Food Franchise 101 on campus

Getting down to basics with national franchises
By: | Issue: December, 2016
November 23, 2016

After years of working with multiple food service vendors and local restaurants, administrators at Carnegie Mellon University in Pittsburgh decided in January 2016 to bring fast-casual bakery chain Au Bon Pain to campus.

The school’s first experience with a national restaurant franchise, it was a 12-month process from the brainstorming phase to opening the doors to hungry students.

“The success of this dining franchise has been beyond what we—meaning the university and Au Bon Pain—ever expected,” says Pascal Petter, the university’s director of dining services. “We may have even underestimated the popularity.”

Such on-campus partnerships between colleges and quick-serve restaurant franchises are natural—schools have hundreds of hungry students with busy schedules and shallow pockets while national franchises sell quick, familiar and reasonably priced food.

Although many institutions feature on-campus satellite locations of local eateries, national brands can be an appealing financial choice for the institution.

“Usually the reason the bigger franchise systems have grown that big is because they have streamlined their buildout and operations,” says Nicole Duncan, associate editor of Food News Media and QSR magazine, which follows restaurant industry trends. “They’re used to being in smaller spaces, such as what a campus offers, so it’s easier for them to come in, versus a local franchise or an independent restaurant that has only a few locations.”

Restaurant franchises can make good college and university partners: the idea is that they’re expected to have seasoned teams to handle installation and business management, and can anticipate concerns that may arise, from food production necessities to customer flow.

But there is a menu of issues to consider before adding a national brand to campus.

Making a match

Finding an effective dining concept for campus can be a challenge, as tastes vary. “Currently there’s a shift toward healthier options, so some of these franchises that have an emphasis on healthy, wholesome food are being seen more in universities,” says Duncan. For example, wraps, salads and bowls are gaining popularity over burgers.

Students also lean more toward fast-casual, where the experience is more upscale than traditional fast food. Orders are still placed at a counter, but the quality of the meals and service is higher.

Administrators must consider if existing buffet-style student dining would present significant competition to a franchise. For example: If a student can get pizza in the dining hall as part of the meal plan, why would they spend extra to get it from somewhere else? A franchise’s menu offerings, price points and convenience all factor in the determination.

And when it comes to actual vetting, it can take months before all analysis and discussion is complete. At Carnegie Mellon, the process to bring in dining partners was overseen by the university dining services team and started with input from students via town hall-style meetings, discussions with campus organizations and even one-on-one interviews.

Administrators drafted a request for proposal based on the feedback and shared it with on-campus vendors and local restaurant entrepreneurs. Following that, the opportunity was officially put out to bid to national contract companies and brands. Finally, after several on-campus presentations to students, faculty and staff, dining services selected Au Bon Pain. The entire process took six months, Petter says.

Other institutions may delegate the entire endeavor to a food-services provider. Pedestal Foods, an on-site dining services company and food-service partner with Lindenwood University for 15 years, was tasked with managing the partnership process when the school added three national restaurants—Chick-fil-A, Qdoba and Caribou Coffee—to its 500-acre campus near St. Louis this school year.

“After the new administration arrived [in June 2015], we all agreed we needed new brands to bolster dining on campus,” says Joe Scherer, director of operations for Pedestal.

Students were initially given a list of quick-service restaurants and asked which they preferred. After identifying the most popular ones, Pedestal presented recommendations to the administration.

As college students are ideal quick-serve restaurant consumers, it is not uncommon for national brands to approach a school first. Subway, for example, has a system where development agents have territories in which they look to open franchises. In addition to marketing and mailings, they approach college representatives at trade shows and conferences, and reach out directly to school administrators.

“The universities know we’re out there,” says Janet Bencivenga, manager of global accounts for Subway, which has franchises on more than 600 U.S. campuses.

Once an institution expresses interest, Subway’s development agents visit the site to determine if it is “a good fit,” says Bencivenga.

If approached by a national brand, institutions should research that company’s food quality, sourcing practices and employee relations to make sure all pass muster with students.

Matching available space on campus to the right brand is key. Restaurants that offer sandwiches, salads or other meals requiring less preparation or cooking can usually fit in smaller footprints. Foods needing more preparation need more complex spaces.

When Lindenwood University was considering Chick-fil-A, an architect from the company visited the campus. “We had existing hood systems in a space, and determined that if Chick-fil-A came in, we would not have to touch those hood systems, which could have been very expensive,” says Scherer.

Colleges and universities also need to ensure that there is space to properly accommodate student flow at meal times—national brands became so because they are popular.

Cooking up the deal

Once a college and restaurant agree to become partners, attention turns to working out contract terms. One critical decision is whether an institution wants to be the franchisee itself, or have its food service provider or another franchisee operate the restaurant. In some situations, a school can negotiate a special arrangement.

Au Bon Pain operates its store, located within Carnegie Mellon’s Skibo Café, while the university owns the space. Carnegie Mellon did not enter into a traditional franchise deal, which would have meant paying royalty and marketing fees. I

nstead, the agreement includes a revenue-share clause. The university provided the infrastructure and equipment, and purchased smallwares, such as cooking utensils, pots and other food preparation tools. Au Bon Pain provided its own menus, food boards and labor.

Franchise fees that institutions pay vary. For example, Subway is at the lower end of the initial cost spectrum with a $7,500 franchise fee, plus 8 percent royalties and a 4.5 percent advertising fee.

By comparison, Au Bon Pain typically charges $7,500 for a development agreement plus an opening fee of $30,000, followed by 5 percent royalty and 1 percent marketing fees. Franchisees also incur the cost of the build-out, which varies based on location size and other construction parameters.

“Payment terms are always a big part of the discussion,” says Scherer of Pedestal Foods, adding that most times the length of a revenue agreement is at the core of negotiations.

In addition to costs and revenue, other terms and factors, such as those individual to the college or university campus and standards, need to be considered.

Carnegie Mellon has a standards agreement that covers food safety and sanitation, among other issues, says Petter, whose contract negotiations with Au Bon Pain took about three to four months, which he says is fairly typical. “Some standards were easily transferrable; others we had to work through.”

Au Bon Pain has its own dedicated data network for its point-of-sales system and credit card transactions, which was a conflict with Carnegie Mellon’s network. Setting up the separate network and still being compliant with both Carnegie Mellon and Au Bon Pain standards needed to be resolved—a hurdle that’s typical of the nuts-and-bolts issues institutions encounter before construction begins.

Building in time

Colleges and universities prefer to undertake construction between semesters, often allowing only eight to 12 weeks for construction—which makes for tight scheduling, and demands extensive planning and open communication.

At Lindenwood, three different restaurant franchises were built at once, which meant separate architectural teams for each brand, although the same general contractor was used for all. It also involved separate equipment suppliers and other moving pieces.

To keep everyone on the same page, weekly meetings and regular calls were held between franchise construction managers, school administrators and Pedestal Foods personnel. Additionally, the general contractor shared photos of construction progress weekly.

By definition, franchises are designed to have common design elements and processes, which removes many of the pitfalls and issues that may arise with independent vendors.

“Throughout the build-out process, the brands have benchmarks to make sure that everything is done to their specifications,” says Scherer. “Their goal is to have a quality operation on a university campus, but they also want to make sure their brand is always functioning as it should by their specifications.”

Despite the best planning, issues can still arise. For example, at Carnegie Mellon, some of Au Bon Pain’s standardized equipment did not fit through the doors, so it had to be disassembled, brought in modular pieces and then put back together.

“Any national franchise that has been around for a while has been through the process,” says Bencivenga, of Subway. “Usually there isn’t anything that comes up that they haven’t seen, so they can handle it.”

Ray Bendici is special projects editor at UB.