Posted on September 1, 2006

O’Naturals restaurant chain to sign first franchisee

Maine-based natural foods restaurant could be starting a trend

People rarely mention McDonald’s and O’Naturals together, but soon the two restaurant chains will be following similar business models.

Within a few weeks, Maine-based O’Naturals expects to sign up its first franchisee, the initial step toward building the brand outside of its four company-owned locations, including restaurants in Falmouth and Portland.

The idea is to create a larger network of restaurants while using local owners. It’s the same strategy McDonald’s and other restaurant chains have followed to create global businesses with thousands of locations.

O’Naturals – which opened in Falmouth five years ago – received more than 1,000 inquiries since putting out the word earlier this year that it wanted to sell franchises, said Jay Friedlander, the company’s vice president and chief operating officer.

"We’ve heard from people all over the world and all over the United States," Friedlander said. "It’s just amazing to me the appeal of this. That’s the thing that’s been really exciting to see."

While they’re following the same strategy, McDonald’s and other fast-food retailers are dramatically different from O’Naturals, and the Maine chain is hoping it will carve out a niche among consumers.

Customers should be able to tell the difference: McDonald’s signature products are burgers and fries, while O’Naturals menu is sprinkled with items such as organic vegetables and free-range chicken.

McDonald’s golden arches are international symbols, while O’Naturals muted tan, purple and green tones are virtually unknown outside a corner of New England. And McDonald’s has more than 30,000 locations; O’Naturals has just four – two in Maine and two in Massachusetts.

But a successful burst of franchising would represent validation for O’Naturals’ approach, which includes buying produce locally, allowing community groups to use the restaurant for fundraising efforts and promoting sustainable development, such as using recycled building materials in the restaurants.

Gary Hirshberg, an O’Naturals founder and the president and chief executive officer of Stonyfield Farm, a New Hampshire-based yogurt company, said O’Naturals had to be refined before he and his partners were ready to offer franchises.

"It took many years for us to get the concept to the point where I felt it was ready to be managed by others," he said. "That takes time. It’s like making a fine wine."

Hirshberg came up with the idea for O’Naturals years ago, while driving through California on a family vacation. He said the only convenient places the family could stop for meals were traditional fast-food outlets.

"I felt like a hostage to the choices on the road out there," he said. "I’m not an organic purist, but I want the kids to have something other than a burger and fries and a white shake made out of something that I don’t recognize."

Initially, O’Naturals went the well-traveled route of selling burgers and fries, although the meat and potatoes were organic and the potatoes were baked, not fried.

But customers preferred other menu choices that were healthier but still tasted good, Hirshberg said, like salads and flatbread sandwiches. Hirshberg, Friedlander and Mac McCabe, the chief executive officer of O’Naturals, spent time refining the operation, eventually coming up with a mix of foods that has helped the restaurants become popular.

Franchising could create a strong revenue stream for O’Naturals. It costs $25,000 to buy a franchise, plus 5 percent of revenue.

O’Naturals estimates that a franchisee will end up spending between $750,000 and slightly more than $1 million to open a restaurant. Major costs include building or renovating a location, outfitting it with equipment, hiring and training workers and setting aside working capital.

Friedlander said the franchise fee essentially covers O’Naturals’ cost of training the owner and managers and providing help with marketing.

The company doesn’t plan on selling franchises to anyone with enough cash. Friedlander said O’Naturals has whittled down those 1,000 inquiries to about a dozen solid franchisee prospects, who have to agree to a thick set of conditions on everything from sign design and menus to buying supplies from approved vendors, setting up networks of local organic farmers and community activities.

"Our concept is unique enough and new enough that we know that we have to find the right people," he said.

"You can tell pretty quickly" if a franchisee is a good match, Friedlander said. "You have to put out the extra effort to do it and, if you don’t, O’Naturals isn’t for you."

Michael H. Seid, the managing director of Michael H. Seid & Associates, a franchise consulting firm, said O’Naturals’ fees are about average for a restaurant operation.

Seid said franchising in general is continuing to grow and added that O’Naturals will have to set itself apart by offering food that tastes good and happens to be healthy, rather than the reverse.

"The public doesn’t want to eat where it’s healthy," he said. "They want what tastes good."

Hirshberg said O’Naturals isn’t setting targets on how many franchises it wants to open or limits on geographic locations. In addition to individual franchisees, he said, O’Naturals is talking to larger companies that often open up dozens or scores of restaurants in a region, a move that would considerably ramp up the pace of expansion.

"We’ll go as fast as we can manage it," he said.

After operating a handful of locations for several years, Hirshberg said, O’Naturals is ready to branch out.

"We’re trying to give this thing wings now," he said. "It’s really ready. The concept is here, it’s polished, it’s ready to go on the road."

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