Church’s Chicken Building Franchise Value

September 2008

By Joni House

When you’re helping lead a 50-year-old brand, you know that it takes more than a little cosmetic work to stay vibrant. Doug Pendergast is Church’s Chicken’s Executive Vice President and Chief Franchise Officer, and it’s his role to keep Church’s Chicken a top-drawer experience for both franchisees and their customers. What’s Pendergast’s strategy? It’s driven by technology, but in surprising ways.

One of the challenges facing Church’s Chicken is accelerating an already rapid pace of store openings in the United States. From an average of 17 new stores per year, Church’s Chicken saw 59 new stores open in 2007 and is forecasting between 60 and 70 new stores in 2008 in the U.S. alone. To deliver on this goal, Pendergast and his team have developed a major technology initiative addressing construction processes and methods. About 2½ years ago, Church’s Chicken debuted panelized construction for its free-standing stores. The building elements delivered to the site had all exterior surfaces finished, windows installed, and with the assembly of the walls and roof, could be watertight within 24 hours. This fast-track construction so accelerated opening time that Church’s Chicken looked to leverage it into other types of locations. Pendergast and his team proceeded to translate into the U.S. market the best practices in construction that Church’s Chicken had learned from its international franchisees and improve on the original modular model.

The new technology initiative for store construction adds three different technology approaches. The first is a fully modular building in which both the interior and the exterior elements arrive fully assembled and are dropped onto a pre-prepared site. The advantages include the ability to control the upfront construction costs and to minimize the impact of weather and other events on completion. The fully modular stores are typically opened 90 days earlier than conventional stick-built locations. Plus, since the building is considered a mobile structure, some franchisees elect to depreciate it over an accelerated time frame as equipment rather than a building. All of these technological innovations combined “represent $100,000 of value to the franchisee,” says Pendergast.

Second, Church’s Chicken’s construction technology advances have allowed it to translate its product into more urban and suburban locations in the new strip mall locations. “Within 1,200 square feet – the same footprint as a Subway – we can deliver the Church’s experience in the same quality as a freestanding location,” Pendergast states. The design, sourcing and equipment packages have all been value engineered to translate the product into the current trend of inline stores.

Church’s Chicken is also excited about the technologies enabling the new kiosk locations. These 320-square-foot locations are targeted for enclosed malls, colleges, theme parks and the like. “It opens up more for us,” enthuses Brian Blosser, Director of Restaurant Construction. “It gets us more mainstream.” Some of the challenges in delivering the full Church’s Chicken menu in 320 square feet have been met head-on by improvements in equipment technology. One example is the development and sourcing of hoodless fryers. This equipment “reduces costs and allows more flexibility in where [a restaurant] can be located,” says Pendergast. The hoodless fryer technology removes a major constraint to having a kiosk-type Church’s Chicken location while enabling the franchisee to offer a consistent product and the recognizable Church’s Chicken brand.

Other improvements in equipment technology include rethermalization units. For the company in general, says Pendergast, it’s always a question of, “How can we do what we do even better?” The rethermalization units enable Church’s Chicken to deliver a variety of side items faster and more consistently.

Rolling out the new construction technology is underway for fiscal 2008. Church’s Chicken plans to open both its first fully modular standalone store and its first kiosk location this year. Going forward, Pendergast forecasts that the mix of new locations will be roughly one-third freestanding, one-third conversions and one-third nontraditional venues such as food courts and inline locations. “Our original buildings were walkups,” he observes. “What we’re doing with the new construction technology is enabling a back-to-basics approach. We’re not tied to industry thinking.”

The second set of technology initiatives is a collection of more conventional restaurant applications, all targeted to address the challenges inherent in keeping a 50-year-old brand nimble and profitable. With about 200 domestic franchisees, there are challenges related to legacy technology and a patchwork of point-of-sale (POS) systems. Church’s Chicken looked to answer the question of how to integrate all the data from the locations in order to add value to the franchisees’ businesses and to enhance the brand. The answer, being implemented in 2008, is a Web-based data warehouse. Partnering with MIRUS, Church’s Chicken’s new data warehouse is local-technology agnostic, meaning that, regardless of their POS system or other technologies, franchisees can integrate their operational and management data into the warehouse for decision support analysis. Pendergast explains that the solution “sits on top of the other platforms. It enables us to collect data and push it back out to the franchisees in a usable form. We can use data to identify problems before they get too big, and to share best practices.” Using the MIRUS solution has allowed Church’s Chicken to avoid the Draconian measure of mandating that franchisees rip out existing technology and upgrade to a standard platform. This technology approach “reflects our core belief about franchising and the role of the franchisor,” Pendergast explains. “We’ll do whatever’s necessary to improve the cash flow for our franchisees, so we look at any investment as having to have as high a return as possible.”

The success of this strategy is evident: Church’s Chicken’s franchises’ financial performance is among the top 10% of all fast food franchises, with an EBITDA for the most recent year of about 26%. “And,” says Pendergast, “we’re just starting to use technology to help improve the store-level cash flow for our franchisees.”

Church’s Chicken has also partnered with technology providers to create a tool to help franchisees better manage their physical plant. The company-wide reimaging project “will touch over 1,000 stores in some way,” Pendergast points out. To help manage this effort, the company has developed a database with photographs, as-builts, parking inventories, equipment inventories, size, seating and all types of physical plant details for every location. “It helps us be very consistent in our image standards,” says Pendergast. “We can clarify issues during an online meeting with our franchisees” with everyone literally looking at the same data. “It’s a cost-effective way of getting current.”

Church’s Chicken has also deployed technology solutions to help franchisees address problems plaguing the quick service restaurant segment since the beginning of time: human resources issues. Church’s Chicken is in the process of rolling out a voice- and Internet-enabled job application system. The candidate can input or give his or her information over the telephone. The system takes the information and performs a basic level of prescreening. The store manager gets an initial recommendation on each candidate. In addition, the system tracks the people who’ve applied for a position, so that managers can fill openings quickly from a prescreened pool of candidates. A major benefit to franchisees, says Pendergast, is that this system is providing a significant reduction in employee turnover. To further enhance employee retention, Church’s Chicken is also implementing pay cards for its employees. “Many don’t have bank accounts,” Pendergast explains. This basic technology solution makes the employee’s life easier by eliminating the need to go to a check cashing business, which can be inconvenient and expensive.

“It’s never one thing alone that drives success,” Pendergast observes. “It takes all these pieces working together to deliver that great experience of a fantastic meal at a compelling price.” Church’s Chicken’s creative use of technology is a giant piece of the success picture.