Welcome to Chopping It Up. I'm your host, Michael Halen, Senior restaurant and food service analyst at Bloomberg Intelligence. Today we're joined by Chris Duhl. He's the CEO of Freddie's Frozen Custard and State Burgers. Thanks for doing this, Chris.
Hey, Thanks Mike. It's a pleasure to be here and it's an honor that you would have us on your show.
A sure thing, man, Why don't you kick us off with some history about Freddy's. You know, I'm in a business that's that's New York based, and from what I understand, there's a couple of Freddie's in New Jersey. I don't know how many are in New York, so, you know, maybe not all of our listeners are familiar. So if you can give us some history, talk about the service model and the menu, that would be great.
Sure.
So, Freddie's is a brand business that's been around since two thousand and two, was founded in Wichita, Kansas, celebrating our twenty first birth rate this year. With currently four hundred and eighty three units open and operating around the United States. We're not necessarily a regional brand because we do have units that span from New Jersey all the way to California, soon to open restaurants in Canada, and you know, saturate the southern half of the United States.
But we do have a very strong presence through right through the middle of the country. And we are a standalone drive through custard burger and fry concept. We make all of our food from scratch, so.
We are our.
Food is fresh, our guests are able to order. They're not getting anything that's been sitting in a heating sure, anything of that nature. It's made on site and to order for each one of our guests. And we take a tremendous amount of pride in offering genuine hospitality. We are a very friendly group and love having folks in our restaurants. And we also operate in a very clean environment.
We believe very strongly having a great, clean, family friendly environment for folks to come and enjoy a great, fresh made meal at Freddy's.
Yeah.
A lot of times it's about doing you know, those core important things and doing them well right.
Yeah, And as New Jersey goes, we just opened our second location out there in Tom's River, So we're coming, We're coming.
It's just a matter of time for long we'll be in the city.
Okay, very cool. Yeah, I have to get next time I'm at the Jersey Shore, I have to get down to the Toms River location. Can you discuss your career path a little bit and what attracted you to Freddy's.
Sure.
I've been in the food franchising business now for close to twenty seven years, and I started in restaurant. I started scooping ice cream at a marble slab creamer in Houston, Texas, So, you know, I got to learn, you know, how how life is. A platform level store level employee was and worked by way through corporate there and became the CEO of a company called Global Franchise Group out of Atlanta.
I helped build that organization through acquiring multiple brands, and I served as the CEO of that company for fourteen years and then.
I took a short hiatus.
Fortunately for me, it was right about the time that COVID was happening, so it was pretty good timing. And in my career, I've I've got I've had the pleasure to get to know a lot of private equity firms and I was working with several groups on various acquisition targets and Freddie's was in the midst of a process with Thompson Street Capital Partners out of Saint Louis, Missouri, and they asked me.
To come along as an advisor.
And you know, I knew Freddie's like a lot of folks I had. You know, I had knew Freddie's. I had heard of Freddie's, but it wasn't in my you know, daily routine, especially being a Georgia guy where we didn't have any locations in the heart of Atlanta at that time. But very quickly I fell in love with the concept. And I think the thing that really stood out to me early on was the strength of the franchisees of Freddie's.
While while we do operate thirty three company owned restaurants, the bulk of our system or franchise down and the Freddie's franchises were the most collaborative, smart, professional group of franchisees I'd ever been around, and I wanted to be a part of it. And so when the opportunity came post acquisition for me to step in as a CEO, I jumped at it. And it's been a great two and a half years.
Oh that's awesome. Man, what percentage of the store basis franchise?
Right?
So now it's about ninety four percent franchise, six percent company owned. And we do develop one to two company owned restaurants a year, but this year we will open you know, right around sixty total restaurants. To date, we've opened twenty seven and only one of the twenty seven has been a company owned restaurant.
Okay, well, that's good. It's at least enough to show that the franchisees that you have skin in the game, right.
Yeah, And I think it gives us a great platform to test and try things and not put a franchisease investment at risk. You know, earlier this year, we opened our new prototype, which was an unproven operating structure. It's kind of like having a new race car, and we went in and we've driven it for a while and we've tweaked some things, and we've got it to where we really love it, and now it's starting to roll
out through system. But being in the in the public I'm sorry, being in the company owned restaurant game gave us the opportunity to take on that risk and to try things out on our own dime.
Okay, cool, and about how many franchisees do you have in the system? Opening source?
So we have sixty eight total operating groups across the four hundred and eighty three restaurants. But I think one of the things that makes us super unique is over eighty percent of those groups are currently developing another restaurant right now. So you know, our folks are very aggressive developers. They love Freddy's, they love the investment, and they continue to build and open new restaurants with us, and we're super fortunate to have them.
Okay, cool, And out of those restaurants that you expect to open the second half this year and next year, what percentage of those are coming from the existing seventy sixty eight operating groups and what percentage of those builds are coming from new people to the Freddy system.
Yeah, this year, of our sixty ish openings, twenty three of them will be opened by groups that have zero to one restaurant. So we do have and on the heels of the transaction to private equity years ago, we really did, you know, light the fires on the development front and started to bring in some new developers and we're starting to see those folks open restaurants one in
restaurants two now, So it's exciting for us. But I would say, you know, the split is not quite fifty to fifty yet on new to existing it's probably you know, closer to sixty forty somewhere in that range.
Okay, cool, Yeah, but it shows, you know, when you have more more of the development coming from existing franchisees typically is a sign that the franchises are happy. So if you could talk a little bit about the unit economics, you know, the size of the units, how much they cost to build, and you know any other numbers that you'd like to share.
Yeah, the typical Freddy's today is about three thousand square feet. Our new prototypes are slightly smaller than that at twenty eight hundred and twenty four hundred square feet. The total cost to build a restaurant, not including the investment in dirt or site work, is roughly one point six million dollars. Today,
our average unit volume is right at two million. And in our company owned restaurants where we have you know, full visibility to our p and ls, we operate in the high teens from a ebidah margin four wall ebidah margin. You know, a lot of our franchises actually acquire their land, build their buildings and own the dirt and building and operate in what we refer to as an ebadar environment
because they're paying themselves rent. And you know, I think that while that can take a little bit more time to get restaurants open when you're dealing with purchasing land and site work yourself and all of that, we love that it gives our franchisees the ability to create real wealth, not just cash flow business, but actually have an asset that's worth quite a bit. And you know, when you look at the bulk of our developers, that's that's the route that they are going.
Cool. So I think you touched on it a little bit at the top. But where are you strong geographically and and what areas of the country are you most focused on developing right now?
Sure?
Well, when you look at absolute strength, the Midwest is a is a is a is a huge market for us, right up the middle of the United States, you know, going from Texas, Arkansas, Oklahoma, Colorado, New Mexico all the way up to uh Michigan and everything in between. We do have you know, a significant number of units in the southeast. We have growing very strong market in Arizona and growing quickly in Nevada. Just recently awarded an eight
unit development agreement in La County Callfornia. Currently operate three units out there, but we'll be adding a meaningful growth in California this year. We have a unit that's opening in Barstow here in the next couple weeks, and we do have a lot of focus on the Eastern and Northeast for our concept. We believe very strongly that we
can be great in the northeast. We feel like there's a void of really that better Burger, and so we are working hard to secure some strong developers up in the northeast.
Very cool. Are you and your franchisees having any issues finding quality real estate for twenty twenty four and beyond.
You know, our real estate pipeline is pretty robust, and we like to see somewhere around, you know, fifteen or twenty sites of middles every period, and that doesn't mean that all of those get approved, but it's a good flow for us. And that's kind of where we've been coming through COVID. There were some periods where it was a little light, but on the backside of that, we've we've seen strong flow of sites and where Freddie's operates
is a is an interesting demographic. You know, you won't typically find Freddie's right in the heart of major metro and you won't find Freddie's in the super small towns where you might only find a dairy queen. But somewhere in between there is where we like to be. We also liked I call it the edge of suburbia. You know, we love millennials, We love the family, the millennial families that you know are growing and they love Freddie's and
we like to be convenient for those folks. And in that environment there seems to be quite a bit of available dirt.
Okay, that's great. You know when we spoke previously, you know what really stood out to me and about our discussion was when we really got into the franchise ease, and you know, you said some things that were reminiscent to me of Cheryl Batchelder and Popeyes and her dedication for really helping the franchisees grow their p and l not just the top line. So if you could talk a little bit about how you're helping your franchisees booster profitability, I think that would be great.
Absolutely.
So you know, unit level economic and profitability is at the very top of importance at Freddie's. We are highly focused on our franchisees and their return on investment. And you know, just recently we went from going from an annual p and L template to.
Receiving those p and ls quarterly.
And not only do we receive full p and L quarterly, but we also have a team of field business coaches that work with our franchisees to measure their profitability against the system and our expectations. And also we have a great list of KPIs that help us see where there's opportunity to drive more bottom line in each of our restaurants. And so we have a great bi tool that we use that populates the data for us and for our franchises, and then we meet with our franchises on a regular
basis and walk through. In many cases it's period by period. You know, here you are on a KPI basis, here's where you're deficient, Here's where there's some opportunity for you to make improvement, and here's a look at your peer group as to where they're at. And and you know, if we need to call them to understand how they're achieving these higher levels. Let's do that because at the end of the day, there's nothing more important than the profitability.
And I think you know, also as we look at product development and limited time offerings and all things that affect, you know, the top line and sail through, we're in a constant state of pushing products forward that have greater bottom line contribution than the products that they might potentially cannibalize. And so if we're going to sell something, we're going to sell it understanding that our guest loves it and wants it, but also that it's a product that generates
a greater bottom line for our franchise community. So we are hyper focused on profitability and it is as important, if not, I'll just say it's as important as anything else in the restaurant. Cleanliness, quality, hospitality, all of that's paramount, but nothing trumps profitability for our franchisees.
Yeah, that's fantastic, And i'd imagine that that stack ranking of your franchisees kind of creates some competitive fire with them. You know, from what everything I've heard and the people I've met, the franchisees can be a pretty competitive group.
Absolutely.
You know, they those folks want to win, and they take a tremendous amount of pride in their operations. And so when you're able to say, hey, you know, you're doing great, however, you know you're you're you're three percent behind. You know these folks over here, and here's where it's coming from. You can you can generate some pretty immediate action on on those opportunities.
And so it's exciting. It's exciting.
And our franchisees are all close. You know, Freddy's is very familial, and and so there's a lot of banter between the groups.
And who's gonna who's gonna win, who's going to be at the top.
That's good stuff, man. Yeah, and I love your dedication to the franchisees. I mean my mentor you know, we are talking about the stock business, but it definitely holds true here as well. You know, he always said money, money flows to where it's treated best, right, And so when you have a lot of operators, you know a lot of operators that are building different brands underneath their umbrella, you know, they what they want.
To Yeah, and I think it's important to point out that Freddie's was you know, The founders of our company were franchisees, and so they came into this business understanding, you know, the challenges that you can have in a
franchise e, franchise or relationship. Even when you look at our pricing structure, you know, Freddie's charges a four and a half percent royalty, and even though we have a three percent ad fund, we only collect a percent and a half of that today because we don't we feel like those dollars, the remainder of those dollars today are
best in the hands of our franchise partners. And so, you know, we try to create an environment all the way through the business where we're setting our franchisees up to be successful and profitable, and at the end of the day, if they are, they're going to grow. And while we're sitting here opening sixty restaurants this year and probably close to eighty next year and one hundred the year after that, I think that the proof is in the pudding.
Yeah, it took the words out of my mouth, man. It It explains why you're able to grow at such a rapid clip. That's oppressive. What do you doing have Freddy's to attract some of the younger demographic cohorts like gen Zs, the gen Zs of the world.
Yeah, you know, I think it's a great group there. You know, gen Z is such a super smart, digitally savvy group.
They're there.
We get the feeling that that's a group that really loves the ability to, you know, make things their own. They like to customize things they like. They like a menu that's flexible that way, and so at Freddy's, everything that we do, from our custard to our burgers, you can make it your way. And we have tons of great sauces and condiments that you can add to any build to make make it special, make it yours. And I know that that's definitely important to our our gen
Z guest. Also, when you look at you know, speed and convenience, this is a fast paced group.
They're on the move.
They may not want to, you know, spend nine minutes in a drive through line waiting for something, or you know, ten minutes in the dining area waiting for a meal, and so we focus heavily on being fast, and we like to call it Freddy's Fast. It's made to order, but it's fast, and we think that that's important to our gen Z giest, you know, and then the restaurants, you know, you've got to have a fun atmosphere or
something that they feel connected to. Gen Z loves to to talk about what they're doing and put it out there in social media, and so making sure that you have spots in your restaurant that are friendly for photo ops and and gathering and creating content. We make sure that we're cognizant of that. And I would say that the development.
Of our app.
You know, last year we launched a brand new app that really puts us in the game digitally and and is a great you know, medium for ordering, but it's also a wonderful loyalty place where you can receive some great awards for rewards for being a loyal fred Head as we like to say. And so, you know, I think that you've got to be digitally sound, you got to have a great place that makes them feel connected, and you've got to you've got to offer that customized net meal opportunity.
Awesome.
Yeah, So we have gen Z to thank for those what's it called the Ivy covered walls or fake Ivy covered walls with the Neon signs on it, right.
Right, right, Well, and Freddie's. But luckily, part of our interior to core has always been a super bright Freddie's Neon sign. And when you go out there in the world of social media, it's in a lot of backgrounds, and so we'll take it.
We love it and and it works.
That's perfect, very cool. How's the pandemic change your business, both inside the restaurants and where and the locations where you're opening them?
Sure, I would say the the biggest change that we saw through COVID was really a shift from our dining rooms to our drive throughs now. Our loyal Freddy's guest has been a dine in guest since the inception of the concept, and we are very much fast casual, you know, order at the counter, have a seat, and we'll call it or bring it to you. And pre pandemic, we were seeing levels of about sixty five percent of our guests dining in the restaurant and only you know, call
it thirty percent through drive through. Folks preferred to come into Freddie's and through pandemic, they were forced to drive because the dining rooms were closed. And what they discovered is that we are also hospitable in our drive through and we are fast.
We you know, the style at which.
We press our burgers, we our patties are cooked quickly, and so we can create a meal in you know, less than five minutes, four and a half minutes on average in some cases, you know, at four or lower, which is right up there with fast food, and you're
getting a made to order product that's super fast. And so coming out of pandemic, you know, we went to you know, one hundred percent drive through at one point, and now the business has really settled around you know, forty eight forty nine percent drive Wow, so we kind of move it is. It's quite a bit up and we've seen our you know, dining rooms fill back up and so you know, the dining room has come back.
The drive through has been mostly incremental and so, you know, pre pandemic, this was a concept that had an average unit volume of a million six and post pandemic two million, and so we you know, we we feel like COVID did a great job of highlighting to our guests that our drive through is a great place to go as well.
Very cool. Do you have any initiatives in place now to to you know, continue to improve on that speed of service?
Absolutely.
You know, we have recently made several line improvements in our kitchen, in our prototype, which starts with a grill that we refer to as an accelerate, which is a clamp or or press grill, and it is a much more simple operation than hand pressing each one of the patties. It's also significantly less labor intensive. And that was grill was a position where you know, you had to you had to go out and recruit a pretty specific individual
to press patties. And under the new design, you you descal that and so and also you know, there's a certain level of training that's not as critical because the press is doing doing the work for you. And so
the grill press has been a huge addition. It also shaves about thirty five seconds of cook time out of each one of the burgers because it's cooking top and bottom at the same time, and we end up with a better, more consistent product that I think you know has a has a wonderful When you bite into a Freddy's burger, we want the center of that patty to steam because it's hot, and the grill press does a
nice job of ensuring that. Also, we've made improvements in our Make station, we've gone to a more simplified pictogram make versus a written ticket, which gives our folks that make the ability to see what they're building versus read what they're building.
That has improved speed at Make.
And then we implemented the same technology in our bagging station, where instead of looking at a list of things that belong in the bag, we show you a pictogram of what goes in the bag and in what order. That way, we're ensuring that our guests are getting what they ordered in the bag. It's improving our accuracy and again it makes it faster and easier to register with that employee.
And so, you know, all the way through the line, we've looked at how we can be faster and how we can descal each one of the positions to make it it'll be easier for our staff to jump in there and and and be proficient from day one.
That's awesome, And you mentioned the app. Do you have any other you know? And obviously all these equipment upgrades, are there any other tech initiatives that you'd like the listeners to know about.
Well, there's all kinds of great stuff out there, you know. Yesterday I was reading a proposal from a group that's a drone delivery concept and you've seen some of that out there and and we actually participated in a beta test years ago, probably two years ago, and that was super cool. And so there's some more of that coming. AI is something that we stay very close to. We like AI and Drive through we haven't seen at work as well as we really wanted to before we consider
adopting it. So we look at technology. For us, it's it's about how can we be more efficient without jeopardizing the hospitality that we provide our guests and also without at all having an impact on our product in a negative way. So as long as as it it kind of clears those two bars, then it's something that we'll consider. And so AI and Drive is a voice over a loud speaker, and so if we can get a friendly voice that is accurate, that's something that we would consider for sure.
Very cool. All right, I think we're going to wrap it up there. It's time for me to go eat something. When you're talking about the center of the burger steam and you're making me hungry, man, I haven't eaten yet, So listen, man, it's a it's a great story, exciting girls story. I love a good franchise system that treats its franchisees well, so so I'm really excited, you know, to continue following this story and hearing about all the great things you and your team accomplish at Freddy's.
Well, Mike, I really appreciate the time and thank you for having.
Me sure thing, Thanks again for joining, and thanks for listening. Everybody, have a good day.