Franchise Players (Exclusive Audio Content)

Drew Ermenc, Senior Writer

June 1, 2008

Web Site Exclusive:
Listen to Steve Romeniello on how Focus returned to the roots of two iconic American brands, Carvel and Cinnabon

S teve Romeniello understands the plight of a franchisee. Once an owner and operator of a sandwich concept in Cleveland, the youthful Romeniello grew increasingly disgruntled with the lack of attention he and his franchise peers were receiving from the higher-ups. "I learned how I would not want to be treated as a franchisee," he recalls. "As a franchisee of a concept that couldn't support a remote location, I did certainly understand and learn from those issues."

Fast forward to Romeniello's meteoric rise to the top of the quick-service restaurant food chain. As president and CEO of Atlanta-based Focus Brands, the 41-year-old Sandy Springs resident today is responsible for more than 2,200 restaurant units, serving everything from muffuletas to quesadillas (see sidebar: Growth Through Acqusition).

More importantly, he's using his past experiences to set an agenda that puts his front-line franchisees as the  heart and souls of his operations.

"My experience has always been that I learn more from watching things not done correctly," he says. "When I first came into the franchise business, I came in with Days Inn. The company was well run and had a real connection with the franchisee. But when I went to Holiday Inn a few years later, Bass [PLC] had just purchased it and they were doing a lot of things crazy.

"I really learned a lot at Holiday Inn."

Romaniello remembered how it felt to be left alone with little support as a franchisee, and his experience has shaped his corporate philosophies. "We have a very deep respect and very strong admiration for our franchisees," he says, "for the courage and passion they demonstrate by going into their own businesses. Around here, we say the franchisees royalties pay our salaries. They are our No. 1 customer and making them happy is important."


Appetizers
In return, Romaniello is happy about where his franchisees are positioning his company, quickly growing the organization into a major player in the ultra-competitive quick-service restaurant game. Lovable, yet diverse, concepts make up Focus' stable, including Schlotzsky's, Cinnabon, Carvel, recently acquired Moe's Southwest Grill, and Celebration Foods, a producer and marketer of Carvel ice cream cakes to grocery retailers.

Focus also holds the rights to license Seattle's Best Coffee internationally, and has more than 150 units across the globe. In all, brands under the Focus umbrella generated roughly $1.1 billion in sales in 2007.

The Focus concepts aren't quite yet on the level of entrenched staples such as Triarc Companies which, in April, announced a merger of Wendy's and Atlanta-based Arby's, thus creating the third-largest quick-service restaurant company with more than 10,000 units and $12 billion in estimated sales. But Romaniello has set an aggressive agenda, launching the Focus Five initiative: his goal of having five brands and 5,000 successful units within five years.

So what's the secret ingredient to Focus' success? "Being thorough, disciplined, investing in research ... those are the things we feel are very important in the restaurant business and relevant in all business," he says.

"What we've learned over our six-or-so year history is we need to invest heavily in real estate modeling and expertise. We need to remain very disciplined and focused on market build-outs rather than a scattered approach. At Moe's, we've spent the better part of the six or seven months since we've acquired [the brand] studying real estate and opportunities in the market. We're not going to open up any new markets for growth until we move further into the market we're already in."

Ron Wolf, CEO of the Georgia Restaurant Association, believes this behind-the-scenes operational model is critical to Focus' success, especially in today's business climate. "More than ever because of the situation in the economy, franchisees are increasingly dependent on a strong supportive relationship with the franchisor," Wolf says. "Historically, that's always been a challenge for organizations. Where is the balance of what the franchisor provides and what the franchisee needs?

"What Focus Brands has done well is to find that balance and nurture the relationship between the new franchisees. You're talking about a fairly new company that has acquired mature brands that have had other relationships with other parents. The reason they've been able to grow is because they have an attractive proposition."

Wolf, who once worked with Romaniello at the Holiday Inn arm of Bass PLC, saw his innate ability to recognize quality characteristics in individuals when awarding franchises. "He focused on identifying the appropriate partners to be franchisees and to fly the flag of the Holiday Inn brands," Wolf says. "That's an area he excelled in. He's probably taken those same philosophies and same skills and applied them to [Focus] brands and their relationships with the franchisees. His business philosophies are engrained."

Romaniello echoes those sentiments when describing what he looks for in a potential franchise investor. "For us, we need to be sure when we pick the right franchisee when we award a franchise," he says. "[They need to be consistent] with our values. We don't exercise the same level of control as if this were a corporate growth strategy where we can just fire the manager if we don't like them and get a new one."

The Main Course
Leading the company since 2003, Romaniello is a MBA textbook example of an executive growing his organization through acquisition. And having Focus' parent company, Roark Capital Group, in your corner (see sidebar: Roark Capital Group: An Organization For Growth) is like having Evander Holyfield by your side in a bar fight. 

Romaniello is the first to admit his advantage. "They provide us access to capital to invest in the business and to acquire other businesses," he says.

"They manage our lender relationships and support us on many other complicated issues. It ensures we're well prepared for any of the inevitable bumps in the road along the way in this business, and allows us to stay focused on operations."

Focus' current portfolio started taking shape in 2001, when Roark purchased Carvel, an iconic ice cream purveyor popular in the Northeast. "When we started with Carvel, we felt there was a very unique brand; they had great awareness in their core," Romaniello says. "They were dominant selling ice cream cakes in supermarkets, using the Carvel name. But they didn't have a focus in the franchise business.

"When we bought Carvel, they had only six people dedicated to its 320 or so franchises. We came in and provided all facets of support. We immediately hired some 40 franchise professionals, [and provided] field training, corporate training, local marketing, franchise sales, public relations and a variety of services to these franchisees who were starved because they hadn't received these services for some time."


Connecticut Carvel franchisee George Tsioflikis witnessed Focus' commitment firsthand. "I noticed a big difference during the ownership change," he says. "When it was Investcorp [the sellers], you had to do it all on your own. Marketing, you're on your own. We had no support. Product development; we had two products come out in 11 years. Since Focus brands took over, it's five, six, seven years every year. There's a willingness to work together."

In November 2004, Roark added to its quick-service restaurant portfolio with the acquisition of Cinnabon, the sweet-smelling shopping mall staple. First started in 1985 in Seattle, Cinnabon saw tremendous early growth with its claims of serving the "World's Best Cinnamon Roll," but stumbled as the management emphasized quantity instead of quality.

"Cinnabon was an interesting acquisition for us," Romaniello says. "What you'll see [in our strategy] is that we apply benefit to these, but we also derive benefit. Cinnabon is an example. We were able to provide more resources for the franchisees, and a far more collaborative effort for managing the brand with the assistance of the franchisees, but we also got two big things as well.

"One, we got an international infrastructure we were able to plug our other brands into. Building a successful international franchise business is typically very time consuming, very costly and very risky.

"Also, at the time, we were missing a few key senior level people in our company. We hadn't grown where we could support a number of key positions. When we bought Cinnabon, not only did we become the size and scale where we could afford those positions, there were a number of people at Cinnabon who were awesome executives and were able to fill those spots."

When Cinnabon entered the fold, Roark Capital opted to centralize its recent acquisitions, and Focus Brands was formed out of Cinnabon, Carvel and 150 international units of Seattle's Best Coffee, a concept that was grouped into the Cinnabon sale. Romaniello, who had been president of Carvel, was tapped to lead the new quick-service restaurant division.

By 2006, Romaniello and Focus was ready to strike again, purchasing Texas-based Schlotzsky's, a quirky deli-style concept started by Don and Delores Dissman in 1971.

"Schlotzsky's hadn't invested in any of the growth side of the equation and we're fairly decent at that," Romaniello says. "We were not operating stores on the street. But to be in this business, and provide leadership to the franchisees and be a decent acquirer, we needed that competency. And they had a high-performing corporate owned and operated division that also benefited Focus. So the franchisees benefited by more services, but we're improving our portfolio's balance at the same time."

In August 2007, Focus closed on its deal to acquire Atlanta-based Moe's Southwestern Grill from Martin Sprock's Raving Brands. With more than 300 locations in 34 states, Moe's was generating more than $300 million in sales. "Moe's had grown up in an entrepreneurial environment and had just reached the size where it was ready to be put into a more process-driven environment," Romaniello says. "It had reached the size and scale where we were able to provide a bit more support than the seller was able to do, although the seller did a phenomenal job growing it to 360 stores in only seven years – a pretty amazing effort."

As the franchisee of nine Moe's Southwestern Grill's in Florida, Guy Campbell already sees a significant difference between Raving Brands and his new corporate peers. "The timing was good for Raving Brands, who was a entrepreneurial and sales-driven mentality," he says. "Focus has a more long-term game plan; a management-driven, long-term business plan."

Lack of experience may have been the cause of numerous lawsuits against Raving Brands in the past three years, including 40 franchisees of Mama Fu's Asian House and several Moe's franchisees, alleging fraud, kickbacks and breach of contract. The suits are still pending, but demonstrate all was not blissful in the Raving Brands family. "Raving started this thing, did a great job with it, and took it as far as they were capable of it," Campbell says. "But the timing was right for Focus, which is a phenomenal management company so far in the six months I've dealt with them. They bring a much deeper breadth of experience in management."

Dessert
Because of the diversity in Focus concepts, Romaniello sees growth potential in what the quick-service restaurant industry dubs micro-concepts, or multiple brands in a single store. 

  Cinnabon may have the most to gain by sharing space with other Focus products. "Cinnabon is an impulse purchase; we need to figure out ways to get Cinnabon present in the venues where people tend to congregate," Romaniello says, noting part of their development strategy involved minimizing both the complexity of creating the product and operational space. "We now can add a Cinnabon in any environment that has electricity and has as little as 80 square feet," he says. "That's less than a third of what it costs traditionally and we've also worked out the operational complexity with new technology related to production. Now, we're testing these inside Schlotzsky's."

Romaniello doesn't see any acquisitions in the immediate future. "We bought Schlotzsky's in 2006 and by February were in the midst of buying Moe's," he says. "Doing two on the heels of one another has severely taxed the organization. We're spending the balance of the year doing nothing other than dotting ‘Is' and crossing ‘Ts,' digesting what we've just bought, and staying focused on our franchisees and our relationships with them. We'll look to get back into the game in late '08 or early '09."


So when it's time to start looking again, what does he look for in a concept? "[Acquisition targets are] different today than when we first started," he says. "Our size paradigm has shifted. We have to make a more meaningful impact on our bottom line because our bottom line has grown, so we have to buy bigger things. What is consistent is that we're constantly on the lookout for concepts that have very strong unit-level economics. They need to have a proven business model in multiple geographies, and over an extended period of time and through various cycles."

Romaniello's growth strategy remains entrenched on the front lines of his business – his franchisees – and he has no plans to deviate. "We really engage in the business and try to achieve a level of transparency that I personally have never seen before," he says. "Not only do I believe that great ideas come from the franchisees, but they have their butt on the line, every day. They have a lot invested in this and can be very helpful, and I'd rather have them push us on initiatives, rather than pull them up a hill."