Our panelists tell three stories about someone ignoring all the warning signs while reaching for the stars, one of which is true.
Lo Lo's Taking Chicken And Waffles Concept Nationwide
Valley resident Antonio Paden comes to Lo Lo's Chicken and Waffles once a month, and every time orders a menu item called the Betty’s Boob, a plate of one waffle and a fried chicken breast, which Paden douses in Lo Lo's homemade hot sauce.
This has been Paden’s ritual since Lo Lo’s beginning 17 years ago. He’s seen it grow from a tiny operation in a house near downtown Phoenix into two larger restaurants that today serve about 15,000 customers every week.
As for the national expansion announced earlier this week, Padon thinks it's long overdue.
"Because I’m originally from Philadelphia, so sometimes I go back and I tell ‘em about Lo Lo’s and they don’t know anything about that, so now with the franchise maybe they’ll go to the East Coast," Padon said.
But it could be a while before the expansion reaches Paden’s friends in Philly. Lo Lo’s is starting out in a few states — Texas, California, Missouri and Oklahoma — then phasing into the South and then potentially the rest of the country.
Lo Lo’s decision to expand via franchise isn’t surprising. Today, it’s the fastest and most common way that restaurants grow and reach new markets, and it's a sector that's been gaining momentum nationwide.
Nearly one-third of U.S. restaurants were franchises last year, up from 27.5 percent five years prior, according to Chicago-based Technomic, a restaurant research firm. However, the Arizona franchise industry is still is in recovery-mode from the Great Recession. Arizona Restaurant Association research shows franchises make up 30 percent of all restaurants in the state, down from 40 percent just as the economy was beginning to tank.
Still, franchising has paid off for Valley-based companies such as P.F. Chang's China Bistro, Cold Stone Creamery and Massage Envy, and there are many upsides to the model.
Franchisors like it because they generate a steady income stream from fees - such as royalties, which is a portion usually 6 or 7 percent of a franchisee's revenue - without having to spend the money and resources to open and run the stores themselves. Franchisees like it because they know what to expect and a lot of the groundwork is already done for them, such as employee training, marketing and vendor agreements.
But Darran Tristano, executive vice president of Technomic, said the problem is finding franchisees who are as passionate about the brand as the founders.
Passion drives success and it's something that can't be taught, he said. Without it, the brand quality is threatened and that can be bad for the franchisor and its other franchisees.
"Getting down to culture and emphasizing it, training it and communicating what it stands for is a really important element of success today and will continue to be increasingly important and it will dilute the brand if they can't recapture what the original one intended to do," Tristano said.
Passion is at the heart of Lo Lo’s. The owner and founder, Larry ‘Lo Lo’ White, spent years perfecting his grandmother's chicken and waffles recipes. In 1997, his grandmother let him use her downtown Phoenix eatery, Mrs. White’s Golden Rule Café, on the weekends to showcase Lo Lo's food.
Lo Lo's operated out of Mrs. White's until 2002, when White had saved up enough money to open up his own restaurant in a 1,000-square-foot house near First Avenue and Buckeye Road.
But those early days were extremely painful, so painful that he couldn't even afford employees during the first few months.
"I wore many hats in the operation where I’m the owner of the restaurant and I will come out, I will greet you, I will take your order, I will go in the back and cook your food, I will bring it out to you and will collect your plates and wash your dishes when you’re done," White said. "The first couple of months, I was everything to Lo Lo’s.”
When he finally hired his first employee, White went to new heights to keep himself afloat.
"(The employee) would actually try to run the restaurant during the day and I went back over to Mrs. White’s to serve tables because being a waiter and tips over there were actually paying off a whole lot more than being a restaurant owner,” he said.
To spread the word about Lo Lo's and keep the chicken from going to waste, White took his food to the streets, handing out free dinners to cab drivers and hotel bellmen. He was also always on the hunt for parking lots so he could put fliers and business cards on car windshields, which drove his wife crazy sometimes.
“My wife used to hate when we hung out and we'd go to movies," White said. "I liked to park real far away so I can flier cars going to and from the movie. And she was like ‘Is there any day that we can just be Lo Lo free?’ And I was like, ‘No, I’m trying to build an empire.’”
Lo Lo’s went from losing money during its first three years to pulling in revenues of $6.1 million total last year at its two stores in Scottsdale and Phoenix. White has since moved the original Phoenix location from the small house into a larger space up the street. White also opened a location at Phoenix Sky Harbor International Airport this summer and a fourth restaurant in Gilbert, where future franchisees will be trained, is expected to launch later this year.
White is now taking his soul food beyond Arizona, which is something he said customers have been begging him to do for years.
But it's not a cheap endeavor. Franchisees need anywhere between $651,000 and $2.2 million just to get started, which restaurant analyst Tristano said is pretty steep by industry standards.
There's also an initial $45,000 franchise fee, a typical amount, and franchisees must have at least $200,000 in the bank at all times, which Tristano said doesn't seem like enough considering how much money has to be invested upfront.
"It's a large investment in today's economy," Tristano said. “I would say the build out costs are, to some extent, high, which is going to create greater risk, create more difficulty for a franchisee to gain access to capital and with a liquidity of only $200,000, that’s not a lot of money.”
It's also hard to get a loan these days, so the pool of potential Lo Lo's franchisees is probably small, he said.
But Jeff Green, a retail consultant at Phoenix-based Jeff Green Partners, actually thinks that could be a good thing for Lo Lo's.
“That’s quite expensive, but maybe that’s his intent, because he wants somebody who’s passionate about the brand and is willing to spend the money for the brand,” Green said.
That, he said, will help Lo Lo's attract more serious franchisees and thus reduce the risk of diluting the brand White worked so hard to build.
As for White, he said he's just taking this new venture in stride, one day at a time.
"This is new to me and we’re going to give a stab at it and I’m gonna give my best foot forward," White said. "I can’t tell the future, but we’re going to have a good time trying to get Lo Lo’s across the country.”
There's one exception to the Lo Lo's expansion: Arizona. White said it's his territory, and off-limits to franchisees.