EXCLUSIVE REPORTS
From the July 1, 2005 print edition
Franchising key to O'Charley's nationwide goal
Judy Sarles

Nashville Business Journal

.O'Charley's Inc expects to use franchising to blaze a trail through the upper Midwest, Southwest and West. Leading the charge is In August 2004, as part of the decision made more than three years ago to become a franchising business, the casual dining ompany promoted Zeb Hastings, who joined the company in August 2001, to lead O'Charley's franchising program as vice president of franchising. Previously, Hastings was instrumental in shifting Friendly's Ice Cream Corp.'s company-owned stores to franchise stores.

However, the all-franchise model is not where Hastings is taking Nashville-based O'Charley's, which runs more than 300 restaurants under its namesake, Ninety Nine Restaurant and Pub and Stoney River Legendary Steaks brands. His mission is to lay the foundation for 'Charley's to evolve from a regional chain in the Southeast and Midwest into a national company."My task is to set up the program, transform the culture and begin to build a national platform for us," says Hastings. Hastings says the company's more cautious franchising pace is good for
franchisees because it will allow O'Charley's to refine operations and test menus and building types.

The company expects to open up to 15 company-owned stores in 2005, guided by the belief that there are still opportunities to grow in the markets it already serves. Hastings, who is involved in all aspects of the business - marketing, operations, financial, real estate construction, and training and development - is working to attract franchisees. Among them is Covelli Enterprises, one of the largest U.S. franchisees of Panera Bread. Covelli plans to develop markets for 50 O'Charley's restaurants in Tampa and Orlando, Fla.; Pittsburgh and Cleveland, as well as in northwest Ohio, central Pennsylvania and northern West Virginia. "We've been in the restaurant business a long time," says Sam Covelli, owner and operator. "You get a feel for something that you think has a great future to it."

In November 2004, the company announced a franchise-development agreement with Wi-Tenn Restaurants LLC to develop 10 franchises in Wisconsin. That push is coupled with ranchise expansion in Michigan and Louisiana. Over an eight-year period, the plan is to open 93 franchise stores. About four to six franchise partners will be added annually, with a total et of 25 to 35 franchisees.

Ultimately, O'Charley's could grow to be a 900-unit chain. Next year, it will begin exploring the establishment of an international presence. Doing that successfully will depend on the quality of its franchise partner, says Sue Perram, a restaurant analyst at Avondale Partners.
"You've got to have an established operator," says Perram. "Somebody that knows the market extremely well."

Franchisees pay O'Charley's a fee of $50,000 for each of their first two restaurants, and $25,000 for every restaurant thereafter. The franchisees also pay 4 percent of their sales as an ongoing royalty for such things as marketing, real estate services, construction, training and development, and operations systems support. Eventually, funding from franchisees will help fund a national advertising campaign.

O'Charley's joins other retailers in feeling pressures from rising commodities, gasoline and raw materials costs. Because discretionary income is tight, the company is value-conscious in engineering its building and expansion program. Franchisees are offered two building types: a 6,800-square-foot location or a 5,300-square-foot one. Going to smaller buildings opens up more possibilities for finding appropriate real estate, especially end-cap sites at retail centers.

As it grows, O'Charley's will continue to face competition from such national chains as Applebee's, Chili's and Ruby Tuesday. In addition, a wider variety of competitors is attracting the lunch crowd, including Panera Bread and Bread & Co., as well as grocery stores that ffer take-out service.

O'Charley's is emphasizing the quality of its food and its dining atmosphere. With its own commissary, the company has a better shot at ensuring the quality of its product and delivery.

To benefit its company-owned stores, as well as stores of franchisees, O'Charley's is exploring technological innovations for the back and front of the house, including a kitchen display system to automate restaurant production. jsarles@bizjournals.com, 615-248-2222 ext. 114

© 2005 American City Business Journals Inc.