Capriotti’s Sandwich Shop looks to expansion

Morris, the CEO of the parent company, projected that over the next year the number of outlets would grow by about two dozen. In addition, territorial agreements have been inked covering about 200 units, most recently 50 in the Dallas area.

“We have spent the last three years on infrastructure to support a franchise system,” Morris said Thursday. “We are ready to roll out successfully.”

However, filling in the map between the two clumps of shops in the valley and Delaware and eastern Pennsylvania — together accounting for three-fourths of Capriotti’s stores — has proved tougher than predicted. For example, a February 2010 article in Franchise Times said that Capriotti’s, one of the handful of franchise chains based in Las Vegas, would add 20 to 25 stores by the end of the year to the 58 then open. The current count, however, stands at 69.

The overall goal of hitting 500 locations in four years might slip by a couple of years, Morris said.

“The biggest headwind is the availability of capital, both on the corporate side and the franchise side,” he said.

Matthew Kreutzer, an attorney at Armstrong Teasdale who specializes in the sector, said, “The last three years have been tough on franchising. Restaurant loans were scarce if they happened at all, so only exceptionally well-funded people got into food service.”

Now, he sees a market that is “a little bit better. People sat out the 2008, 2009, 2010 economy, but they aren’t anymore.”

A study by PricewaterhouseCoopers predicted a 2.5 percent gain in the number of franchise outlets nationwide, although the total would still fall short of the 2008 peak. The growth in quick-service restaurants would run at the same pace.

Due to an economy that deteriorated quickly after Morris led the buyout of Capriotti’s in early 2008, the company has shifted tactics several times and continues to do so. The original plan to enlist buyers for one or two franchises at a time was refocused on people who wanted territorial packages of at least 10 locations, because they generally bring deeper financial resources and can cover a market quicker.

However, the Capriotti’s high command has recently decided to ease the terms, cutting the initial franchise prices for single and area buys by $4,000 each to $46,000 and $36,000 respectively. In addition, the change will reduce from the commitment needed to receive the lower price from 10 to three outlets.

Even area deals have a mixed record of meeting their original schedules. The first outlets have started selling sandwiches in San Diego County, fulfilling the plan. But Denver has still not opened despite the announcement that the first of 20 units would be ready by the end of last year. At this point, Morris said, three are under construction and leases for eight others have been signed.

Systemwide revenues ran slightly higher than $40 million last year, although net income was not disclosed. Morris said that came partly from same-store sales rising about 10 percent in Las Vegas, as a lot of mom-and-pop operators fell away.

He said that many of the franchisees put more time into their businesses and tightened operations as the economy remained sluggish.

While Capriotti’s has actively recruited new franchisees, the ranks remain dominated by friends and extended family of Lois and Alan Margolet, who opened the first shop 35 years ago in Wilmington, Del.

Morris, a University of Nevada, Las Vegas, alumnus, first came into the company as a franchisee in 2004. While he was a financial adviser at Wells, Fargo & Co., he sought to purchase a territorial master franchise. Eventually, the talks led to him and several partners buying the entire company.

Contact reporter Tim O’Reiley at
toreiley@reviewjournal.com or 702-387-5290.