Sandwich chain Togo’s bills itself as a West Coast Original with the style of an East Coast deli, where each customer has a one-on-one interaction with the sandwich maker, said CEO Tony Gioia, himself a New York native who long ago relocated to the Golden State.
The story goes that a hungry college student on a budget opened the first Togo’s shop in 1971 in San Jose, Calif., selling the kind of big, meaty sandwiches he and his friends wanted at prices they could afford. Togo’s grew organically in California in the following years, and Dunkin’ Donuts parent Dunkin’ Brands acquired it in the late 1990s. In 2007, Gioia, the former president of Dunkin-owned Baskin Robbins, teamed with private equity firm Mainsail Partners to buy Togo’s, which now has 245 restaurants, all but 15 of them in California.
Today, Togo’s is in growth mode, with a plan to expand with multi-unit operators in seven Western states where it’s likely transplanted Californians will be familiar with the brand, Gioia said. “When we open up a new restaurant, we have a very strong resonance with customers who come from California. That builds on itself in terms of sales, brand awareness and guest appreciation,” he said.
Franchise sales are ramping up with a new program offering discounted royalties for operators who sign on for three more more stores, and the chain currently has 50 signed deals in the queue, including 10-unit agreements for the Portland, Ore., and West Los Angeles markets, he said.
I spoke with Gioia this week to learn more about the company’s growth plans.
On franchises vs. company stores
We have six corporate stores in the Northern California market area, near our company operations, so we can test a lot of new programs and new products. We’ll continue to build or buy new restaurants in the San Jose area because we think it’s a very important part of a franchise model. When the franchisor has company stores as well, they have skin in the game. That gives us credibility on programs and a base we can use for a lot of R&D work, which we do. And also we can make more money.
On changes since the 2007 acquisition
When I bought the company in December ‘07, it was kind of a small company for Dunkin’ Brands and it didn’t get a lot of support. We did a lot of things including creating a new concept with a more contemporary design that showcases our fresh ingredients. We’re one of the few that has a deli style service concept, where the sandwich maker customizes it just for you in a one-on-one deli style format. Plus, we’re known for big, fresh, meaty sandwiches, and because of that a the new design, we began to expand in 2010. We now have 50 agreements in the queue that are between three and 10 units, with most between three and five. We have also added soups, salads and wraps over the years, that gives us another point of differentiation.
Our expansion area is west of the Rockies. We have a very focused strategy, and good franchisee profiles — our franchisees are people who know Togo’s from years past or have seen it recently and fallen in love with the concept. They all have good business experience, some have restaurant experience, either in mom-and-pop restaurants or other chains, and they either want to expand or they have exited the old business and want to get into Togo’s.
We’re a very hands-on franchisor, we want to help franchisees become successful, so anybody who works in our company must have a passion to help franchisees succeed.
On challenges
There are some headwinds right now. First, one big headwind is real estate and financing, and that’s a big part of how we help franchisees. We have an arrangement with Franchise America Finance to provide financing for new franchisees and existing franchisees who want to remodel. Then, we work with franchisees to find the right real estate and then to negotiate a good lease that works for them.
On the Affordable Care Act
On the Obamacare situation, it does cause some of our operators to have to figure out what they want to do (in terms of growing.) Those that have five or more units have already crossed the threshold and they’ll deal with it when the time comes that they have to. Those that have one or two or three, that’s where we see some waiting to see.
On cutting royalties for new franchisees
What we have done for new markets outside of California is ratcheted down our royalty fee, which right now is 5%, for anyone with a three-store deal or above. They’ll pay 3% the first year and 4% the second year, and we want them to take the money they save and put it into local store marketing to build brand awareness. It’s a win-win for the operators and for Togo’s.