Fire up the Pit

Fire up the Pit

ENTREPRENEURS by Jean Gruss | Editor/Lee-Collier

A father-and-son team plans to grow the Rib City Grill barbecue chain to 100 restaurants in five years. They promise franchisees tasty profits.

Paul Peden knows his meats.

Peden was a waiter at legendary Bern's Steak House in Tampa fresh out of college in 1969. His father-in-law operated five Smitty's steak restaurants in Southwest Florida. Peden himself has owned and operated 20 restaurants, including the upscale Veranda restaurant in downtown Fort Myers.

So when Peden, 59, fires up the smoker, you can bet those barbecue ribs are going to melt in mouths. Since he bought the two Rib City Grills in Fort Myers 10 years ago, Peden and his son Craig Peden, 37, have built the chain to 21 restaurants.

The plan is to grow to as many as 100 restaurants in the next five years, mostly by franchising the concept. Already, stores have spread as far as Colorado, where it has eight restaurants.

By the end of this year, the Pedens plan to have 28 restaurants and they'll open a new Rib City every six weeks in 2008. Florida will be a big focus next year and cities on the target list include Punta Gorda, Sarasota, Tampa, Orlando and the east coast from Fort Lauderdale northward.

Because the chain is privately held, the Pedens will only say revenues were $25 million in 2006. They expect revenues to grow to $45 million this year, an 80% increase. After decades in the business, Paul Peden says Rib City has the greatest profit margins of any restaurant he's owned. It's also a quick road to profits: the first month of operations is usually profitable.

Simple and efficient

The secret to Rib City's profitability is its efficiency.

The menu is straightforward and fewer items means less inventory. Each restaurant is relatively small at about 3,000 square feet and cooking simple dishes such as ribs means you don't have to hire pricey skilled chefs.

The Pedens limit the hours of operation to between 11 a.m. and 9 p.m. When they bought the first two restaurants in 1995, the Pedens cut out the less profitable breakfast hours and all-you-can-eat buffets.

Another key has been to locate restaurants in high-traffic, high-visibility areas to attract busy families. The Pedens look for sites with at least 50,000 residents within a five-mile radius. The restaurant's target customer is a dual-income family with children with about $60,000 in household income.

The principal way Rib City sets itself apart from the crowded barbecue business is to focus on a specific menu item. Of course, chicken, beef and turkey are part of the menu. But ribs are the company's specialty, cooked over a wood fire. "You have to pick a niche," Peden says. "You can't be everything to everybody."

The restaurant's promise is printed on the menu: "If you have to pick up a knife to eat our baby back ribs, we will pick up your meal!"

There are unique touches on the menu besides ribs. Fried okra with ranch dressing for dipping is one of the starters. The uniquely southern vegetable even does well in the Colorado restaurants, where patrons consider it an exotic specialty.

As the company grows, it has more leverage to negotiate deals with food and other supplies. The Pedens benefit from preferential treatment because they're growing Rib City restaurants at a rapid pace, a fact that doesn't escape eager suppliers.

Growing the franchise

Because new Rib City restaurants become profitable so quickly, the Pedens have had no trouble getting banks to finance new locations. The company has 21 Rib City restaurants, most of which are company owned and located in Southwest Florida.

But the Pedens started selling franchises in the last few years to those who visited their restaurants while on vacation in Southwest Florida. Sometimes, these people have never run a restaurant before but have the passion for the food.

For example, two computer salesmen from Littleton, Colo., were so enthusiastic about the restaurant that they bought a Rib City franchise and quit their jobs. One of them trained for three months in Fort Myers to learn the business. "They need their Rib City fix," Peden jokes.

Franchising your restaurant means you don't have to put as much of your capital at risk to grow. A Rib City franchise costs $40,000 for an area and the franchisee must pay 4% of monthly gross sales as royalty and 1% of monthly gross sales for marketing. A franchisee must have a net worth of at least $500,000 and liquid capital of at least $100,000. "It's a marriage," Peden says.

The legal requirements of establishing a franchise weren't difficult. The tough part now is finding the right franchisees and managing the growth. Enter Craig Peden, who serves as company president.

Besides shuttling between Fort Myers and Denver, Craig Peden oversees the training of new franchisees. "Craig wears two or three hats," says his father, Paul. Eventually, as the company grows, he acknowledges that he'll have to delegate some of these tasks.

Although the Colorado eight-restaurant expansion was happenstance, Peden says the business climate is better there than in Florida. Taxes and insurance are lower and the quality of labor is better. "It's tough to buy business-interruption insurance," says Peden, complaining that hurricanes are a big aggravation. What's more, sales have slowed as the residential boom in Southwest Florida ended last year.

The important thing is to find areas where population is growing, he says. That's because you don't have to steal existing business from the large, well-established barbecue chains. "The chains have the power," Peden says.

Peden makes exceptions, such as franchisees that want to open new restaurants in economically sluggish states such as Ohio and Michigan. That's because barbecue restaurants are rare in those areas and people who have traveled south often seek them out.

For now, finding managers is a big challenge. "It's hard to find managers who will be good managers six months later," Paul Peden says.

One way the company retains good managers is that it offers them a percentage of profits in the new restaurants. Under its "partner in profit" program, the Pedens set aside 10% of new-restaurant profits for managers. "You have to share," Peden says.

It's also a great retention tool for lower-level employees who want to move up in the company. "They should have a career path," Peden says.

Geographic diversification

Eventually, the plan is to grow the franchise to between 50 and 100 Rib City restaurants in the next five years. There are 13 Rib City restaurants in Southwest Florida, extending from Immokalee to Naples to Fort Myers, Venice and St. Petersburg. The rest are spread among Colorado, Utah, Washington and Ohio.

In Florida, the Pedens are exploring markets such as Tampa, where it closed an underperforming restaurant.

Paul Peden says the closure was due to a bad location and he believes there are some good sites in Tampa.

Ultimately, Peden believes Florida could support 100 restaurants on its own, scattered in cities such as Sarasota, Punta Gorda, Orlando and Fort Lauderdale.

"We wanted to have the state to ourselves," says Peden. A slowing economy plus rising gasoline prices won't slow the chain's expansion, he says.

REVIEW SUMMARY

Industry. Restaurants

Trend. Franchising as a way to expand nationally

Key. The simplest restaurants can lead to the highest profits.

recipe for

success

Restaurants are notorious for their high failure rates. But Paul Peden has successfully owned and operated 20 different restaurants in the last three decades. Here are some of his insights for success:

• Love what you're doing. Have a passion for the business.

• The restaurant business is hard work. "It's not a gold mine, it's a coal mine," Peden says.

• Know how to count. "You need to be real strong with accounting," Peden says. You may be able to make sales, but you can't boost the bottom line without understanding the numbers.

• Control expenses. Always ask for discounts and negotiate for supplies and labor to keep a lid on expenses.

-Jean Gruss