Saladworks: Franchise Spotlight

Investors casting about for new franchise ideas may be interested to know there’s a game in town that is raising eyebrows and competition: salad shops. Saladworks, founded in …

Investors casting about for new franchise ideas may be interested to know there’s a game in town that is raising eyebrows and competition: salad shops. Saladworks, founded in 1986 by John Scardapane, has made tremendous inroads in the restaurant franchise industry with some 100 locations in a dozen states and more in the works. Scardapane says his business is growing thanks to more interest in healthy eating combined with a fair price point for an alternative to the standard burgers, fries and tacos. The business is now concentrated on the East Coast, but Scardapane has plans for nationwide investment using a three-franchise model that places the focus on prime location above all else. For more on this continue reading the following article from TheStreet.

Saladworks chairman and founder John Scardapane gets the same thing every time he orders from the quick-service franchise: a turkey club salad with blue cheese dressing and Russian dressing.

“Occasionally I get a sandwich, but most of the time I get a turkey club salad,” the former chef says.

While he may not get the healthiest item on the menu — by far — he sure knows the value of the people who do.

Calling itself the original fresh tossed-salad concept, Saladworks has been serving up made-to-order salads since 1986. The company, based in Conshohocken, Pa., has about 100 franchised locations in a dozen states, mainly on the East Coast, another 25 locations expected to open by the end of this year and several dozen in development for 2013, Scardapane says.

While its signature offering is freshly made salads and dressings, Saladworks also offers soup, sandwiches and paninis. Saladworks has consistently been listed as one of QSR‘s 10 Best Franchise Deals. Last year Scardapane was even named CEO of the Year by SmartCEO.

“Twenty-six years ago when I founded the company nobody believed that a salad concept could work. It was my belief that the salad [concept] didn’t work because it didn’t exist and consumers were not offered that option,” Scardapane said last week. “We’re giving the consumer an option, and they are more aware of what they’re putting in their bodies today than any time in the past.”

“Our goal is to serve something that tastes great but is also great for your body nutritionally, so you feel good,” he says.

The company is catering to the healthy lifestyle as customers become more concerned with that they’re eating and as restaurants and fast-food chains are becoming required to list calorie intake for their menu items.

The combination of an established market presence, a growth plan only recently being kick-started and increasing demand for his product leaves Saladworks in a good position. It’s seeing more young customers, a growth attributed to the education young people are increasingly being given about healthy eating, but older customers as well, Scardapane says.

“Our chain used to be 65% lunch and 35% dinner. Now it’s 55% lunch and 45% dinner. It’s actually being driven by the elderly consumer. [The 55-and-older consumer] is coming to our restaurant for dinner. I think it’s just because the price point that we are at and the nutritional value” makes for a good combination, he says.

Last year was record-breaking, Saladworks says. Same-store sales rose 15% in the fourth quarter, while overall sales last year rose 7% compared with a year earlier, the company said in January.

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The competition
At least in New York City, these days almost every other deli has a toss-your-own salad counter, and a handful of companies such as Tossed and Just Salad that have multiple stores based on the concept of salad.

“We have a huge following and people seem to connect with the brand and what we are trying to do. The business model is working, which is allowing us to expand organically,” says Nick Kenner, Just Salad’s founder and managing partner.

While Saladworks’ systemwide sales were $81 million last year, according to Technomic, the next largest made-to-order salad provider is Nature’s Table Cafe at $35 million in 2011 sales.

Regarding his franchised competitors, Scardapane acknowledges a few credible names, “but I think they’re still in their infancy, where they haven’t gone through any growth pains yet,” he says.

Once his company started franchising, it took years to build the most efficient infrastructure, he says. For one, Saladworks sells franchises starting at a three-store minimum. “We don’t want to go to a market and do one store. We try to piggyback and get more three-store deals.”

“The biggest challenge for us is to find the right real estate,” he says. “We’re not going to approve a site we wouldn’t put our house on the line for. If you go with that attitude and really look, there are very few franchises. It’s all about the location.”

Early research surprised the co-founders by showing high-end sandwich shops such as Panera Bread(PNRA), Cosi(COSI) — and fast-food chains including McDonald’s(MCD) — wasn’t their direct competitors. Instead, it was high-end food markets such as Wegman’s and Whole Foods(WFMI).

“It was a surprise to us,” Scardapane says. “We didn’t consider them a direct competitor, but apparently they are.”

Saladworks is looking to develop eventually from coast to coast. The company awarded agreements for 73 locations to new and existing franchisees last year, allowing the company to expand to Washington State, Louisiana, South Carolina, Texas, Florida, California, Arizona and Washington, D.C.

Saladworks is also expanding internationally. It awarded its first 15-store development contract to a franchisee out of Singapore.

“We’re ready to take this model and use it everywhere,” Scardapane said in the January release.

The head coach
It is Scardapane’s recent partnership with Vernon Hill, the founder and former CEO of Commerce Bank (bought by TD Bank(TD) in 2008), that is helping the fast-growing company get over its growing pains. Hill owns a minority stake in the company. His title at Saladworks is “chairman of the executive committee.”

A little background on Hill: After an investigation of supposed insider-related party transactions, federal regulators forced him to resign in 2007 from Commerce after nearly 25 years at the helm. The probe included Commerce’s use of Hill’s wife architectural firm to design Commerce branches.

Regulatory issues or not, Commerce was often lauded as one of the most successful U.S. banks in terms of branch building and deposit-taking. Under his leadership, the company expanded to roughly 500 branches. Hill was adamant the locations be called “stores,” not branches, to reflect a retail atmosphere geared toward strong customer service, extended hours — Commerce is one of the first banks to open on the weekends, even before large bank competitors — and limited fees.

Hill is also an entrepreneur in his own right.

His troubles with U.S. bank regulators did not stop him from taking his retail-focused bank system abroad. In 2010, he co-founded Metro Bank, the first British High Street retail bank started in more than 100 years. Essentially replicating the Commerce way, the goal is to have 200 locations by 2020. The bank has nine locations in the U.K. and another 11 opening this year.

Among other partnerships and positions, he and a partner own about 40 Burger King(BKC) franchises. Hill is also chairman of Petplan Insurance(apparently in a mission to bring pet insurance to the masses).

It was through Saladworks’ banking relationship with Commerce that Scardapane and Hill began talking, and three years ago Hill was brought on essentially as an external mentor, Scardapane says.

“Without a doubt he’s probably the smartest businessman that I have ever met,” Scardapane says of Hill. “Anytime I run into a challenge I can pick up the phone and call him.”

Scardapane’s entrepreneurism and passion for his company was commendable, Hill says. “I like to invest in things where companies can create fans, [it has] something unique about them where the customers are in love with the service or the product, and Saladworks fits into that,” Hill says. “I like to invest where I can not only put money, but bring my added talent and add value. I’m pretty good at building these stores. At Commerce I learned how to build a relatively small company into a relatively large company.”

It should be no surprise then that the company is emulating the growth strategy and culture of what was Commerce Bank.

“Even before I met Vernon Hill we were already sort of a copying his company. Our culture is similar … meaning you make customer experience as easy and efficient and as fluid as possible,” Scardapane says. “It’s all about the customer. You never say ‘no’ to a customer.”

Hill says Saladworks has “tremendous’ opportunity. He sees his role there as taking the company from “good to great,” such as improving branding and optimizing store layout. (In another similarity to Commerce, Hill notes that it is his wife’s architectural firm working with the company.)

Indeed there are similarities between the two companies. For instance, the tag line at Saladworks is “America’s Best Salad,” not far from Commerce’s “America’s Most Convenient Bank,” which TD Bank has continued with.

“It’s meant to be that way,” Hill says. “We’re very excited about where Saladworks can go.”

This article was republished with permission from TheStreet.


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