Client News

Every franchise wants to grow, and CiCi’s is no different. Yet the challenging post-recessionary development market has stood in the way. Now, the Texas-based pizza buffet chain is taking a different tact to encourage development: it’s becoming a minority investor in franchisees’ new stores.

The $5 million program is the centerpiece of a broad effort CiCi’s is undertaking to add to its 584 units, an effort that includes a host of royalty breaks and franchise fee discounts to new and existing operators that open new units.

“There are some guys on the fence,” said Forbes Anderson, CiCi’s chief strategy officer. “This helps them make the decision to grow. We feel like it makes logical sense for us to try and stimulate growth when it seems like it’s slowed down a little bit, maybe take those guys off the fence.”

Development incentives have become more common in recent years as franchise restaurants take more aggressive steps to overcome operator anxiety and a tight lending environment in their efforts to add new units. But no industry has been as active as the ultra-competitive pizza sector. Papa John’s has had development incentives for years. And Ohio-based Marco’s Pizza has used just about every tool known to franchising to get operators to build new units. The company recently inked a big development deal to open new units inside Family Video DVD rental stores—a deal first reported by Nations Restaurant News, which we confirmed yesterday.

Under CiCi’s investment program, the chain will invest $100,000 to become a silent, minority partner in franchisees’ new stores. The franchisee would be required to provide $125,000 in equity, so CiCi’s would own 45 percent of the business, the franchisee would own 55 percent. A combination of landlords’ tenant allowances and loans would make up the difference between the combined equity and the startup cost for a new unit, which averages about $500,000.

The program is targeted at new franchisees, said Chief Development Officer Bill Spae, though existing operators will be eligible.

Franchisees using the program would have to provide financials to CiCi’s every month, but Spae and Anderson insist that the company will not have any say in the day-to-day operation of the restaurant. Operators can pay the investment back, with no interest, any time, and CiCi’s said it would use the funds to invest in the franchisee’s next unit, should he or she choose to build again.

If the operator sells down the line, CiCi’s would get 45 percent of the sale price. If the sale price is less than $225,000, CiCi’s still gets its $100,000, so its investment is protected and most of the risk still lies with the franchisee.

Still, the investment program puts the onus on CiCi’s to pick strong operators. “It’s going to be a long interview process,” Spae said. “The franchisees are going to be well-qualified. They’ll be vetted very carefully, which will reduce the chances of them having a significant issue.” He left open the prospect that CiCi’s would come in and run the store if significant problems arise.

Spae said that the company has been working on the plan for some time, but said that efforts by Papa John’s and Marco’s gave him confidence that the program would work. “It didn’t hurt to hear that there are other folks that have incentives,” he said. “The success of Papa John’s and Marco’s give us some underpinnings on why this might be the program to roll out.”