown to 96 restaurants since being founded in 2008, 25 to 31 restaurants this year might sound more aggressive than prudent.
Part of the fuel for that growth has been the unique profit-sharing model that brings in partners who invest in and then run the various brand locations. In return for their investment, they get a sizable chunk of equity. It brings in a little capital, but more importantly it brings in passionate entrepreneurs who wouldn’t have enough cash to do it alone.
Internal teams that run Four Foods Group’s internal development arm are another part of that growth. It’s one that Smith says will allow the company to expand with higher-volume drive-thru locations; which deliver a 15% to 20% sales lift over other Little Caesars formats.
“We’re going to continue that format down there to do endcap drive-thru or freestanding drive-thru,” said Smith. “We look forward to acquiring land, building buildings or acquiring land, which is one of the strengths we have, were doing that all internally.”
That, Smith said, puts them above the bidding fray of everyone else looking for a 2,500-square-foot box.
“We’ll buy land, build a three-tenant building and build a Little Caesars and put a Soda Shop in there or I might put in one of our other concepts or fill it in with one of our other partners in those areas as a preferred developer then own that real estate or do a sale leaseback,” said Smith. “We look a little larger at what we can do because its part of our skillset. A lot of franchisees are looking for spots, were looking to buy land and own it all.”
So with the deep bench of skills and experience with complex, large restaurants like Kneader’s, why Little Caesars? His pizza-pounding teenage boys helped make the decision.
“When they have friends over, what am I doing? We’re doing the same thing most of America does, you go immediately to Little Caesars and pick up four or five pizzas,” said Smith, noting that value pizza is mostly recession proof. “That’s one thing we like because the market takes a little bit of a correction—which I think we all expect something to happen over the next couple years—we wanted to make sure we had that catcher’s mitt at the bottom of our portfolio as well to catch that revenue.”
With 35 of the 48 locations in Alabama, the new locations will serve as a platform for the rollout of the market. Smith said about $2.5 million of a recent funding round of $32 million—led by $22.7 million in debt capital from CIT’s Franchise Finance business segment—will go toward acquisitions of smaller operations in the region in a push for 100 locations in Alabama and Florida.
“Almost everyone we’ve reached out to said we’re kind of ready because they’ve done it for 10-15 years and they have the I7 update in front of them,” said Smith. “We see ourselves getting to that 100 mark probably quicker because of those acquisitions. But we have the appetite for as many that will come to us.”
He said he’s hoping to have all the locations updated within three months of the purchase date.
As for the not-insignificant market hop from the Utah home base, the Smiths said they’ve added a new corporate headquarters in Birmingham, Alabama. It will serve as a satellite office for the newly added employees with room to grow.
Shauna Smith, an Alabama native, said Little Caesars has been incredibly helpful, and the simplicity of the concept will help make the distance easier to bear.
“It’s nice to have the simplicity of the menu, but the great thing is that we have a good system and a good understanding of how to get percentages in line, anything from fixed costs to labor and food costs, that’s where we just apply that algorithm in any kind of concept,” said Shauna Smith. “Then we can really start to see the value.”