For the future, we try to stay open minded. We’ve got to stay within our model, but be flexible to the extent [of considering] how sound is the existing model and what do they have in the pipeline? Someone might have a nice system and say they have 1,000 stores in the pipeline, but when you dig deep enough you find they actually only have 100 in the pipeline. The potential must be deep enough to warrant the acquisition price.
We’ve had so much activity with the Cold Stone brand that the acquisition that is going to take place next year was postponed on my behalf so that we have enough time to take advantage of all of the synergies with Cold Stone.
Rutkauskas: We have developed, not acquired, our three brands. When you have the founders of the brand involved on a daily basis, that’s a great thing. The founder is the essence of the company. Camille and I have done these brands on our own, seen to every detail. We know what these brands can do and what to expect and that gives us a huge advantage.
What challenges do you face as you bring a newly acquired brand into the fold? How do you make the process a smooth one?
Blackwell: We will go into a location like a shopping mall or a college campus, taking seven or eight of our brands, and build a foodcourt. The consumers think they are going to different brands in that court, but the back of the house is one big kitchen. It’s truly a Kahala foodcourt.
There are more strategies: Cold Stone, for example, has the highest AUVs in the category, but you’re bringing in most of the business between 5 and 9:30 p.m. That leaves two other dayparts you’re not taking advantage of. You need to bring a different component. We recently bought Cereality. Now we can bring in other consumers, keeping Cold Stone as the lead brand as the sign on the “box” but giving the consumers more options as they come in. We have so many options with 14 brands.
D’Loren: We look for things that are going to be synergistic. First comes the whole idea of dominance in treats. Then we consider geography. We prefer acquisitions where we create new geographies, rather than overlapping geographies. Then we consider scale. With Maggie Moo’s and Marble Slab, we bought the No. 2 and No. 3 players. In pretzels, we also bought the No. 2 and 3 players.
It’s scale, market position and share, and geography. Our challenge in acquisitions is to find things that can satisfy all of those criteria.
LaMastra: When you do an acquisition, or however you develop a concept, the obvious challenges are the ones that make common sense. You’ve got to build and infrastructure. You’ve got to extend the brand across many spaces—for example, a brand with urban locations must also be able to work in suburban locations.
There is also a cultural change. You are bringing something into a portfolio company that might have been on its own before, or the cultures can be very different. That has a lot of impact on a brand, especially in early-stage nurturing of the brand.
Romaniello: The challenges vary by brand. The integration poses a challenge from the systems standpoint. There is also a cultural integration process between FOCUS Brands and the various brands—and a new set of customers, given that the way we run the company is with the franchisee as the primary customer.
When you buy a brand, you are entering into a variety of new relationships with people who have their own ways of doing things. Determining how we should be set up to best serve them is one of primary and most difficult challenges.
As the portfolio grows, how do you create synergy and advantages of scale among the brands?
Blackwell: Think of one geographic area as an example. Say we have a strong presence with brands spread out in that area, not so much on total store counts, but in brand names—10 brands on the market but not a high amount of any one brand. [In that area] we can build distribution synergies. Also with purchasing, of course, the more you buy, the more you save and can pass the savings on to franchisees.
One of the misconceptions franchisees can have when a large company acquires them is that they’re going to get immediate cost savings. There will be a savings, but not immediately because you have already signed the paperwork. The franchisees have got to be patient and wait out those contracts.