April 18, 2001

Marketplace

Franchisee Boasts a Start-Up
That Comes With a Safety Net

By BERNARD WYSOCKI JR.
Staff Reporter of THE WALL STREET JOURNAL

NICHOLASVILLE, Ky. -- It is midmorning at the 284-seat Golden Corral restaurant, and Bruce McIntosh, 44-year-old financial executive turned entrepreneur, is getting ready to open the doors again.

This particular day is the 29th since the restaurant opened alongside busy Route 27. Mr. McIntosh, one-third owner and chief operating officer, has a paper in his hand with the previous day's sales tally: nearly $11,000. He walks into a small, cold room and chats with his butcher, who is already cutting 16-ounce steaks, today's special. Mr. McIntosh has already had a word with his director of operations, David Holtz, about putting more "cheerleaders" in high-visibility spots.

"You have to get your bright smiley faces out front," Mr. McIntosh says in his soft Kentucky voice. "This is one of the things you learn in Phase II."

This is entrepreneurship with a net, in this case one held by Golden Corral Corp. Mr. McIntosh and his two partners are franchisees of Golden Corral, based in Raleigh, N.C., and Phase II is part of the company's three-phase training program. Over the past eight months, Mr. McIntosh has learned every position in a typical 100-employee outlet. He has had classroom sessions and business-planning tutorials. He had to keep his land purchase -- his was $385,000 -- within the ratios outlined by Golden Corral.

The restaurant itself is built to well-defined standards, from the tile floors and cash registers out front to the multiple seating areas around the perimeter to the lavish buffet stations smack in the middle of the restaurant. In a move that is common although not required, Mr. McIntosh bought much of the equipment and fixtures from a Golden Corral subsidiary.

For Mr. McIntosh, the life of a Golden Corral franchisee is a blend of entrepreneur and traditional manager. On a day-to-day basis, he is an opportunity hunter and deal maker, as he searches for the best sites for the next four steak-and-buffet restaurants in his empire. As a manager, he hires people, makes sure suppliers deliver and get paid, keeps the books and keeps the franchiser in Raleigh informed of what's going on.

Franchising is a way to offer entrepreneurs some expertise from the get-go and allows expansion-minded chains -- food, lodging, auto repair and many others -- a chance to grow quickly using other people's capital. But franchising has its tensions, notes Steve Spinelli, a co-founder of Jiffy Lube International, who today heads up Babson College's entrepreneurial program. Among the possible pitfalls: boundary disputes over turf, trade-offs between maximum sales favored by the "parent" and maximum profit sought by the franchisees.

Opening the doors of this Golden Corral restaurant cost the partners nearly $2 million in land, construction, equipment and working capital, financed by a conventional 80% bank loan. Mr. McIntosh and his partners paid $40,000 in upfront franchise fees, plus 4% of ongoing sales as royalty payments. In return, they get the accumulated expertise of a company that has been in this business since 1973 and has opened more than 500 new restaurants, both company-owned and franchise units. The "parent" has stumbled at times, prospered at others, learned, quantified, codified and taught its newcomers a hard-won formula for making money in a notoriously tough industry.

Starting a restaurant is competitive. Out in these strip malls, where Wal-Mart super centers rule, lots of restaurants follow. They fight each other. With an average meal check at $6.50, Golden Corral is hoping it has a recession-fighting formula. It may even take business away from the higher-priced casual-dining chains. Asked if the word "recession" ever entered into his thinking, Mr. McInitosh answers immediately, "Yes, right before we paid our franchise fee."

The co-equal partners here in central Kentucky bring a mix of skill and experience to the table. John Revel, of Richmond, Ky., built up an 11-unit Hardee's fast-food franchise that he recently sold. Ray DeSloover is a major real-estate broker in Richmond. Mr. McIntosh, the operating chief, left Kentucky Utilities as a financial executive, after it merged with Louisville Gas & Electric Co. in 1998.

The restaurant is their second venture together. In the mid-1990s, this trio teamed up on a 101-acre real-estate development project in Richmond. They are gradually selling off pieces of that land for commercial development. In 1997, they formed Golden Ranch Development LLC, secured the rights to five Golden Corrals in the greater Lexington area and began the arduous process of looking for sites.

Initially, two other Kentucky cities, Lexington (a prosperous university town) and Georgetown (home of a major Toyota Motor assembly plant), topped their list of locations, but they couldn't find the right site at the right price. They turned to smaller Nicholasville for their initial unit. Executives at Golden Corral headquarters thought it would never work. With 10,000 people, the market was considered too small by the experts in Raleigh.

Mr. McIntosh didn't relent. In his extensive market survey, he noted that 52,000 vehicles drove past the site each day. They could get a good price for the land. And, unlike the sites in Lexington and Georgetown, Nicholasville had relatively little competition. Golden Corral gave in. Mr. McIntosh went through his training, and they broke ground last November. Soon, Mr. McIntosh was consumed by the nitty-gritty of opening up for business.

On Feb. 9, just 72 hours before the launch, it's barely controlled bedlam. Out in the parking lot, two officials from the city of Nicholasville are unhappy about some of the landscaping around the building and indicate they will withhold their approval for the opening. They relent after promises to fix the problem.

Inside, workers are making electrical and plumbing adjustments while an "A" team of experienced Golden Corral workers prepares to train dozens of new employees. The supplier of steel doors used to separate the kitchen from the dining area is demanding certified checks.

All the while Mr. McIntosh's mobile phone keeps ringing, to the tune, "Take Me Out to the Ball Game." (He's a baseball fan and Little League coach.) And no matter what he does, he can't seem to find somebody to erect the parking-lot lights. The night before opening, they are still lying on the ground, forcing Mr. McIntosh to cancel a VIP reception.

At 11 o'clock the next morning, the crowds come. The owners hoped for $60,000 total sales the first week. It tops $80,000, close to a company record. And as Mr. McIntosh calls in the nightly sales figures to Raleigh during the first 30 days, the Nicholasville opening is the talk of the Golden Corral executive corridors.

Still, this is going to be a fight for market share, waged all day every day. The next few months will test Mr. McIntosh's marketing ability in the teeth of the slowdown in the U.S. economy. Can Golden Corral, with its $6.50 meal check, take away business from the higher-end chains? Mr. McIntosh knows that those $80,000-revenue weeks won't last. Where will business settle? Above $50,000 a week? His first-year revenue goal is $2.5 million. They are way ahead of their targets, but the restaurant is still in its honeymoon period.


Ruling the Ranch

Facts about Golden Ranch Development

Headquarters: Richmond, Ky.

Founded: Late 1997

COO: Bruce McIntosh

Employees: 100

Financial Snapshot: The company spent about $2 million to open first of five restaurants, with bank financing covering 80% of the cost. First year sales expected to top $2.5 million.

Business: The company is a new Golden Corral franchisee, targeting greater Lexington, Ky. First restaurant, with 284 seats opened February 2001, in Nicholasville, Ky.


The partners are also pushing ahead with their expansion plans in markets that already have loads of restaurants. Ten miles north, in Lexington, Mr. McIntosh and his partners recently reached agreement to buy a parcel of land for their second restaurant.

The quick success of the first restaurant breeds its own problems. Sometimes Mr. McIntosh is up until 1 a.m. working on bills and financial records. He tried twice to recruit a former colleague from the utility to come on board as a financial executive, but she turned him down, having started her own at-home business.

"I'm on a double shift," Mr. McIntosh says wearily. He is contacting food-industry recruiters to help him find more management talent in the crucial $40,000- to $65,000-a-year salary range.

The restaurant has become a magnet of sorts for nonmanagement staff. Mr. McIntosh notes that his Golden Corral has snared a top-flight waitress from Shoney's, as well as a cook who came over from Applebee's, located just across the parking lot.

Looking ahead, a big challenge is to keep building his team, the 20 to 30 people who will eventually constitute the company's core as it expands. This involves motivating and retaining the best people. It also means cultivating regular customers.

Mr. McIntosh is surprised at how much he likes the "people" side of the job. In fact, of all the surprises involved in starting up, this is the biggest, Mr. McIntosh says. "I'm a CPA in accounting, but I'm surprised I'm more of a people person than I thought."