Franchise QB

Episode 103: Why The Red Chickz is the Next Billion-Dollar Chicken Brand | Spencer Sabatasso, VP of Development

• Mike Halpern • Season 1 • Episode 103

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In this episode of the Franchise QB Podcast, host Mike speaks with Spencer Sabatasso, VP of Franchise Development at Red Chickz. They discuss Spencer's extensive background in the restaurant industry, his transition into franchise development, and the unique aspects of the Red Chickz brand. Spencer emphasizes the brand's commitment to quality, simplicity, and strong franchisee relationships, positioning it as a promising opportunity for potential investors. Spencer also details the brand's rapid expansion and commitment to a simplified, high-quality operational model within the booming Nashville hot chicken segment. Drawing from 30 years of hospitality experience, Sabatasso emphasizes the importance of vetting "right-fit" multi-unit franchisees, maintaining rigorous site selection standards, and providing comprehensive corporate support to ensure long-term scalability and profitability.

Takeaways

Franchising empowers entrepreneurs to succeed in business.
Spencer Sabatasso has over 30 years in the restaurant industry.
The Red Chickz brand focuses on simplicity and scalability.
Franchisee support is crucial for long-term success.
Market trends show a growing demand for quality fast casual dining.
The Red Chickz aims to stand out with superior food and atmosphere.
Franchisees are carefully vetted to ensure brand integrity.
Training and ongoing support are key components of the franchise model.
The brand is positioned for significant growth in major markets.
Investing in a franchise requires understanding total startup costs. 

Chapters

00:00 Introduction to Franchising and Guest Background
03:09 Transitioning from Restaurant Operations to Franchise Development
06:06 The Red Chickz: Brand Overview and Unique Selling Points
08:59 Market Trends and Competitive Landscape in Fast Casual Dining
11:57 Franchisee Support and Training: Setting Up for Success
14:47 Growth Strategy and Future of The Red Chickz Franchise
18:13 Investment and Financial Insights for Prospective Franchisees

The Red Chickz Website: https://theredchickzfranchise.com/

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Contact me and my team with any questions along the way. www.calendly.com/franchiseguy
Mike Halpern, CAFC
mike@franchiseqb.com

Mike Halpern:

Joining us in the huddle today is Spencer Sabatasso, VP of franchise development with the Red Chickz. Welcome to the show, Spencer. Thanks Mike, nice to meet you. Yeah, nice to meet you as well. Thanks for joining me. So you've been in the restaurant and hospitality industry for 30 plus years. You hold a BA in culinary arts and a BS in hospitality management from the Culinary Institute of America, very prestigious institution, as well as certifications in insurance, real estate and sales. You specialize in identifying and growing concepts, turning them into brands and growing them across the country and overseas. Your mission is to help businesses grow and expand their footprint and brand awareness while delivering exceptional customer service and delicious products. So tell us a little bit about your background Spencer and how did you get into franchise sales and development? Well, I'd been in the restaurant business for years and years, owned and operated a number of restaurants. And then in 2002 or three, got out of a partnership with the group out here in Southern California and just kind of was, you know, bouncing around, figuring out what my next move was going to be. And I decided that at one moment I said, you know what, I'm done with the day-to-day operations of running a restaurant. I just didn't want to do that anymore. Um, and so I was like, well, what the heck am I going to do now? have all my educations and the restaurant industry. mean, ever since I was a little kid, what am going to do? So I literally did, you know, financial services, drug and alcohol treatment, got my real estate license, you know, insurance license. I've got all this stuff. and I was like, you know, balancing around, was like, I don't like any of it. really love the restaurant industry, but how can I figure out how to be in that space without having 700 employees and restaurants? So a friend of mine who owned Fransmart, Dan Rowe had been after me for years too. He's like, you should do franchise sales and development. And so finally I, you know, I reached out to him and I said, yeah, you know, what does that look like? And, we started a dialogue and I started working with those guys and I knew, and he knew that I was only going to be there temporarily. And I really just wanted to learn kind of the legal side of it and all the stuff they look at, um, for prospective franchisees. And then from that, kind of, you know, pivoted and I, you know, I worked for them for about a year and a half or so, um, and kind of learned what to do. things to not do. And then I was recruited by a brand to come in and be their VP of development. And I think in our first year of development, I think we put like 300 stores in development or something. And I just realized that they didn't have a lot of the boxes checked that should be checked before you start franchising. And they were supposed to do a lot of things and they didn't do it. And so inevitably I was like, this doesn't feel right. You know, I've been on both sides of being a franchise owner, franchisee. and I, and I pivoted out of that relationship. Um, and I was always on the look for brands. I really, really like I've got a lot of relationships and the restaurant industry. and I was actually introduced to the red chicks from the CEO of, of, you know, this big, huge cookie brand. and I kind of just went up to check it out just to see what it was. Right. he was thinking about doing something with them and I was looking at like the small footprint. The food was really good. It was a cute environment. And I was, I told him, said, yeah, you should do it. I, you know, I think it's great. I went off and I was doing what I was doing. and I heard about an opening in Carlsbad, California. I knew it was a franchisee store. And so, I happened to be down there. And so I pulled into the shopping center. And I was absolutely blown away. I had seen these small little company stores that they had. And I saw this behemoth that out positions the yard house and everybody else in the center. I like, what the, like, I couldn't believe how incredible it was. Went in there. Um, you know, store was super clean. The staff was friendly and it was a franchisee store. The food was better than what I remembered. It was probably because of the atmosphere. And I was like, Holy, this thing is amazing. So like, picked up the phone a couple of days later, called the CEO of Red Chickz and congratulated him. And we just started this relationship, know, and this relationship that we've had for about a year and a half now. And it's been incredible, you know? Yeah. for sharing that with me, Spencer. So yeah, you and I both had worked with Frans Smart. I met Dan a long time ago when I started my career in franchising. And you have a really good background because you come from the culinary side and the operation side and then getting that education in franchise development. Like you can see both perspectives, franchisor, franchisee, operator development. Like that's a unique skill set to have. you know, and I want to learn a lot about the red chicks and we're going to talk about that today. I just had a quick question about the footprint. So you were saying that the traditional red checks footprint was a little bit smaller, but the franchise owner went out and built this like really massive space. why do think that was? mean, was it just a real estate opportunity? Did they have really good connections? yeah, no, I'll tell you exactly what it was. So just coming out of COVID, there was a chicken brand that was going into this particular concept and they never opened up. COVID hit, they never opened up. And these guys walked into the center that literally gets 5.4 million visits every year. Super well balanced. It's the premier spa with a patio on the side. And it was a very, very inexpensive conversion. Would we do it again if it was from vanilla shell and all that? I don't know. I don't believe so. You're probably talking about a million dollar build out. But the fact that they were able to convert that store for, I don't know, Red or Red. $150,000 tells you all you need to know. it's an incredible center. Now it's overbuilt. It's a little too much for what our model fits into. We're probably more of the between 13 and 1600 square feet is kind of our sweet spot. But that store does extraordinarily well and the franchisee is happy. Yeah, no, that's awesome. Thanks for the context. And that's the benefit of being in a franchise is like when you find a really unique and good opportunity, you can pounce on it. Even if it's a little bit, you know, strays from the prototypical footprint, if the economics are right and it's positioned well and it's got great visibility and great ingress and egress and, and co-tenancy, it's like, let's try it out. So, um, let's, let's talk a little bit about the red chicks. Like you had a lot of things you can pursue. You chose the red chicks. You explained how you kind of saw it. blown away by it. Tell us a little bit about the brand for anyone that's not familiar with it and as well as the leadership team because I think that seems to be what pulled you in. Yeah. So the brand is great. The reason why I loved about it is, is extraordinarily scalable. They made it very, very, very simple. Um, and that speaks volume to prospective franchisees. And I like that from an operational standpoint, I've been with brands where we've had 150 skews, 150 things on the menu. And this brand has basically one thing and then little categories of what it is. And so when I looked at that simplicity, where you're basically focused off giving incredible service and marketing, I was like, this isn't, this is a great. brand that you could scale. This is a brand that the food's really good. The guys behind the brand are extraordinarily passionate. about what they're doing and literally their mindset is there to support the franchisees. That's it. And that's what I was looking for. I've been exposed to a lot of franchises. My mentor was John Goularty, who was the founder of Wiener Schnitzel and years and years and years ago, he told me, said Spencer, once you start franchising, your whole responsibility is no longer incorporated as now the franchisee, your whole fiduciary responsibility is to that franchisee. And when I met Sean and Nima and the team and Tony, I really got that. They are truly are about the franchisees. And that made me feel good. Remember, I came off a really bad relationship where I these people a lot of money. They didn't bring in any of the infrastructure they promised me they would bring in. I certainly wasn't going to do it. And so was like, I was never going to make that mistake again. So I took my time with these guys and I fully vetted them for probably four or five months and every box was checked. And the biggest thing with these guys, which I love the most was my final question before I started working with them. So I said, what are you going to do when the brand becomes too big for you? Cause it's going to become too big for you. What does that look like? And I didn't feed him the answer. just shut up and I just listened and every single answer they gave me was exactly what you'd want to hear. So that's why, you know, that's why I love this brand. Yeah, no, makes a lot of sense. mean, if you have a great brand, it's simple. You've got great leadership. All those things kind of can thrust you into a national chain, which I know is the intent. But, you know, there's a lot of Nashville hot chicken franchises out there. It's a red hot, fast casual QR segment. In your view, what makes the red chicks stand out in the crowd? Well, chicken space has been there forever, you know, so that's, and chicken is growing. It's now surpassing beef. And so we're in that segment. Nashville is just a sub little category at the end of the day. If your food's incredible, your service is amazing. It's in a cool, great atmosphere, fun and friend. You're good. You'll, you will survive anything. If you think about, you know, the millions of Hispanic concepts are out there, Mexican restaurants that are out there, there's always room for another one. So that's the fact that when people focus on that, I'm like, yeah, maybe you're not in the right space because that's really, we're not even, we haven't even started on that segment is what my view is. But what makes us stand out from the competition is the atmosphere is better. The stores are just to feel the stores, the music, the food is categorically better. um from a franchisee's perspective, they've made it really, really simple. So it's really scalable. If you go to any of our reviews in any of our stores, they're... 4.9, 4.8, 4.9, 5.0. That doesn't happen on accident. They're not all 5.0 operators. I could tell you that right now we're growing and evolving and things are amazing, but it speaks to the brand. speaks to how powerful the food is and the thought was behind it. These guys intentionally, when they first developed this brand, they'll tell you at the beginning, they wanted nothing to do with franchising, but I think the CEO was smart enough to know, I'm going to make this thing so scalable when my partners are ready to franchise, we can hit play and go. And that's really what they've done when they created this thing. So I think, I think the food, the atmosphere, the types of franchisees we bring into the system, which we're very, very strict on all of those things together, really kind of make us stand out from our competition. And we're very, you know, we're not in a rush either. mean, literally we're not in a rush. I could have probably signed, I don't know, 200 this year. said, we're not in any rush. We're very particular as to who we bring into the organization. We want to make sure we're right for them. But more importantly, I want to make sure they're right for us and for the existing franchisees. Because if you get a bad franchisee in your system, as you know, it destroys the whole enchilada. So we're really, really, really particular in who we bring in for sure. Yeah, that makes a lot of sense. think the better you vet the new owners on the front end, the healthier the system's going to be. It's going to have a real strong foundation for growth. And frankly, when the new franchisees come in the next phase and the next phase, they look at you and say, who have you selected? You know, how stringent have you been about making sure they're properly capitalized, have good business acumen, they're good cultural fit for the business. So I think for any emerging franchise or mid-market franchise or you just got to keep your eye on the ball, sounds like. like you guys are all over it, which is great. So tell us about the current footprint. Like how many stores do you have open and where are they located geographically? Well, we just opened up our sixth location. We're actually on a military base as well down in San Diego. So that one's in Woodland. We're in Fresno. And then we have three in Bakersfield that are under development. in Los Angeles. We're in San Diego. And then I have, I think we have 45 stores in development. And this is actually rather quickly. I just started working with these guys back in January. And so we're really starting to ramp up right now. Yeah, it sounds like you're in a really good spot and there's obviously some white space for new owners to come in and kind of lock in some good markets. So yeah. Yeah. So I mean, for someone that's kind of contemplating getting into the space, we all know that chicken's huge, but what is the market size for the fast casual restaurant sector and what are the trends that you're seeing in that space? Well, I think as you know, and it's transitioned over here about the last 10 years or so, people, people want a quality product. Everything is expensive. Now I don't care where you eat. It's expensive. So really what, you know, puts us in a unique position is that we know our product is best, you know, that we know that it's quality is flavorful. And so the trend is people are going to, staying in that segment. They're willing to pay a little bit more, but you better execute. Cause if you don't, especially now social media and everything else, you are going to get hammered. it's, it's continually moving down that road. I think, you know, Chipotle sort of started that whole trend and then it grew to all these other different brands. And now you have different versions of that brand, in Mediterranean space with COVID all this stuff though. that segment is incredibly, I think that has got a ton of white space. There's a long runway within. think you're going to continue to see better and better concepts out there. So really, I think the future of the restaurant industry is, you know, how are we going to make this easier on our customers? How are we going to make things more accessible to our customers without losing that quality? I think the brands have positioned themselves to take care of their customers, but have made it very convenient for them and don't lose that quality no matter what. think those brands will survive and actually thrive. Yeah, it makes sense. So if someone's deciding, Hey, this is, it sounds great. I want to participate in this, but I'm nervous. It's kind of a newer system. It's not a McDonald's, which, know, a lot of people we talk to Spencer, they're always like franchising is McDonald's Taco Bell KFC. The reality is the majority of brands out there are kind of emerging mid-market brands. kind of training and support can a new owner expect as it relates to site selection, construction, opening and beyond. So they can say, okay, if I partner with these guys you know they're going to hold my hand through this Yeah, and that's. That's one of the reasons why I ended up signing up with these guys is because it's truly from A to Z. Like before I signed on, I brought the concept of a master broker to do all the real estate. So we've given him the criteria. You know, they find the local broker that specializes in the real estate. He quarterbacks that whole process. We're involved in every single step of the way. Um, their training is amazing with these guys. Um, it's well supported. It's ongoing. The CEO has literally weekly calls with every franchisee to about their store, the barometers, and what things are going on. So it's truly, it was refreshing to learn that. And then as we grow and grow, they've already know the people they're bringing into the organization as we continue to scale. So you get support on every front from real estate to construction, obviously operations, marketing. I don't know if you've looked at any of our Social media, but I believe we have like 1.3 million followers on tik tok with like 39 million views on our instagram We literally beat brands with 40 000 locations. So we're very good at the marketing end of it Um, operations very good at, know, at that portion of it as well. But we're, but we're growing and we're learning. We don't know everything. We don't come into the mindset that we know everything. Every single opening is a learning experience. Every single franchisee is a learning experience. Um, you know, I can tell you. McDonald's has got a great system. work for McDonald's for a year before you even qualify for a store. think that's smart unless you purchase a deal. I think a lot of brands don't really go into the necessary training that really what someone needs. I mean, it's a lot of hands on training is what I think is important. But if you don't that our biggest thing where we're not going to set up franchise used to fail, we know that we have a concept that's It's really hard work. I mean, let's face it. The restaurant business is tough work, but they've made it very easy. But if you do not have experience at that... Operating a couple of high volume QS our restaurants are you know own and operated a couple high volume restaurants You know you have to bring on an operating partner or very very strong district manager Period there's not a choice That's one of our requirements because we know what it's like and the last thing you want to do is figure that you're gonna run this thing I know a lot of brands that will sell anything to anybody and Collect you know and then they fail we will not do that You have to meet the certain criteria and we do that for their benefit to really set them up for success. And so we know we have the Ferrari, you know, but we're going to teach you how to drive it, but you got to drive it. And you got to drive it with the right leadership and the right people in there. And so that's where I think we really stand out is that we're very, very diligent in that process of making sure we're picking the right markets, the right franchisees, and that they're really passionate about like what we're doing, but they're passionate in general. You know, I'm sure with your experience at France Mart, you've seen people that have come through and you know, you're talking to them and there's no way you're looking at this individual like they're going to be the leader of this. There's no way. I just don't see it. And so you pivot. Yeah. I think you just have to really, you know, scrutinize over the candidate more so in the food space because there's a lot of moving parts. There's a lot of vendors, employees, customers. You just need to make sure you have the right personality. Someone that has great leadership skills, knows how to delegate, knows how to get out of their own way. and has kind of a scaling mindset, not just within the four walls, but like, you know, within the market. So it sounds like you're doing a good job of trying to find those folks. So I know you touched on some of this before, but in your view, like where is the Red Chicks going as a brand and why do you feel it's the next big thing in franchise? Well, and I've say this all the time to everybody I come across. think it's the next billion dollar brand. And I think it's because the food is so good. The economics are so good. It's so scalable. so, but in that, you know, We're not looking to have a thousand franchisees by any stretch of the imagination. We wanna be able to sit into a conference room with our franchisees and really collaborate and not have to rent out a convention center in Vegas to sit there on a stage. We don't wanna do that. And so in part of that growth process is we're only looking for multi-unit people. We actually have a three store minimum and a three store maximum, meaning we won't allow you to do three stores until we've seen you get up and running and operate. And we know that you're going to be a good operator and then we'll sell you the rest of the market if you want it. But that's just, that's just what we're doing. We're looking at probably the 60 biggest media markets in the country. Um, we are open to suburbs. If you look at Sacramento and Woodland, Woodland's a little, you know, a little suburb on the outside of Sacramento and that store is crushing it 1300 square feet. And it is slam, just slam. Because we do our due diligence on our real estate. We bring in the right franchise partner. So we're very methodical in this approach. I look at income levels too. If you're not that $30,000 in per capita income, not average household, but that disposable income category, and you don't have at least 100,000 people within a five mile bubble, we've probably are not going to really look at that market in an area because we want to make sure that our franchisees are supported, that the customer base is there. We know that we can attract them in there. They have to go out there and attract them in there. So we're very, very not overly strict, but we're pretty disciplined when it comes down to where we grow and how we're going to grow and who we're going to bring into the system. Okay. Appreciate that. So you mentioned a little bit about like the economics. I want to get into the item seven. What's it going to cost to open one? I'm obviously in a restaurant. There's a huge variance. If it's second gen, if it's vanilla shell, gray box, et cetera, but something that's under 2000 feet, like what's our range and where do you see these things landing in terms of the whole kind of a startup cost, including working capital. Well, in item seven, says anywhere like all item sevens do, as you know, I give this a broad spectrum. It's $202, $5 million. No, it's, it's between like, you know, I think it's $420,000 and $880,000. I could tell you, we tell everybody it's, it's a half a million dollars. We've converted them for a buck 25. But we've say it's a half a million because we're factoring in operating capital, marketing dollars, all of those things. don't think enough brands do that. They're just looking at what's it going to cost me to open this up? You're like, well, here's just the construction portion of it. But here's the other big chunk of it. So that you're set up for success is you need marketing dollars, training dollars, need inventory dollars, all of those things. And if you can't float that for a minimum of six months. You're set up for failure. That's just the way it is. And then in terms of item 19, what can you tell us about performance? Well, I can tell you things like, you know, all of the stores are up like 35 % in this item 19. think they put our original, their original franchise store in there. They don't have any company stores in this one. And I think it was that like, you know, one, four, six, something like that. Um, but again, I can tell you that, um, mean, that's a huge AUV out of 1,500, 1,800 feet. though that's that's it's crushing that now but that's what it was in when it yeah that's like that would be a low performing store but yeah no it's a good work where a V's are fantastic but i can only talk about that 146 as you know Yeah, I got you. So then do candidates talk to owners to kind of fill in the blanks in terms of the full PNL? Yeah, that's part of our process is that after so we do, you know, basically same sort of eight or 10 step process after they've done an initial zoom with the CEO and he feels like at least preliminary, it's going to be the right fit. He connects them with everybody, all the franchisees. They're usually really cool. All financials, you know, we have them talk to the franchisees and if they give them their financials, great. We can't control that, but that's what we do. Of course. Yeah, it's like, you know, it's a concept that I know has legs. Like I have two teenagers, one's in college, one's in high school, and they're always trying to track down concepts just like this. We don't have the red chicks in our area yet, but I'm looking forward to seeing one show up here in the DC market. So Spencer, it's been great. Anything else you want to add to the mix about the brand before we wrap up today? No, we're just we're super excited. I mean, it's a it's a great time to be involved in this brand. There's no doubt about it. I mean, we are just getting started. You know, we just started in January really ramping up our franchising efforts. And there's a ton of room for growth in some amazing markets we have. three franchisees in New Jersey, a couple in North Carolina, we're in Connecticut, Oklahoma, Texas, all up and down California. And then we have a bunch more right now that are various different levels of our development or there's, you of that process. So, I mean, now's the time to get involved with this brand for sure. Yeah, it sounds like you guys are definitely on your way. If anyone listening would like to connect with Spencer and his team to learn more about becoming a franchise owner with the red chicks, contact me at franchise qb.com or on x at QB franchise QB. I'll get you connected. Thank you, Spencer so much. Absolutely, thank you.