Schlotzsky’s Continues Rapid Growth

Founded in 1971 in Austin, TX as a small sandwich shop, Schlotzsky’s has grown into a large restaurant chain spanning 36 states and two countries.

Now in its 43rd year, the restaurant continues to grow its chain through franchising, which started in the late 1970s throughout small Texas towns. Schlotzsky’s turned out to be such a popular restaurant that throughout the 1980s it grew through sheer demand.

“At the time, [franchising] wasn’t a huge initiative. It was more like a pull demand where people would call and ask for the franchise, but nobody was trying to go out and grow it aggressively,” Schlotzsky’s president Kelly Roddy said.

Into the late 80s, the company began to evolve into the deli-style restaurant Schlotzsky’s fans are familiar with today. The company aggressively pursued franchising and did so for about 10 years. After that, growth slowed until FOCUS Brands purchased the company in 2006 and put in place its current growth process, focusing on development through franchising. Currently, Schlotzsky’s has around 200 franchise partners, many of whom are multi-unit owners.

Typically, franchise partners for Schlotzsky’s will be well capitalized and already successful business owners. They are usually looking to broaden their business portfolio by getting into restaurants or adding new restaurants to diversify their portfolio. Roddy added, franchise partners will often open four to 10 Schlotzsky’s at a time. In small markets that will only sustain one or two Schlotzsky’s locations, the company will go with a single owner-operator model.

Making Schlotzsky’s an even more enticing investment for potential franchisees is its co-branding opportunities with sister companies Cinnabon® and Carvel® Ice Cream. All Schlotzsky’s locations open with a Cinnabon bakery, Roddy said, and, if the franchisee requests it, a Carvel.

“We are currently testing other brands for co-branding opportunities to consider rolling out in future franchise stores if they seem to be a fit for the opportunity,” the Schlotzsky’s president said.

Schlotzsky’s is spread throughout the southern states and across the Midwest.  In 2014, the brand plans to develop locations in areas of the country where it has less of a presence including the Pacific Northwest and Great Plains. Currently, Roddy noted, the main focus for growth is in the south, the west and along the east coast. The only place in the US where it doesn’t have a presence yet is in the northeast.

To make its mark in the northeast, Roddy said, the company would need a sizeable deal to take distribution into account. Aside from the northeast, though, the company is open to putting a Schlotzsky’s anywhere else in the US that doesn’t yet have one.

Outside of the United States, Schlotzsky’s has locations in Turkey and Azerbaijan, and has an establishment under construction in Moscow, Russia. The brand is also working on agreements in Dubai and in Saudi Arabia.

“Focus Brands already has a really strong presence overseas with Cinnabon and Auntie Anne’s and those same franchise partners are looking for more healthy, but casual restaurant brands to complement the snack brands they have today,” he said.

Demand for the Schlotzsky’s brand is driven by consumer demand for healthy alternatives in the fast casual restaurant sector. People are looking for food that is fresh and free from preservatives. The bread is baked Fresh-from-Scratch® every day, same with the pizza dough.

“Our bread only has a two day shelf life because it has no preservatives,” Roddy pointed out.

It’s that dedication to freshness that sets Schlotzsky’s apart from its competitors. While other quick service restaurants may be technically baking bread, the dough will be made ahead of time, frozen and have preservatives in it. Schlotzsky’s is the only restaurant of its type that is actually making the bread right from scratch every single day in the restaurants.

”The freshness combined with variety sets us apart from competitors,” Roddy said.

“Schlotzsky’s combines the best of both restaurant worlds by allowing people to sit down in a nice atmosphere, but also be an economical choice for families dining out.” The brand represents a great opportunity for someone to make a good living running one, he added.

With a field team that is constantly out at the restaurants upholding brand standards and training and developing franchise partners, Schlotzsky’s has a number of systems in place to offer support to franchisees. The company has Schlotzsky’s University, which is two days of restaurant and classroom training in its various markets. It also holds regional meetings for franchisees and has robust online tools available for them.

The most common way to learn more about franchising opportunities with Schlotzsky’s is through the company’s website. The company will reach out to interested parties for a preliminary conversation to gauge their fit with the company, followed by a face-to-face meeting.

Potential franchisees will come to Schlotzsky’s headquarters in Austin, Texas, to meet with the team and see if they would be a good fit for each other. Depending on what type of franchise model a potential franchisee wants, there are several to choose from that require varying degrees of capitalization, Roddy said.

With the current franchising plan in place and sights set on development in overseas markets, Schlotzsky’s is sure to continue its rapid growth.

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