Hot Dog: Franchising with Technology

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Johnny’s Lunch is on a roll with a combo of good food at reasonable prices, great service and the right technology.

Twenty years before McDonald’s golden arches began dotting the American landscape, Johnny Colera slathered a hot dog with his secret chili sauce and sold it for 10 cents at his lunch counter in Jamestown, N.Y. It was 1936, in the midst of the Great Depression, and Johnny’s Lunch was open for business.

By the time McDonald’s opened in 1955 under similarly humble circumstances, Johnny’s Lunch was a Jamestown institution, serving up Johnny’s Hots hot dogs and the usual fast-food fare of burgers, fries, onion rings and shakes. The company, founded by Colera and his wife Minnie, built a strong following with its commitment to low prices, good food and terrific service, along with some unique offerings such as homemade rice pudding. All the while, Colera and his successors watched McDonald’s continually expand and become a household name, with more than $22 billion in annual sales.

Could Johnny’s Lunch do the same thing? Is a Johnny’s Hot the next Big Mac? After 70 years of improving the business and sticking close to home, Johnny’s Lunch is about to find out. The company is making a big bet—much of it based on savvy, technology-driven market analyses—that it can secure a place among the leaders in the nation’s fast-food franchise industry.

Don’t let Johnny’s folksy atmosphere and throwback art deco design fool you. The company’s expansion plans are based on sophisticated mapping technology that it uses to scout locations, state-of-the art point of sale (POS) systems that speed transactions and capture trends, and inventory management systems that ensure freshness and reduce costs.

Since 2006, Johnny’s Lunch has moved beyond its single flagship restaurant, opening five locations in Michigan and one in Ohio. Its aggressive plans now call for 30 to 50 franchise restaurants by the end of this year and as many as 3,000 locations nationwide in the next five years. The expansion promises lucrative returns and good traction. In addition to a 3 percent marketing fee, franchisees pay a 6 percent royalty on sales, which is split with the area sales rep who signed them up.

However, the market may challenge these optimistic plans for growth.

“The outlook for 2008 promises only modest growth of 2 percent to 3 percent in the QSR [quick-service restaurant] segment,” says Jerry Sheldon, vice president of technology at the IHL Group, a Franklin, Tenn.-based research and advisory firm specializing in technologies for the retail and hospitality industries.

“We are seeing a tremendous slowdown in unit growth for QSRs,” adds Darren Tristano, executive vice president at Technomic, a research firm in Chicago. “That’s not going to help anyone with aggressive growth plans.”

Still, the looming recession strongly resembles the Depression-era economic climate that gave birth to Johnny’s Lunch. Amid all the uncertainty and belt tightening, the company’s executives are hoping that familiar comfort food offered at low prices will be the perfect recipe for success in a down economy.

This article was originally published on 2008-04-30
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