You’ve Probably Never Heard of America’s New Largest Pizza Chain

March 30, 2015

Hunt Brothers rules rural pizza market from lowly gas stations

Associated Press
Business Around the Region
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ANDERSONVILLE, Tenn. –If you’re looking for pizza along the Andersonville Highway between the Museum of Appalachia and a mountain lake created by the Tennessee Valley Authority, your best bet may be the same place where you buy your bait and fill up your car.

Hunt Brothers Pizza is quietly winning over the rural South by slipping into places big-name pizza chains probably couldn’t survive. It has installed its pizza ovens at so many gas stations and convenience stores that it has more U.S. locations than either Domino’s or Pizza Hut.

Located across from a pasture, the Rightway Foodmart in Andersonville sits a little too far from the interstate to get the type of traffic that could support a free-standing fast-food outlet. But it draws plenty of customers who fish or boat on nearby Norris Lake to its pared-down pizzeria, which requires just a few feet of counter space. And the pizza inspires strong loyalty.
“It beats Pizza Hut and Domino’s,” said 23-year-old Brittany Bunch, who buys Hunt Brothers about once a week during breaks from her job at a water damage company. “It’s just got more flavor. It seems like, with the others, you’re getting cardboard.”

While Hunt Brothers may be unknown in many households, it runs television ads during NASCAR races and cable outdoors shows. For several years, it has sponsored Kevin Harvick, who won the 2014 NASCAR Sprint Cup.

On a recent morning at 10:40 a.m., Rightway owner Roy Bruce started sliding pizzas for the lunch rush into a conveyor-belt oven. Each pie starts out frozen, a crust with sauce and a layer of cheese. Employees can add fresh pepperoni, extra cheese and other toppings. The result after about 5 minutes in the 525-degree oven is a bubbling-hot pizza with browned toppings that tastes comparable to the big delivery chains’ pizzas.

In an hour, Bruce sold that first pizza and another one in two-slice $2.99 “hunks” from a countertop warming display near his cash register. Nearby, sits a display of fishing hooks, bobbers and jars of bait. Pizza customers included a UPS delivery driver, a woman on her way to lunch with her daughter and a guy in camouflage who confessed he was just coming from the liquor store.

In a typical Hunt Brothers arrangement, Bruce said he paid about $10,000 for his oven, freezer, display case and other equipment and now just pays the Nashville-based company for the pizza ingredients. Hunt Brothers doesn’t charge franchise fees or require a contract.

The privately owned company fine-tuned this approach starting in the early 1990s when four brothers who’d worked separately in the restaurant industry joined forces to sell pizzas to convenience stores. Hunt Brothers had 750 locations by 1994, said Keith Solsvig, its vice president for marketing.

“Convenience stores in rural areas were the hub,” Solsvig said in a phone interview. “A lot of people coming and going. And a lot of these smaller towns, they didn’t really have a lot of other restaurants or other places to eat.”

Hunt Brothers now has 7,300 locations in 28 states, with some sites the only dining options for miles. Alabama, Georgia, Tennessee and Texas each have more than 700 locations, Solsvig said. Not all locations are isolated, with Hunt Brothers also found at busy highway interchanges. And it’s moved into some urban areas, such as Memphis.

The convenience store model is different from a free-standing restaurant, and a Hunt Brothers outlet is likely to bring in far less than the more than $700,000 an average Domino’s makes a year, said Darren Tristano, a restaurant industry analyst with Technomic.

Tristano noted that 7-Eleven offers pizza in some of its 7,800 U.S. locations and that Little Caesars has also had success in rural areas.

While Hunt Brothers declined to discuss company finances, Bruce says he sells about 500 pizzas a month, much of it by the hunk. Combined with drinks and other convenience items, he estimates pizza customers spend more than $10,000 each month in his store.

Tristano says the simplicity of the setup has helped the company grow. Bruce agreed.

“In a convenience store, you’re doing the register, you’re doing gas. You’re doing so many different things,” Bruce said. “It’s hard to be able to do pizza from the ground up, making the dough and the whole thing.”

Fred England, a food vendor at a furniture factory about 30 miles east of Andersonville, added a Hunt Brothers to his lunch counter about a year ago to keep his customers from looking elsewhere for their pizza fix.

“The problem I had was all these other places were delivering pizza, so I had to come up with something,” he said while stopping at Rightway to chat with Bruce.

Angela Moles came in to get three hunks of pepperoni pizza and drinks to take to lunch with her daughter. The 35-year-old Andersonville resident said she buys Hunt Brothers about twice a week.

“I love it,” she said. “I usually don’t get other pizza.”


Piling It On

March 30, 2015

OhCal Foods rides acquisition to No. 1 in Subway franchising.

Fine, Howard 1500030901a_r100x80
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2015 Los Angeles Business Journal. All rights reserved.

Once the earl of sandwich in Southern California, Hardeep Grewal is now the reigning king of Subway restaurant franchising nationwide.

Grewal’s OhCal Foods, which oversees Subway franchises in Los Angeles and Orange counties, has just acquired franchise development rights for all of Virginia; Washington, D.C.; and most of Maryland in a deal that makes him Subway’s biggest franchise developer. By far.

OhCal bought the territory from Feldman Group of McLean, Va., in a sale that closed late last month and nearly doubled the size of the company’s hoagie holdings overnight. The Woodland Hills company now oversees about 2,170 Subway locations, or 8 percent of all Subways in the United States.

Put another way, Grewal’s territory now includes one out of every 12 Subways nationwide. That’s more than double the next biggest franchise developer.

For years, OhCal had been battling Feldman for the distinction of being the largest franchise developer for Subway, which is the world’s largest franchise operation and is owned by Doctor’s Associates Inc. of Milford, Conn. But with Feldman’s 1,000 stores now part of OhCal’s kingdom, Grewal has taken the crown.

“This deal put us over the top,” Grewal said.

But the deal is about much more than bragging rights. OhCal’s revenue also figures to grow substantially. As a franchise development agent, OhCal matches franchise operators with sites and helps existing franchisees with marketing, quality control and lease negotiations. OhCal gets a cut of both franchisee ownership transactions and royalty payments that the franchisees make to brand parent Subway.

Grewal said the nearly 2,200 franchisees now under OhCal’s supervision bring in about $1.3 billion in annual sales. Franchisees pay 8 percent of their sales in royalties to Subway, which comes to $104 million a year from OhCal’s restaurants.

Most of those royalty payments go to Subway corporate, but OhCal gets a slice. Grewal would not say exactly how much his company receives, but said it can be up to one-third of total royalty payments.

That would translate to as much as $35 million a year for OhCal in royalty revenue alone, not to mention money it makes from franchise ownership transactions in its territory.

Unexpected path

Grewal, 59, became a Subway magnate almost by accident. Born in Punjab, India, he attended school in Montreal and moved to Los Angeles with his wife. Patwant, in 1986, when he got a job as controller at a subsidiary of Mitsubishi Corp.

He entered the world of Subway franchising not for himself, but for Patwant. who was looking for something to do.

In 1989, he bought her a Subway franchise. The money was good enough that Grewal eventually left his desk job. He opened some stores and took over other underperforming ones until he amassed a total of 24.

But Grewal saw that the more lucrative end of the sandwich business was in becoming one of Subway’s 200 or so franchise development agents. Development agents have a guaranteed revenue stream without many of the overhead costs that franchisees face.

In 2006, Grewal sold most of his Subway locations and purchased OhCal, which at the time oversaw 446 Subway franchise stores in Los Angeles County. He later purchased the development rights for Orange County and part of the province of Ontario, Canada. Today, OhCal oversees 663 Subway stores in Los Angeles County, 246 in Orange County and 260 in Ontario.

OhCal’s purchase of the franchise development rights from Feldman gives it oversight of an additional 760 Subway stores in Virginia, 82 in Washington and 111 in Maryland. The Maryland territory does not include the Baltimore metro area. Add in about 50 stores in that region that only open for the summer tourist season, and the total is just over 1,000.

Grewal said it was the prospect of getting the franchise development rights to the market around the suburbs of Washington that made this deal so attractive. The region has seen explosive growth in recent years, driven by the spread of federal government jobs and an expanding roster of defense and national security contractors.

“There have been so many new buildings going in at universities, hospitals and government-related facilities,” he said. “That means a lot of new locations coming up.”

From Subway corporate’s perspective, putting this lucrative East Coast market in the hands of a development agent with a proven track record was crucial. Subway has to approve any sales of development territory.

“There are many areas of the business that a development agent for the Subway brand must handle, and Hardeep and the OhCal team excel all around,” said Don Fertman, chief development officer with Subway’s corporate office. “Now with the move into another one of our showcase territories–the D.C., Virginia and Maryland area–we are looking forward to what they will accomplish there in making an already great market even better.”

In the family

Grewal has sent his son, Jesse, to manage the newly acquired territories. A nephew already runs the Canadian operations.

He said he intends to add about 30 stores a year, with many of those coming in the Washington area. As a development agent, OhCal scouts out potential sites for stores, then prepares to offer the sites to the nearest franchisee.

But it’s not only about adding stores. Grewal said his other goal is to improve same-store sales at existing franchises, a job made harder in the last couple of years as the sandwich chain’s highly successful “$5 Footlong” promotion has wound down.

“No question that sales growth has been slowing, both because of the overall economy and because that campaign has ended,” he said.

To counteract this, Grewal said he wants OhCal’s marketing efforts on behalf of its Subway franchisees to focus more on the tastes of millennials, who are now in their 20s.

But OhCal’s job won’t be easy. Because Subway has gotten so big–there are now 27,000 Subways nationwide–the rate of new franchise formation in the United States has naturally slowed, said Darren Tristano, executive vice president of Technomic Inc., a Chicago food industry research firm.

Not only that, but Tristano said Subway’s size makes it increasingly difficult to find high-quality locations for new franchise stores, making Grewal’s strategy of focusing on boosting same-store sales all the more important.

“That’s where a development agent like OhCal can be particularly useful, since they can bring to bear the marketing and branding resources that franchisee owners may not have,” Tristano said.

Another pitfall is that OhCal’s business model itself might not survive over the long term. Subway was a pioneer in using franchise development agents, a practice used by other franchised businesses through the years. But that model has lost favor in the franchise industry in general, with Subway one of the last remaining holdouts.

“The trend in franchising has been toward centralized control, both to maintain quality and to cut out the extra cost of development agents,” said Kevin Burke, managing director at Trinity Capital, a West L.A. investment bank that specializes in restaurant deals.

To his point, there have been occasional reports of Subway cutting back on the numbers of development agents in the United States and on the lengths of their contracts.

But Grewal isn’t very concerned. Not only is he now Subway’s largest franchise developer, he also has many years left on his contracts with the chain–about 13 years for his Southern California territory and about 27 years on the newly acquired areas.

“That’s plenty of time,” he said. “Enough so that my son can take over for me.”