TAKE ME TO CHURCH

Aug 07, 2022

Church's Chicken is taking Canada by storm

BY AMY BOSTOCK

 

Church's Texas Chicken is the international sister brand of Church's Chicken and is named to convey the global brand's Texas origins. The two brand entities are part of the same corporate structure., with a single executive leadership team and a united approach to initiatives such as menu development., franchise expansion and other corporate-level business decisions.

In 1952, George Church opened his first takeout restaurant across from the Alama, in San Antonio, Texas. Since then, Church's Chicken has expanded domestically throughout the U.S. before coming to Canada, opening its first unit in Vancouver in 1979.

"The brand has been in Canada for a really long time" says Russ Sumrall senior vice-pres­ident, International Strategic Development at Church's Chicken. "We operate 15 restaurants in Vancouver and those restaurants are wildly successful. We consider them the foundation for what eventually became the growth that we are starting to realize now in other parts of Canada"

Today, the fried-chicken chain - known for its hand-battered fried chicken and honey­butter biscuits - more than 1,500 restaurants across 26 countries, with Church's Chicken operations in the U.S., Canada, Puerto Rico, Mexico and the Caribbean. In Asia, Europe and the Middle East, the company operates as Texas Chicken, thanks to copyright restrictions on the word "church”

"In Canada, specifically, we're operating 47 restaurants and have 61 sites [planned] for 2022, which would more than double the size of the brand this year in Canada" says Sumrall, adding the majority of those units will be in the Greater Toronto Area (GTA).

"We began our effort to grow in the GTA back around 2018,” he explains, ” and have brought many new franchisees on board since then. Those new franchisees are the ones that are predominantly developing in Canada in the GTA.”

Now Church’s has expanded its Ontario development area, reaching southwest to Windsor and east to Kingston.

"We're trying to have a measured and controlled expansion of the brand, so we’re staying on top of supply chain and building brand awareness," says Sumrall, adding the brand has been so successful in attracting franchisees; he's now having to say 'no' to people who are asking to open more restaurants in Toronto.

“In Ontario, when a franchisee is awarded development rights with us, they're going to build at least five restaurants in three years, so I got to make sure I'm not overselling the market. We've also got to a point where we're being very selective; we're looking for multi­unit operators of existing brands that would complement, and not be a direct competitor, to Church's. So, if you were say a Tim Hortod's, Wendy's, or A&W franchisee interested in becoming a Church's franchisee, we would love that situation because those franchisees already know their market, the real estate and the supply situation. And we could then add in Church's beneficial synergies to leverage their existing restaurant business infrastructure."

Apart from a few corporately owned restaurants in the U.S., Church's has built its brand through franchising. "We're focused on being the franchisor of choice."

And that focus is now firmly set on expansion into Manitoba and the Maritimes. While Sumrall says the brand already has developers secured for Alberta, Saskatchewan and for most of Ontario, "the new ground rm seeking to expand to in Canada is in Manitoba, Nova Scotia, Prince Edward Island and New Brunswick.

In the case of Manitoba, he says Church's is seeking franchisees that will commit to build­ing 10 restaurants in five years. "When you think about the financial requirements that would go along with that, it's different than someone who's doing five stores in Ontario," he says. "Typically, for a five-store deal, we would look for someone to have about $ l.5 million in Liquidity, cash or cash equivalents. For a 10-store deal, I'm going to raise that up to about $2 million. Now, most of the time, particularly in Canada, they're going to lever­age financing to build their restaurant, so they'll need to have a certain portion of their own equity to go in. And then they can go to one of the banks we've got relationships with now to help our franchisees grow their brand.

 

LOCATION, LOCATION, LOCATION

When it comes to finding the real-estate sweet spot, Sumrall says drive-thrus are king.

But, he admits, free-standing drive-thrus are very hard to come by, particularly in major areas in Canada, either due to the fact that they're already taken, or there's zoning restrictions that limit drive-thrus.

"The [other type of location] we love is an endcap. You see this a lot with a Starbucks, where they'll take the endcap of a plaza and have a drive-thru wrapped around the side of the building. We love those, too because it's a lower investment to get in. But you still have

the delivery channel, the takeaway channel, the dining channel and the drive-thru channel for sales - we can do everything there."

He says the bull's eye for real estate is a freestanding restaurant of about 2,000 sq. ft.- a new build or a conversion.

"If there's another brand that, unfortunately, was not able to make it through COVID-19, we would happily take an existing footprint and convert that to a Church's - that's a much lower cost investment than if you were building it from the ground up."

The average number of seats for new units is around 20. Sumrall recognizes that in todays climate, Canadians are "more about the grab-and-go" than dining in. "In certain countries, we need 200 seats because it's still part of the culture to dine out. But in Canada, "we're seeing smaller dining-rooms are prevalent and more important is the delivery, the drive thru and the takeaway."

While finding good real-estate has taken on a Hunger Games feel in recent years, Sumrall says his franchisees have been tenacious about finding locations. "The fact that for this year, I've already got 61 sites in progress for Canada alone tells me they're getting good real estate. Out of all of those, 14 are under construction right now and will probably open in the next two or three months; 38 are sites we've reviewed and approved and now the franchisees are in the process of finishing their drawings, hiring their general contractor, getting their permits, order­ing their equipment and trying to get started; and nine restaurants are sites that have been identified, but have yet to be approved. We've been fortunate to be able to get good real estate. And as our brand continues to grow, my email keeps populating with real-estate people in Canada sending me sites to consider, which is a good problem to have."

 

PUSHING AHEAD

While many chains have slowed or halted expansion plans during the pandemic, Church's is pushing forward with its ambitious growth plan.

"We're already set up with delivery- we have all of the major delivery aggregators as part of our system and they were here before COVID -and our dining-rooms are relatively small, so we weren't like the casual-dining players that were competitive upon filling their dining room. We were in a very good position to thrive during COVID, and we did."

He says the biggest challenges have been keeping up with the labour/staffing situation and dealing with supply-chain issues. "We could probably have opened 10 to 15 more restaurants in Canada last year if it had not been for supply-chain delays on equipment."

While Church's corporate philosophy is to buy local when feasible, Sumrall says there is an economies-of-scale problem when you have relatively few restaurants in a market. "For example, if we had a cup that is used for a soft drink, because today we only have 47 restaurants in all of Canada, we don’t have very large purchasing power for a cup.

But if we’ve got 1,000 restaurants in the U.S. with a single-source supplier that are buying thousands and thousands of cases of these cups they're able to get that cup at a really low cost, much lower than if we were to go into Canada today with my 47 restaurants and say give us a low cost cup."

But, he says, there's always a break point where it would be more economical and a better decision to purchase in Canada rather the U.S. "Keep in mind, the number-1 item we sell in our restaurants is chicken and all of our chicken is sourced in Canada-it typically makes up more than half of our cost of goods.”

He says the brand is seeking to partner with a Canadian kitchen-equipn1ent supplier, as well as a company to build all of its interior decor, which currently comes from a supplier in Chicago. "There's a company in Toronto we're already talking with that should be able to build all of these design, decor and furniture elements for us, and do so at a competitive cost. That would be good for our franchisees.”


While Church's Chicken is facing an upward growth trajectory, the last two years have not been without setbacks. Government mandated lockdowns and closures impacted not only existing units, but also caused a backlog in permit applications and site inspections that saw franchisees paying rent on non-operating restaurants.

In response, Sumrall says Church’s implemented franchisee-support programs.

"We told our franchisees shortly after COVID-19 spread, 'we understand you have to pay your lease, you have to pay your people, you have to pay your food bills. So, take half of the money you would normally pay us and use that to help pay your employees and keep the1n with you. Essentially, we set a promissory note so that eventually, when times were better, they can come back and pay us ... and they did.” FH

FRANCHISE COSTS
(I N U.S $)
Development fee: $10,000
Initial franchise fee: $15,000
Real-estate purchase or lease: variable
Site work: $5,000 to $50,000
Building/improvements:
$230,000 to $620,000
Equipment and signage: $150,000 to $200,000
Fees, misc., A&E services, deposits:  $50,000 to $150,000
Initial training:  US$23,000
Opening supplies: $6,350 to $12,700
Insurance: $7,500 to $10,000
Utility deposits: $5,000 to $15,000
Business licenses: $300 to $600
Additional funds (three months):
$10,000 to $20,000
-------------------------------------------------------------------------
Estimated Total:
$463,350 to $1,101,300

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