Tortilla Franchise Growing Up
Monday, October 22, 2007
Bob Phillips, president of Rockville-based food chain California Tortilla Group, breezes into his third restaurant of the day to ensure the goofy, fun-loving "Cal-Tort" culture is in full blossom.
Dressed in an official Cal-Tort shirt, Phillips jokes with a half-dozen workers -- each identified by nametag as a "spunky employee" -- to make sure they are in maximum extrovert mode. He adjusts the "Wall of Flame," which holds dozens of hot-sauce bottles with names like "Maui Meltdown" and "Colon Cleaner." He looks to make sure that the store, like its 30 fellow franchises, has a megaphone and bell so customers can ask for attention.
The Palm, this ain't.
California Tortilla Group is in the middle of a major expansion, growing in four years from two restaurants in Montgomery County to a business that is battling Chipotle, Baja Fresh and other restaurants for regional dominance in the fast-casual Mexican food category. The company opened its 31st store last weekend near Palm Beach, Fla.
"Franchising is in my blood," Phillips says.
But the secret of successful franchising is a delicate balancing act, and that is Phillips's constant challenge as his chain grows. It requires discipline to find qualified buyers and enforce quality control over food, service and atmosphere. Perhaps most importantly, it demands creativity in finding the best locations for new stores. Cal-Tort, as it is known by its employees and customers, could become the next hot food franchise like the fast-growing and locally owned Five Guys hamburger chain. Or it could end up as the next Boston Market, which overexpanded in the 1990s and filed for bankruptcy protection.
"It's like the guy who is balancing several spinning plates on sticks all at once," said Dennis Lombardi, executive vice president for food-service strategies at WD Partners, a design and development firm for retail and food chains. "If you don't keep them going, they all crash."
Cal-Tort says the vast majority of its stores are performing well, with each location averaging about $1 million in annual sales. Lombardi and other experts said $1 million is the threshold for a successful fast-food restaurant. But Cal-Tort has stumbled a couple of times. One store in the region -- which the company declined to identify publicly -- lacks proper access to a highway and is suffering. Another newly opened restaurant in Reston needs more word of mouth to boost traffic. And last week, the company broke a franchising commandment when it opened the Florida store, far from its base in Washington.
"If this guy is in the D.C. area, going up and down the seaboard is the right strategy," Lombardi said. "But the next stop should not be in Maine. You need to develop contiguous markets and build brand identity."
Phillips said he made an exception in Florida because the franchise will be owned and run by the stepson of the company's co-founder.
"We are being very disciplined and careful about expansion," Phillips said. "I want to build a great chain of restaurants and have something of real value. I am a restaurant guy. This is not a quick way to expand and then sell it for a fortune."
Phillips charges each franchisee a $25,000 fee to use the company trademarks and operating system. The company also collects 5 percent of the gross sales of each restaurant franchise. Four restaurants are owned by insiders, including Phillips. The biggest-grossing restaurant is at Dulles International Airport, where it has a captive audience in the United Airlines concourse, he said.