Red Rooster – Franchisor Profile

This article appeared in Issue 3#4 (May/June 2009) of Business Franchise Australia & New Zealand

CHANGING A FAST FOOD CULTURE

Mark Lindsay, Chief Executive Officer of Quick Service Restaurant Holdings (QSRH), talks about ongoing challenges and the transition of Red Rooster company-owned stores to franchises.

Red Rooster has become Australia’s largest roast chicken operator, with some 370+ outlets across the nation.  Initially established by the Kailis family, the first Red Rooster restaurant opened in 1972 in Kelmscott, Western Australia.

The Kailis family privately ran and owned the business until the early 1980s, when it was sold to Coles Myer Ltd.  Then in 1992, Red Rooster acquired another chicken chain called Big Rooster.  Founded by brothers Phil and Nick Tana in the 1970s, these stores were trading on the east coast of Australia, predominantly in Queensland.

The Big Rooster stores were re-branded as Red Rooster, lifting the number of stores to 230 across Australia.  As Big Rooster had been operating franchise stores since 1979, this acquisition also represented Red Rooster’s first venture into franchising.

In May 2002, Perth based Australian Fast Foods (AFF) acquired Red Rooster from Coles Myer Ltd.  This brought many years of experience and expertise in the roast chicken category, because the shareholders in AFF were Phil and Nick Tana, and Joe and Frank Romano.  The four were also owners of another chicken brand (Chicken Treat), which was founded by the Romano brothers.

Mark Lindsay, Chief Executive Officer of Red Rooster’s parent company QSRH comments, “In effect, the AFF boys bought back over 50% of the Red Rooster business, which they previously owned when it was called Big Rooster.  They acquired the farm back, so to speak.

“At that time, there were about 308 Red Rooster stores in the chain, of which about 248 were company-operated and the other 60 were franchised.  The business then continued to build and grow.

“I joined the business in July 2003, initially as the CFO for AFF.  Although AFF owned Chicken Treat and Red Rooster, they were independently run but under the same holding company.”

Lindsay explains that although Red Rooster grew with several stores opening, some were also closed:  “They were going through a rationalisation process.  In April 2007, there was a management buy-out backed by Quadrant Private Equity Group, which bought out the four original shareholders of AFF (the Tana and Romano brothers), and a new holding group was formed – Quick Service Restaurant Holdings (QSRH).

Frank Romano remained in the business and is now the group’s Non Executive Chairman. Then by July 2007, QSRH also acquired the Oporto business in Sydney.

Lindsay explains, “QSRH, as it stands today, actually operates 550 stores across Australia, the UK and NZ under three iconic Australian brands being Red Rooster, Oporto and Chicken Treat.”

Lindsay explains that since 2007, the core direction of Red Rooster has significantly changed:  “The focus has really been growing the business through the franchise model.”

Back in 2003, Red Rooster only had 60 franchise stores out of a total of 308, whereas now over 50% of their 370+ stores are franchises.

“During that period, we’ve opened in excess of 100 stores and closed about 40 to give us a net 62 increase.  The business has been through a strong rationalisation process but it’s also undertaken quite a strong franchising focus now too.  For the business, this has been a challenge because culturally Red Rooster outlets were predominantly corporate stores.”

Red Rooster plans to continue to focus on a very aggressive franchising strategy, says Lindsay:  “We see it as a way for the brand to be able to grow effectively; to improve the value of the business but also the business model in terms of service levels, etc.  We know historically that our franchise stores continue to generate on average a higher growth rate than our corporate stores across the market.”

The franchise strategy includes concentrating on Greenfields sites for new franchise stores, but it also involves converting company-owned stores to franchises.  As Red Rooster continues to grow the business over the next 12 months, the aim is to have less than 100 corporate Red Rooster stores.

Being Australian-owned is a major draw card, says Lindsay:  “Some people actually think Red Rooster is the same as our major competitors, in that we’re an overseas brand.  That’s the appeal to our business at QSRH – everything we operate is Australian-owned.  Even if we take a brand overseas, everything comes back to us here in Australia; it’s not like royalties going offshore to holding companies in America.

“We have come from being a corporate operator of stores to being a franchisor.  We’re an Australian-owned and operated business and we don’t answer to anyone in the US.  That’s also been a challenge we’ve had to face:  to develop our own systems; because a lot of systems can be brought in from the US and modified to suit the Australian conditions.  We’ve had to develop and build those systems and the infrastructure ourselves.”

Although Oporto has gone international, Lindsay explains there are no immediate plans to expand Red Rooster overseas:  “We see the Red Rooster brand as having significant opportunities here in the Australian market based on a ratio of around three stores per 100,000 population.  We have a reasonable coverage of stores in both Queensland and the Western Australian markets with significant opportunities for growth in the Victorian and New South Wales markets.

“We could certainly double the network in  NSW over the coming years, which would involve putting in roughly another 60-70 stores and possibly   30-40 stores in Victoria over the next five to ten years.  With our focus being franchising, the opportunity exists for us to grow the brand through that medium.  The big challenge for us in those two markets is just finding the real estate or sites to be able to achieve that goal.

“The QLD and WA markets make up 50% of the total store numbers that we have in the network at the moment, so they’ll continue to be strategically important for us.”

Lindsay explained that locating the right people to become franchisees is also an ongoing challenge:  “You want people who have previous food experience – it helps in our business.  As a franchisee you have to work long hours to grow your business.

“We’ve had some great success over the last six months with conversion of stores being offered to existing franchisees.  But we’re also bringing new multi-site operators into the business that have had previous fast food experience in other chains.  For us, that ensures variability because they bring different experiences but they’re also committed and understand the industry that they’re coming into, which I think is really important.”

Red Rooster is looking for hands-on franchisees, not silent business partners.  Lindsay continues, “Sometimes people who see the potential say they’ll go into a chain or a franchise system, with a view that they’ll put a manager in there and just make the investment and sit and forget”.

“Well, we can tell you from owning our own stores that it’s not as simple as that.  You need the management disciplines and the processes, and you need to be across the business on a regular basis.  We’re looking for experienced operators.  By changing that model to allow a multi-site operation as well as a single site operation model has allowed us to increase the appeal and the opportunities it would otherwise not have had – for attracting the appropriate people into the business.”

Lindsay says there are also franchise opportunities available for people already working in the Red Rooster business, such as store managers who have been with the brand for a long time and meet the required franchisee criteria.

Out of the last dozen franchisees on board, around 50% have been either from the Red Rooster system as employees or existing franchisees, or been associated with another fast food franchise.

Lindsay says Red Rooster uses a profiling system as a mechanism to assist them in their franchisee evaluations:  “We use the Franchise Relationships Institute to help us evaluate each prospective franchisee as well as assisting us with doing franchisee sentiment surveys and so on.

“As we’re focused on converting our corporate stores to franchises, it really comes down to suitability.  We’re looking for the right people to help us deliver and drive the business forward into the future.”

Surprisingly, Lindsay’s background is not in retail:  “I’m a chartered accountant by trade.  I spent eight years with charter firms; during that time I spent most of my focus working with mining clients.  I went from mining to engineering to fast food over my career!  And in every job that I’ve had, I’ve always learnt something new to enhance my business understanding; some of the best learnings have come from the most passionate of my former bosses.”

Red Rooster’s management team is also experiencing a transformation, but as Lindsay points out, this has been a natural progression:  “Red Rooster’s been an iconic brand in the Australian market for a long time.  To be perfectly honest, I think it’s been a little bit flat over the years.

“The business has been through a restructure and so under the QSRH model now we have CEOs for each brand.  I’m CEO for QSRH but I’m also Executive Director of the Red Rooster system.  We recently appointed Darren Stan bridge as the CEO for the Red Rooster business.  He has extensive fast food experience gained through his years with KFC, so we’re bringing in some people from outside Red Rooster, with new ideas and ways of doing things, to implement some disciplines and structure within our system, to take it to the next level.

“We’re trying to inject some fresh ideas into the business to assist us with the growth.  Obviously we’ve been so company centric in the past, in the way we’ve looked at things, and we’re trying really hard to realign our management focus to encompass the franchise system.

“We need to change and we’re learning as a business to be more open to engaging our franchisees.  We’ve recently established a franchise advisory committee and people turn around and say ‘well that’s pretty common place in most systems’.  But when you look at the history of our system that’s been around for nearly 40 years and was always predominantly company operated, these changes are a new journey for us.

“We have to stand back now and look at the way we communicate with our people, and particularly understanding that franchisees have a vested interest in our business as well – they’ve made significant financial commitments to it.

 “Quite often I say ‘look, I don’t want to differentiate between franchise and corporate stores; it’s a Red Rooster store and everybody should be engaged and treated exactly the same.  But when you still have such a large number of corporate stores and employees in the system, it’s easy to fall back into those old ways.  That’s a real challenge for us internally – to make that step into being more visible with our franchisees and communicative.”

As Red Rooster is experiencing this business restructure, Lindsay’s role as Executive Director is quite hands-on:  “I’m heavily involved in the franchising of a lot of our corporate stores.  Darren’s role in the business is more about the operation of compliance and restructure of the business; my role is more strategic but also involved in the ‘de-risking’ of the business.

“The risks that the business faces from being corporately operated are things like labour and inventory control – they’re the two of the biggest issues we face on a day to day basis.  When I first started the business we had 7,500 employees across Australia.

“My role is to continue that drive of franchising a number of corporate stores to get to a goal of less than 100 – and to allow Darren to focus on operational re-engineering of the business, and also to make sure that the business achieves its growth strategies.  We’re still looking to achieve new store growth of in excess of 20 stores per annum.”

There’s not much time for anything else in Lindsay’s life.  He laughs, “I live and breathe the place at the moment.”  He resides in Perth with his wife and two teenaged children:  “I have a wife who’s extremely supportive – although she gets frustrated at times – not from the workload per se but the amount of travel that I do.  Our Head Office is actually in Perth, but I do a fair bit of travel along the east coast.

“We work long hours but we understand why we’re doing that.  The agreement I have with my wife is she doesn’t mind too much if I’m away, as long as I come home for the weekends – and for me that’s an important thing.  I get no greater joy than going home and watching the kids play sport on the weekend – that’s my chill out time.”

Lindsay believes Red Rooster, as a franchisor, is evolving: “We are committed to bringing new people and new blood into the system to make the necessary changes.  We’ve acknowledged that franchising is a very important part of where the business needs to be into the future.  We’re not perfect, but we want to get as close to that as possible.”

Busy as Lindsay is, he thoroughly enjoys his job:  “I like the people; I like the opportunity; I like the challenge.  And I think if there was no challenge I’d find myself pretty bored pretty quickly.  To be able to turn around and say you were a part of taking a great brand to that next level– there’d be nothing more pleasing than seeing that.”