The Right Path to National Expansion

Whether you’re still searching for new territories or nearing market saturation, these C-suite execs have insights for aggressive yet purposeful growth.

For many chains—big and small—growth can be a double-edged sword. A small, regional brand might have plenty of room to grow, but may also lack strong brand recognition beyond its home turf. On the other hand, a well-established legacy brand faces the challenge of oversaturation with fewer opportunities for expansion.

Size doesn’t always dictate success; the QSR 50 includes both a 260-unit brand as well as a 27,103-unit goliath. The brands that consistently perform the best are the ones who are proactive in a development strategy but also methodical in picking the right markets, choosing the best operators, and setting an expansion timeline.

From there, the approaches differ. Chick-fil-A works under a one-location-per-operator guideline, whereas Jersey Mike’s encourages proven franchisees to add more units to their portfolio. Domino’s developed a larger store format to accommodate more meal occasions, while Chick-fil-A has condensed its model for metropolitan markets like New York City.

But one sentiment is shared by all: Growth for growth’s sake alone is a foolhardy approach. To expand footprints in a meaningful way that will stand the test of time, chains must customize a development strategy that fits the company model and values.

Here’s a peek into the expansion philosophy of four national quick serves.

Zach McLeroy

CEO AND COFOUNDER / ZAXBY’S

Last year, the Georgia-based chicken brand turned 25, opened its 700th store, and moved into Nashville. But as Zaxby’s home turf in the Southeast becomes more saturated, the company continues to venture farther afield with locations in Ohio, Missouri, Kansas, and Utah.

What prompted Zaxby’s to expand beyond its home base in the Southeast?

Some of that growth was caused out of necessity. As we started to fill up in the markets in the Southeast, it kind of forced us to go out of those concentric circles that we’d created. We’ve always grown very strategically; that way we take that brand awareness with us and keep enlarging the circle. But we got to the point where territories were starting to fill up and licensees were making obligations to future growth, so before the market was fully developed, it would be fully obligated. It pushed us to go further outside the ring and keep expanding to the Midwest and to the West.

A lot of the growth will be through existing licensees in a market that has two or three stores. Now that they’ve become really seasoned licensees, they want to expand their opportunity, but they’re landlocked. So they’ll jump over a state or to another region where there are more opportunities and they can nab a bigger obligation, maybe another five or six stores.

What do you think are the advantages of first saturating a region and cementing that brand awareness before going farther?

For us, there are a couple of advantages. One is in terms of distribution for our product. We have several proprietary goods that take a lot of warehouse space, so it benefits our vendors and suppliers. For us to continue to grow, we’re connecting one county to another and one state to another, so that’s beneficial.

Two, it helps in our marketing efforts when you look at how we market in certain areas versus having to go to a completely new market and run campaigns with the added cost of new media. In terms of our oversight and operations, it helps as well. When we’re already in a market, we can go just another hour away to a new market and monitor stores that way.

Once you decide to enter new regions, how do you go about picking a specific market?

We look at several factors. We look at the current demographics of where we are and the performance of those stores, so we have something to compare to when we go to another market. We compare the similarities and the contrasts between the two. We also consider if it’s close enough to a current market that it makes sense. We don’t want to be too far out of the market that we have to create too much new brand awareness. We ask: What are the future opportunities in that market? Is it a one-store market or a 20-store market?

Franchise Business Review recently ranked Zaxby’s the No. 3 foodservice company in terms of franchisee satisfaction. How does franchisee well-being play into growth?

Since day one we’ve always been about relationships with our licensees, and I like to think we have the best network of licensees in the system, because it really is like a big family. We know all of our licensees personally; we interact with them semiannually at conferences and then monthly, when we do store visits and district meetings.

It’s all about communication and relationships, and I think that definitely enhances and impacts their ability and their desire to grow with the brand, because they know that we really care about them. We give them a lot of support, and for us it’s all about that relationship. There’s a definite correlation, and it drives our decision to continue to grow.

What makes Zaxby’s approach to growth stand out from other brands?

One thing that’s really unique about our brand is the majority of our licensees are owner-operators. They’re not passive owners; they work in their businesses. They’re not just investors, so when they go into a market to put in a store, they actually work in that community; they get to know the people in that community; they know the people who work in their stores. They really make an effort to connect and give back to their communities, because they realize the community really supports them. Even if they have one store or if they have six stores, most of them still work in their stores on a daily basis so they can have that connection with their consumer and with their team members. I think that gives us an edge.

Typically, licensees build a relationship with their management team, and they’ll leave a good team in place when they go to their next store. Once they have fully developed an area with three or four stores and they have moved to another state, typically they’ve involved a lot of their own family. We now see a lot of second-generation operators come into our brand. Their kids have grown up in the business, and now some of them have become operators.

Many licensees have been in the system for 10–15 years, and we’ve seen their families grow up and mature. That’s why I think 80-plus percent of our growth is with existing licensees, because of the family environment that we create and try to promote all the time.

Hoyt Jones

PRESIDENT / JERSEY MIKE’S

Jersey Mike’s may not be on every corner in the world like Subway, but the “A Sub Above” brand has managed to grow at a remarkable pace; in just four years, it’s moved up 21 spaces in the QSR 50 report. Despite such explosive growth, the New Jersey–founded concept hasn’t forgotten its commitment to quality and its people.

The brand has been growing at an unprecedented level in recent years. Is this part of a new strategy and approach to expansion?

It kind of happened organically. We were on a nice trajectory, and things just compound when you bring in multiunit franchisees who typically have experience in other brands. We’ve got a little more than 400 franchisees now; about 50 percent of them are multistore franchisees. When you have that many people in the multiunit category and then you have single-unit guys thinking they want to get into the two-, three-, or five-store count, you have enough people looking that it just happens naturally.

We’ve been blessed with really strong franchisees from coast to coast. When you’re growing in 42 states, it’s just simple math. You add 15–20 in Southern California and another 15 in Florida, and next thing you know you’re at 160–200 stores. Combine people and money and a good brand and a good business model and this is what happens. As our owner Peter Cancro likes to say, we’re just starting to grow.

When expansion began compounding, did you face challenges in retaining family-business values?

Not really, to be honest. We’ve got about 40 area directors who represent us in the field; they’re franchisees who also help out in development and service and support. We’re really particular about the folks who are in that role, and so long as they embody and emulate Peter’s values and convictions, we’re good. They then attract managers like that and employees like that, and it just self-perpetuates.

Our teams meet all the time; we all travel quite extensively. We had a big national meeting this year at Disney World. We go there because we share some of the same values. It’s almost like a family reunion. We had about 1,000 people there this year, and it was just fun.

What does your new-market approach look like?

We typically don’t go into a new market unless we have three or four franchisees teed up and ready to go so we can get some market penetration quickly. We went into Salt Lake City two years ago with four franchisees. One of them was a proven operator from Washington, D.C., and another was an area director from San Diego. We wouldn’t have gone there unless we knew we’d be building enough stores in a short period of time.

If we only had one person ready to go somewhere new, we probably wouldn’t do it because we wouldn’t attain penetration and awareness quickly enough. We like to build smart as a unit; that’s what we did in Salt Lake City, and that’s what we did in Seattle. We went into San Diego about eight years ago with four really strong franchisees. Now we’ve got 40 stores there, and they do really well. That seems to be the model that we’ve adopted.

Do you try to saturate new markets within a certain timeline?

Yes. As an example, we went into Salt Lake City with four franchisees. A couple were doing three stores, and I think the other two were doing five, so we were on pace to open three or four stores the first year, three or four stores the second year, and then begin attracting new franchisees. The next thing you know, it will be at a dozen stores in three years, at which point they have enough money to start coordinating with each other. They can start doing some TV and some radio ads while participating in events like charity runs and fundraisers.

You don’t want somebody to be out there by themselves. Even though we’re there to support them, it’s certainly more fun to go into a market with three to four of your compatriots. You can share ideas and people. If you occasionally run out of something, you can jump across town and pick up some tomatoes or whatever the case might be. You’re in it with your teammates instead of by yourself.

Was there ever an instance when growth was stopped or at least delayed to protect the brand’s high standards?

Occasionally you have something that doesn’t work out for one reason or another, but normally there is a reason or solution. We’ve been fortunate to hold true to what got us to our success in the first place. We’re not trying to change anything; we’re just trying to make it a little bit better.

We want better stores and more of them, but we’re not selling to sell. We’re a privately owned company. Peter is the sole shareholder, so he’s not beholden to anybody but himself. We’re internally driven to succeed, and we all want to grow. It’s a lot of self-motivation, but we’re not chasing any particular number. We set goals and have aspirations, but we’re not trying to stretch anyone beyond what they’re capable of to hit a number that somebody decides to put on a piece of paper.

We meet very regularly, talking about every franchisee and what they’re capable of and what their goals are, and then we try to align our resources around that to make it happen. If there’s a single-unit franchisee who’s done a nice job and may be interested in becoming a multi-store operator, we start to work with them. We help align their people plan and who’s going to take over their store when they build another store, as well as the financing behind it. When you get to somebody who’s got five stores, money, and people, then we’re just encouraging and fine-tuning them. It’s a different scenario than somebody going from one to two—that’s a really, really critical step. We try to coach them through that, and most of the time we’re successful.

Blake Goodman

SENIOR DIRECTOR OF NEW RESTAURANT GROWTH / CHICK-FIL-A

The top chicken chain in America started as a regional player, but has since expanded to 45 of 50 states. Unlike most major players, Chick-fil-A encourages franchisees to operate a single location, which it says fosters stronger community ties and business success. Up next, the brand takes flight into more urban areas like New York and Chicago.

How has Chick-fil-A expanded its footprint beyond its home territory in the Southeast?

We’ve been developing in Texas for over 20 years; in Colorado for almost 20 years; in D.C., Baltimore, and Philadelphia for 15 years; and in California for almost 13 years. In recent years, we’ve expanded primarily to three major areas: New York–New England, the Upper Midwest, and Northern California–Pacific Northwest. We have been expanding into these parts of the country for two main reasons: First, a desire to be a truly national restaurant company. And second, we weren’t located in several large U.S. metropolitan areas, which was also part of our long-term internal growth goals.

How has the brand’s growth strategy set it up for future success, especially when it was largely a regional company for many years?

We are most intentional about selecting locations that allow our franchisees to run a successful business. Because our franchisee model is based on a hands-on, primarily “one restaurant/one operator” approach, our operators typically immerse themselves in the community where they live and operate their restaurants, building customer loyalty more quickly than a typical new brand coming into the market might. On the flip side, because an operator’s livelihood depends on the success of that particular restaurant, we have to balance building brand awareness in new markets without oversaturating to the point that excessive cannibalization takes place.

What are the advantages of first saturating a region before tackling the rest of the nation?

We don’t really consider ourselves a regional brand. We were founded in the South, but we’ve been serving a large portion of the country for many, many years. The benefit to us in being a Southeastern-based brand is that our fans have been our best marketing asset; they are the ones who spread the word to their friends, who share information on social media, and even start online petitions to bring us to their new towns when they relocate.

Beyond established markets, how does Chick-fil-A decide where to go next?

We are always looking down the road five to seven years based on a variety of demographic and psychographic trends and data. Currently, we are focusing on increasing our presence in the West, Upper Midwest, and Northeast, while still taking advantage of growth opportunities in our more established markets, from Virginia through Texas.

What are some of the challenges of a robust system with more stores coming down the pipeline?

One of our biggest development challenges, particularly in those previously mentioned focus areas, is adapting to much smaller site sizes than we typically deal with in our more mature markets, particularly as we begin developing closer to the urban core in areas like Los Angeles, New York, and Chicago.

What’s next for Chick-fil-A growth?

In November, we opened in Maine and Montana, our 44th and 45th states (46 if you count licensed locations), and we’re looking forward to opening our first four restaurants in Nevada early this year. This year will see more restaurants coming to New York and other parts of the Northeast, Northern California, and Seattle, as well as continued growth in the Midwest, including a significant increase in our presence in western and central Michigan.

Scott Hinshaw

EXECUTIVE VICE PRESIDENT, FRANCHISE OPERATIONS AND DEVELOPMENT / DOMINO’S

It’s been nearly a decade since a turnaround campaign breathed new life into Domino’s, and the legacy pizza brand continues to blaze forward with a tech-friendly approach to consumer engagement, as well as AUVs that outperform top competitors. And while Domino’s already has a strong foothold in most domestic markets, there is still room to grow.

How does Domino’s maintain aggressive growth when it already has a strong national presence?

We know that there are still about 1,000 traditional Domino’s stores that can be built in the U.S.—for instance, in cities where we could service people better with an additional store, in cities that are growing where we don’t have an adequate presence, or even in places where we have simply don’t have a store. As communities grow and evolve, we will continue to grow as well.

Did Domino’s turnaround campaign in 2009 also mark a change in the brand’s approach to growth? If so, how?

The campaign definitely marked a notable upswing for the brand and helped to spark interest in Domino’s from a consumer perspective. It heightened excitement from our franchisees, as well. When we unveiled our new Pizza Theater store design in 2012, we also saw increased excitement from franchisees around the new design and the improvements it made on our consumer experience, which also helped to drive interest among franchisees in building new stores.

Since Domino’s has saturated most U.S. markets, how does it determine where to expand or saturate next?

This story originally appeared in QSR’s February 2017 issue with the title “Running out of Runway.”