Franchisers aim for foothold in Las Vegas marketplace

Brian Savinda tosses pizza dough in the air as he reflects on the past year and a half. As he turns to sprinkle pineapple and grated cheese on a fresh pie, the franchisee says he doesn't like to express regrets for opening a Fox's Pizza Den store in Henderson.

However, he said, the venture hasn't lived up to expectations.

"I thought it would do a lot better," Savinda says, glancing around his Sunset Road and Arroyo Grande Boulevard location. "I thought it would take off sooner. I didn't realize that this was such a developed area."

The Pennsylvania transplant already had successful Fox's Pizza stores under his belt in the Pittsburgh area when he invested $150,000 to open the Henderson store. An already-successful Fox franchisee chose the location.

The presence of the chain with the wily critter logo hasn't translated in the restaurant-saturated area near the Sunset at Galleria mall, despite Fox's expansion to eight local stores.

Even in Las Vegas, where thousands of new people move every month, a franchisee can still find the market a tough sell. Therefore, some chains are taking a wait-and-see approach. Representatives from both the Charlotte, N.C.-based chicken restaurant Bojangles and Columbus, Ohio's White Castle hamburger chain say the timing isn't right for a move to Southern Nevada. Iowa's Happy Joe's Pizza and Ice Cream Parlor has also put its Las Vegas expansion plans in deep freeze.

The grand opening of Dunkin' Donuts told a different tale. On a still-warm October morning, a man in a doughnut costume, local high school cheerleaders and politicians added to the spectacle of cars wrapped around the drive-through and an hourlong wait for a breakfast treat.

The first store, near Las Vegas Boulevard, was followed by another in Henderson. The latter was opened by a different franchisee.

Doughnut lovers soon won't have to ask directions to the nearest Dunkin' Donuts, however. More than 60 stores are planned for the valley, including another 14 over the next 12 months. Forty-one stores will be operated by a partnership led by Chief Executive Officer Don DeMichele. The upstate New York resident said he saw a great opportunity in Las Vegas.

"There are a lot of people from the East Coast here," he said, referring to the brand's popularity in that region. Dunkin' is also a mainstay in the Midwest. DeMichele's group paid around $1.6 million for franchise rights to parts of the valley.

The CEO said he's ecstatic about the results so far. Dunkin' Donuts recorded record-breaking first-day sales in Las Vegas.

"It was beyond my expectations. We all predicted good growth, but never exceptional growth," he said. "Most of our investors are happy."

Thousands of other franchise operators have put out the welcome mat for Nevada diners, with varying degrees of success.

Tampa, Fla.-based Checkers' Drive-In Restaurants is about to enter the valley's fast-food fray, and chains such as the East Coast's Figaro's Pizza and Southern California's Juice It Up have set up shop, although their owners are hedging their bets on widescale expansions into the market.

More franchisees will likely be opening if National Restaurant Association projections hold true. Nevada is expected to lead the nation in restaurant sales growth in 2008 at 6.5 percent. Arizona was second, with an expected 6.4 percent. The number of "food service and drinking establishments" in Nevada grew by 9.7 percent and 429 stores in 2006 compared with the year before, state statistics show. In all, 4,862 such establishments operated in the state in 2006. By contrast, 3,666 eating and drinking businesses operated in the Silver State five years ago.

Totaling local franchises is hard because the National Restaurant Association doesn't break franchisees into a separate category, said Paul Hartgen, the association's chief in Nevada. Nevertheless, Nevada is also one of the fastest-growing states for franchising, said Terry Hill, the vice president of the International Franchise Association.

"Considered relative to the size of the state's economy, franchising had the greatest impact on jobs in Nevada, accounting for 20 percent of its private-sector work force," he said.

The association, a Washington, D.C.-based-lobbying group for franchise corporations and franchisees, counted 6,192 franchisees here in 2004, the most recent data collected by the association.

Retired Michigan auto workers Billy and Bonita Riley brought the Figaro's name to Las Vegas in September, using mostly savings to open their franchise on Eastern Avenue. Billy Riley said he shopped around for the best deal. He looked at big names such as Little Caesars and Dominos Pizza. In both cases, the price to purchase the franchise rights were prohibitive.

Figaro's offered the best deal on startup costs and royalties, at 5 percent annually. Hopes for a second Figaro's have been put on hold as Billy Riley sees how the first store performs.

"If sales go up, but we have to have great sales," he said. "I wish we were busy, but with franchisees, this happens."

Franchisees, like other small business ventures, typically need a minimum of three years to become profitable, said John Scott, the U.S. Small Business Administration's Nevada District Director. Franchisees tend to have a good track record in Nevada, he added.

"Franchisees are generally more successful and profitable than start-up businesses without the general recognition," Scott said.

Scott advised potential franchisees to think carefully before going for the cheapest franchise rights and risking the loss of potentially valuable name recognition. Newer franchises, such as Fox, are often mistaken for independent operations by Las Vegas customers, but franchisees like Savinda say there's an upside to it, too.

"I like having some control. It is like a mom and pop" operation, he said.

Southern California transplant Jason Kang wished he had more brand recognition. He invested about $350,000 to open Las Vegas' first Juice It Up smoothie store a few months ago. But cold weather and lack of notoriety are chilling his business.

Kang signed leases for his first two locations about 20 months ago. He picked his locations on a business trip two years ago, but so much has changed in the city since then.

"I didn't see many smoothie stores out here then, but now there are a lot," the franchisee said.

With Southern Nevada's growth and influx of residents, observers may wonder why some franchisees struggle. Hill surmised that some concepts are franchised before they are ready. Since 2003, there have been 1,200 new franchise concepts nationwide, he noted.

At the same time, Hill said high gasoline prices and foreclosure rates have pinched the consumers' dining-out budgets.

"There is some slowdown, and what we see is if there is a slowdown, they just downscale," he said.

Other stores are passing on the Las Vegas Valley for the moment. Happy Joe's, a Bettendorf, Iowa-based chain of 65-plus stores, announced plans in the summer of 2006 to come to Southern Nevada. Franchisees were lining up. Almost two years later, Happy Joe's has yet to expand into Las Vegas. The company official promoting the idea was a Las Vegas native. He has since retired, making the move seem even more doubtful.

Larry Witty, Happy Joe's president, said the decision to avoid Las Vegas was based on a lack of qualified franchisees and a poor economy.

"We had several inquiries in the area, but they probably just lost interest," he said. "Restaurant development in the rest of the country has come to a screeching halt."

Meanwhile, White Castle has no plans for Las Vegas.

"White Castle tends to operate within the existing Midwest and Northeast regions where all our support facilities (meat plants, bakeries, etc.) are located," Restaurant Operations Director Elizabeth Ingram said in an e-mail. "Based on our current expansion plans, it will be a few years before we open another new market area."

Las Vegas will also have to wait for at least five years for a Bojangles Famous Chicken 'n Biscuits. Although the market is attractive, support facilities are just too far from Nevada, Franchise Development Director Chris Bailey said. The chicken franchise would rather expand contiguously across bordering states, he added.

Meanwhile, restaurant owners may be missing out on a potentially lucrative market, said Carol Kaufman-Scarborough, a marketing professor at Rutgers University's School of Business.

"Las Vegas draws people from all over the country," she said. "This a wonderful place to test your product and it would be a wonderful benefit."

This story first appeared in the Business Press. Contact Valerie Miller at vmiller@lvbusinesspress.com or (702) 387-5286.