The Mag
Today we have with us Kelly Gray with Rapid Fired Pizza and Hot Head Burritos. Welcome, Kelly.
Kelly Gray
Hi, Lee, how are you today?
The Mag
I am doing great. Um, before we get too far into things, why don't we talk about your work at Hothead Burritos? How are you serving folks there?
Kelly Gray
Okay, well, Hothead Burritos has been around since 2017. Actually, we're surviving the COVID crisis fairly well after the initial depth and people feeling a little more secure in what's going on. So, we're really happy with the success of the brand. We've got about 76 locations and eight states on the hothead side. added a curbside pickup as a result of COVID which we kind of expect that's going to be a long-term play for us and hothead.
The Mag
Yeah, I'm sure that's going to stick around, I would say, for the next year or so I think so. And that's funny how these kinds of crises, they create these sometimes an opportunity where, you know, things can work out better than then it may look like it wouldn't on paper. So that's good to see how you've adapted so quickly.
Kelly Gray
Yeah, so we're really lucky because we had adopted online ordering a couple of years ago. So, we were in a really good position to be able to really, you know, push that full force. And we have a lot of people taking advantage of that, you know, we have, you know, double-digit increases on our online ordering usage right now.
The Mag
Yeah, that's why the customer just wants to feel safe. And if you have good systems on your part and make it easier for them to get what they want, then everybody wins. Yes. Now, when you're expanding, hothead, uh, what is your franchise, the good franchisee looks like for you guys.
Kelly Gray
So, we have really kind of two paths that we look at one, we're looking for a multi-brand franchisee, who has other brands and is looking to diversify their portfolio. They understand the systems of a franchise and the procedures, and they tend to be a great partner for us. And then we also like what I'd kind of consider like a mom-and-pop operator where they're really putting their heart and soul into their location. And they just generally tend to do a fewer number of stores where a multi-brand operator is going to look to get to 5 or 10 stores fairly quickly.
The Mag
Now, you have Hothead Burritos, but you also have Rapid Fired Pizza. Are people buying those in combination? Are they like an opening upside to the side is there an advantage from a real estate standpoint to do something like that?
Kelly Gray
So Rapid Fired Pizza is the younger brand It was founded in 2015, we do have several of our Hothead, franchisees who are also Rapid Fired franchisees we only have in the chain one, one of those operators who have some truly side by side, but not like with a shared dining room or anything. So, it's definitely an opportunity and again, for those people who are multi-brand operators who have maybe built out their market in a specific city that they're in, there's a great opportunity for them to be a franchisee for both of our brands. And then that way they can use their personnel and management to cover you know, the same geographical area but just with more locations.
The Mag
Now your background in real estate can you share maybe some advice when a franchisee is buying or leasing their location? What are some things that they can avoid and maybe take advantage of?
Kelly Gray
Sure, you know, a lot of people feel like, you know, if they're going to you know, do any kind of a franchise, you know, especially restaurants that they have to own their real estate location and that is really not the case. You know, personally, we operate 25 restaurants between the two brands, and we only own the real estate on two of them and really those are kind of more legacy type locations and going forward, you know, we prefer to put our capital into the opening in restaurants not into owning real estate because of the additional capital requirement for down payments.
But the thing that I would really recommend is, to truly understand or have a picture of who your customer is, in a way where they're at. And, you know, what their daily patterns are, you know, is this, you know, is it you know, breakfast, lunch or dinner, you know, what's their traffic pattern are they coming home are they going to work and as you're looking at your real estate, you know, you want to have easy access, you want to you know, be where the people are, you want to make it as easy as possible for the customer to get to you, if you're a dinner type location, you don't want to be on the going to work side of the road, because you have to cross too much traffic to get to the location. So that's really important. Other things that I see is, is really understanding the cost of your rent is extremely important. One you can't take to rent too high, kind of the rule of thumb is your rent, and occupancy costs total should be about 8% of what your projected sales are.
So, you want to keep that in mind. As far as where you think your projected sales are going to be and what the actual rent is. And then to Don't try to save $1 or two a square foot and take some subpar location, that's, you know, one street off where there's less traffic and fewer people are going to see you. And of course, signage is king.
The Mag
Now, is there any strategy with who else is in the center that you're in?
Kelly Gray
You know, every brand and again, from my real estate experience, you know, for example, I had a lot of people who love to be out a Walmart pad. For us, you know, grocery-anchored type centers don't necessarily Bode the highest average unit volumes for our stores. And the reason that is, in my opinion, would be because when people are going to the grocery store, they're going to the grocery store, a lot of times they won't stop and eat ahead of time. And once you leave the grocery store, well now I have groceries, I can't stop neat, because my groceries will get hot or cold, you know, depending on what time of year and where you're located at.
So, you know, we like to be for our brands, kind of between the residential, the retail in the office that seems to work well for our brands. And you know, on the leasing side of it, you know, we try to tie our sites up for a long period of time with options, so have an initial term and then have options to renew. So that way, if it's a good performing store, you stay and you renew your option at a specified price preferably, sometimes that's a little difficult to negotiate. And then if it's not a local good location, it just isn't performing the way that you expected it to. You take your equipment, and you relocate to a different store.
The Mag
Now, when a person is considering partnering with your organization, is that something that you're like how much do you help them when it comes to this?
Kelly Gray
We like to help our people a lot, you know, one, we are going to assist with the real estate selection. And ultimately, it's the franchisee’s decision, but we are going to there are some locations we just will not approve, but as a general statement, you know, they're going to look at they're going to make the financial decision if the rent is going to make sense, we're going to help counsel them that hey, you know, based on this rent number, your sales have to be this and that does or does not fall in what our current stores are doing.
So, we have pretty good, you know, templates that they can work from, we're gonna help them through the construction process, we help them with their initial store openings. We have, you know, a 400 Plus page online training and operation manual that they can reference whenever they need it to it you know, we do the research and development for new products. And we're really available seven days a week and we have an on we have on staff, IT department to help with any kind of POS issues that that our franchisees may be having, in addition to the contracts that we have with our POS providers.
The Mag
And that kind of support is one of the reasons that people choose franchising as a kind of a growth model, right because you're there to help them they don't have to go it alone. They don't have to have the learning curve of some of these things that you guys are doing every day.
Kelly Gray
Exactly. They don't have to go source you know all their protein The napkins at the tables the chairs but you know down to the most minute detail we take care of that for them you know we try to make our systems extremely simple we like all of our food and paper products and everything to come in on one truck so that way it's as easy as possible for the franchisee we have templates for staffing if your store is doing this volume you know here's a scheduling template so that way you can plan for the number of employees that you should have to keep your labor and your food cost in check.
The Mag
Now you mentioned that there's a couple of different types of potential franchisees you have like kind of I'll call them the Empire builders that are kind of having a portfolio of multiple franchises and kind of have maybe a larger vision of what this could be and then there's some of the maybe the mom and pop maybe this is a second act or maybe they're got laid off and now they're looking for a new adventure a new way to generate revenue for themselves. What are some of the things that each of those people should be thinking when it's when they're deciding what's the appropriate franchise?
Kelly Gray
You know, some of the most important questions I think that people should think about when franchising will first should you franchise should you get into a franchise because you do have to file follow systems you're paying a fee for it but you know they're helping you through the process so can you follow the rules and if you can, then you should analyze any other franchises that you're looking for. On a couple of different items.
One how many stores Do they have open? How many have they sold? And then how many have they closed? So, you know a brand may have 100 stores open, but 350 franchises sold? Why did they have those 250 that haven't opened yet?
So, you know, are they just there to sell franchises are they there to help you get your business open and for us, we want to help people get their businesses open we don't want to just sell a franchise you want to analyze between the different franchises you're looking at you know what's the advertising see that you're going to be charged and how much of that is going to be spent in your local market very important especially the smaller the franchises that you need to have money spent in your local market to make sure the customers can find you know most franchises of course you know if you want to spend more money that's great, but as an operator, you want to keep your costs in check you would like to put a little bit of money in your pocket at the end.
So, you want to make sure that they're going to help you with advertising and marketing in your local area. Also that you want to really understand that the support that's available you know, opening support, how many hours or how many people are they going to supply you to help you open your store you know, what's the daily what's the monthly communications you know, we have a monthly franchise call with all of our franchisees and we also do a monthly newsletter and, and on our, on our personal stories, you know, we do a monthly newsletter for our friends for our employees where we want to communicate the operation updates that have happened over the past 30 days. So, everybody understands and is doing things in the same manner. You also want to look at when you're looking at a franchise, what their food labor percentages are, and also what's included in their food costs. You know, when we talk to a potential franchisee, and we quote our food costs, we include, you know, paper, plastics, and chemicals in that and a lot of brands don't.
And I think it's really important to understand what your cost of operations is because, you know, just those papers, plastics, chemicals, and that I mean that can be 2 or 3%. And that's, that puts you in a different range. If you're looking at a business plan and trying to figure out if you can make money with a franchise. You want to understand what's technical in the help that they're going to give you as far as like the POS and online support that they might be giving and in are they handling your social media. In addition to your advertising, they monitoring your Facebook page, are you having to monitor your Facebook page can you post to a Facebook page for your particular store. Some brands allow it and some brands do not. And then finally, to really look at the average unit volume for a franchise.
Every franchisee is required to provide a Franchise Disclosure Document or an SPD and we call it the section is called item 19. And that kind of gives you the averages of the story. You know we have to kind of work within guidelines and how we can present that information but that's your best indication of you know where your store might fall within you know in a sales volume I would never expect if I was going to be a franchisee that I could be in the top you know five or 10% I mean I want to be in the top five or 10% but you know, I'm a little more conservative when I'm investing my money so I'm going to say okay if I did the average where's that going to put me can I make money with this rent, Can I make money with that food cost and that labor cost?
The Mag
Now when you're kind of deciding if someone's the right fit for your enterprise is this something that you want someone that's the boots on the ground that is in the store? Or is this kind of person being an absentee owner and then put managers in place?
Kelly Gray
So with our brands, we will allow an absentee owner. Now we do have a requirement that whoever you're whoever your operations person is that they have to come to training. We prefer that the franchisee come also but there are some especially those larger multi-brand operators where you know they’re going to have you know, call it a president or a regional manager or brand manager that you know is going to be involved with that but we will allow a non-operator franchisee I can tell you that the more removed they are from the operations we see that that negatively affects the sales. Having someone who's actively looking and actively involved you know in the franchise to some degree really helps the sales.
The Mag
So now so in an ideal manner, they'd be kind of involved in the community kind of plugged in you know who the high school football coaches and you know kind of get to be kind of in the community and represent the brand and the community in order to really to be successful?
Kelly Gray
Yeah, that they need to know what's going on in their communities but they might have you know, for the operator who has but let's say five stores and some neighboring communities you know, they may live in one but you know, a couple of them may be a little bit remote, but you know, that one of our best operators are the people who own five stores and they basically operate as the as a supervisor or regional manager so they go into, you know, one store a day or a couple of stores a day and they're making sure that their managers have what they need that they're supported, you know, they're overseeing making sure that their employees are portioning the food correctly and they're not you know, they're treating the customers nice and just all those little things that the more attention to the detail on that the better success that you're going to have.
The Mag
Right, there's a difference between delegating and advocating so you know, they're still involved in the operations, but they may not be there physically as much as the manager. So now though, let's talk a little bit about Rapid Fired does that is the profile the same for a hothead person or a Rapid-Fire person to be a franchisee?
Kelly Gray
Yeah, so the same the same you know, we're looking for the same type of operator. For both brands again, people that are attentive to it, doing a Rapid Fired bait because it being a fast-casual pizza concept versus you know more traditional like pizza delivery concept. We look for a little denser population areas for a Rapid Fired those seem to perform well but the great thing about you know fast-casual pizza is you can have it for lunch now it's there's no more waiting 30 minutes to get a pizza in our pieces to cook in three minutes so you walk down the line and they're putting your pizza in the oven and you're you know you're out the door and five-six minutes so it's a great opportunity for people and, you know, one of the innovations that we've done with our brand compared to some of our competitors and we were really a first adopter. I like to think that they copied us, but they probably wouldn't agree with that.
But you know, we came out with a family-size pizza right away because you know, if you got young children, you don't necessarily need to customize their pizza. A lot of times little kids just want a cheese pizza. So, you get a big cheese pizza for the kids to share. Their mom and dad can get their customized pizza with them, all of their mushrooms or artichokes or whatever it is that they like customize just the way they want it.
The Mag
So how has the pandemic impacted that I know in general Pizza has been doing pretty well in the pandemic? Is the rapidly fired model conducive to you know curbside and all the takeout?
Kelly Gray
Yeah, you know we have the curbside we have our deliveries really to third parties not through ourselves like some of the larger delivery chains. Yeah, the Rapid Fire tends to be a little more like hey bring the family in and dine in and have an experience, so you know the transition between the dine-in and the carry-out has really been a little rougher on Rapid Fire than it has on Hothead. But you know the products great it transports well. And you know, we have a lot of options besides the pizza, pasta salads, you know, calzones. So, there's really something for everyone.
And we have a, we have a lot of people who follow the keto diet who love Rapid Fire because we have what they call a no dough pizza, which basically is a pizza made and kind of a disposable pizza pan that has no dough, and you build it just like a regular pizza and you eat it with a fork and it is amazing and you don't feel cheated like you didn't get to eat pizza you feel full and that you really are satisfied. And the people following a keto paleo type diet, not quite paleo, but they really like it.
The Mag
Good stuff. So, what's the most rewarding part of the job for you nowadays? Is it you know, onboarding a new franchisee? Is it making the sale what's the part that gets you fired up?
Kelly Gray
You know, I love when we have franchisees whose stores, they just that they're really working in their store, and they're building their sales on a consistent basis. And then, you know, before you know it, hey, they're buying a new house, or they're buying a new car, and then we're improving that their lifestyles, and when they really embrace it, then they're able to help their managers improve their lifestyles. I mean, that's really you know, what it's all about, I mean, we love growing our, you know, our store count, that's great, but we really want people to, you know, have a good life and, and make money, you know, and have fun doing it and not struggle.
The Mag
Amen to that. Now, the pandemic has caused a lot of uncertainty for a lot of folks. But the franchise world tends to benefit when this is happening, are you finding that a lot more people are inquiring about the opportunity?
Kelly Gray
We have a lot of our existing franchisees are looking to add additional stores, we are having a lot of franchise inquiries, the little bit of a challenge that we're having right now with the space that we're in, which is restaurants. We are both brands that were an SBA-approved franchise, so you can get an SBA loan to do one of our concepts. But the lending environment is really tightening due to the pandemic. And the most recent responses that I've got from franchisees and potential franchisees is the requirement for additional capital down payments from the bank, whereas, you know, 20% used to be sufficient for you know, your full cost of build-out. I'm hearing 30 to 40%. So that will impact everybody, not just us, that's going to impact a lot of growth for franchises. Because, you know, if I had to put down 40% Well, wow, that used to be I could have got two stores. For what I have to put down in cash for one.
The Mag
Yeah, that's not that's crazy. So that does create challenges, but I but So on one hand, there's a lot more inquiries, but then now it's more challenging to get the funding in order to pull it off. That's, that's tough?
Kelly Gray
Yes, yes.
The Mag
So now
Kelly Gray
For the existing restaurant operators, it's a little easier to go. But if you if you're the person who just got laid off and you're wanting to take your severance, and get into the restaurant business, it's just going to require a little more capital, or you know, maybe you know, a little bit of partnerships with friends or family to kind of help get you over the finish line.
The Mag
Right? You have more creativity, I guess, in that regard. Now, if somebody wanted to learn more about the opportunity for either Rapid Fired or Hothead, what are the websites?
Kelly Gray
So, hotheadburritos.com and Rapid Fired with a D, I always like to say rapidfiredpizza.com and you can get information. You can inquire about franchises; you can look at our locations. We also have both brands have a nutrition calculator. So, people who are really conscientious about what they're eating, you can go on their turn nutrition calculator and plug in exactly what you're going to have and know how many calories how many fat grams, what kind of sodium you're looking at for everything.
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