 Kahala's portfolio contains 12 distinct quick-service restaurant concepts, including nationally recognized brands such as Blimpie. There’s something inherently appealing about the concept of an all-star team, whether it’s the greatest players of a sport coming together on the same field or a movie starring the biggest names in Hollywood. In the restaurant business, Kahala Corp is exemplifying the all-star principle with a combination of proven and up-and-coming restaurant brands that have driven the company to more than $1 billion in sales in 2007.
CEO and Founder Kevin Blackwell says the company has designs on being the largest franchise company in the world. Although Kahala has been on an acquisition kick in the last few years, Blackwell says Kahala wants to achieve its goal organically, as well.
“It’s important to note that [our] vision statement is not rooted in growth,” Blackwell says. “Instead, it’s our aspiration to be the best franchisor to our franchise community, and if that remains our top priority, the growth will happen naturally. This growth will be achieved domestically and internationally through concept development, existing concept growth and future acquisitions.”
The company as a whole cannot succeed without its individual franchisees, he notes, and says Kahala is geared to making sure that its considerable resources are put to use for the franchisees. “As Kahala grows, we capitalize on new channels of distribution, new products and new services that support franchisee success across all brands,” Blackwell says. “With a complete and diverse portfolio of franchising concepts, each franchisee receives the benefits of strong research and development capacity, purchasing power, real estate leverage and marketing resources. It’s our No. 1 goal that all franchisees enjoy the success of entrepreneurship.”
Kahala Franchise Corp President Chris Prasifka is responsible for developing the various brands under the Kahala umbrella, and says the company believes the best way to promote growth with multiple concepts is to make sure each one remains distinct.
“Day-to-day, our top priority is franchisee success and brand-building,” he says. “We invest heavily in the brand support structure to protect the integrity and passion of the brands, while finding the best ways to dedicate resources to support franchisee success. This is relatively unique to multi-concept franchise companies and we are proud to operate in this manner. We will not put cost savings ahead of brand integrity and brand culture.”
Kahala’s portfolio contains 12 distinct quick-service restaurant concepts that run the gamut from Mexican to Japanese to even breakfast cereal. Along with nationally recognized brands such as Cold Stone Creamery, Great Steak & Potato and Blimpie, Kahala also owns growing brands Samurai Sam’s Teriyaki Grill, Cereality Cereal Bar & Café, Frullati Café & Bakery, Johnnie’s NY Pizzeria, Nrgize Lifestyle Café, Ranch 1, Rollerz, Surf City Squeeze and Taco Time.
Blackwell and his wife, Kathryn, started their first concept, Surf City Squeeze, with a smoothie and juice bar in the 1980s. The last few years have been marked by significant expansion for Kahala, as it acquired Blimpie – the nation’s third-largest sub-sandwich chain – in 2006, and Cold Stone Creamery – the third-largest ice cream store in the country – in 2007. 
Distinct Identities
When dealing with brands as diverse as the ones in Kahala’s care, it doesn’t make sense to deal with all the concepts the same way, Blackwell says. It’s common sense that a juice bar requires a different approach than a pizzeria, he says. Furthermore, brand identity is a large part of what makes the Kahala concepts successful.
“We’ve learned over the years that if you try to have multiple brands serviced by the same people, the brand can lose its unique identity,” Blackwell says.
Each brand has its own president, as well as its own sales, marketing and operations teams. Where Kahala benefits each brand as a parent company is in the back of the house, Blackwell says. “Kahala invests the money to have these brand structures and, instead, we achieve our costs savings by bundling the back-end of the house,” he says. “The entire franchise community benefits from a shared purchasing team for economies of scale, as well as shared legal, finance, IT and human resources teams to name a few.”
Cold Stone Creamery President Dan Beem says the Kahala approach has proven to be a comfortable fit for his operation. “Because of our silo brand structure, our Cold Stone team has the best of both worlds,” he says. “We have the independence to run our business in a way that’s best for our franchisees, yet we have the support and resources of a larger entity. Both Kahala and Cold Stone Creamery had strengths that complemented each other and both companies brought a lot of talent to the table.”
Prasifka says that even though the brands are all different concepts, having them fall into the same general restaurant category makes it easier for them to learn from one another. “We also benefit from having our entire portfolio in the quick-service category,” he says. “There are constant learnings that can be shared from brand-to-brand.”
Poised For Growth
Blackwell says Kahala has grown from 1,000 units in 2005 to more than 4,000 in 2008, mostly through acquisitions. He says the ideal type of acquisition for Kahala is a concept that has a strong identity and a significant upside. “With every acquisition, we learn,” Blackwell says. “In the early days, I looked for opportunities with lots of geographically-focused units. Now, our focus is on very well-branded concepts that have considerable growth potential, in both same store sales and unit growth; in both domestic and international markets.”
Cold Stone Creamery and Blimpie both fit the bill in this regard, Blackwell adds. The presidents of those respective companies say they’re poised for future success in the coming year.
“This year, Cold Stone is focused on aggressive same-store sales growth vs. aggressive unit expansion,” Beem says. “Cold Stone Creamery already has the highest annual unit volume in the category at $353,000. But, we believe we can grow this to $500,000 in the next three years with the strategic plan we have in place.
“We’re expanding our core product line, introducing a healthy indulgence line of smoothies and frozen yogurts, and focusing on strategic partnership initiatives.”
Kahala has provided a boost to Blimpie since its acquisition, as well. “We are preparing the brand for future growth by refreshing the brand’s look, feel and menu,” Blimpie President Jeff Smit says. “We are also diligently working to lower the cost of entry, which will further set our franchisees up for success.
“So, while we are focused on the future, we also recognize the current needs of the business,” Smit continues. “As an example, we know that a value proposition is important for consumers when making a dining decision in the current economic landscape.
“That’s why Blimpie [recently] launched a $5 foot-long promotion on some of our most popular sandwiches, including the Blimpie Best. The promotion has gone over very well; in fact, sales have increased 10 percent since the launch of the initiative.”
‘Recession-Resistant’
Even as the economy continues to slow down, Blackwell says Kahala’s brands have the resiliency to withstand a recession. “Although rising food costs, record oil prices and falling home values have hit Americans hard, people still spend an estimated half their food budget at restaurants because of convenience and time pressures,” he says.
“The quick-service restaurant category is recession-resistant, not recession-proof,” he adds.
That’s not to say that Kahala will simply ride a recession out, Blackwell adds. He says that even in the event of a recession, the company will continue to seek out brands that could bolster its portfolio. A continuing economic downturn could create a “buyer’s market for brands that have potentially been overleveraged,” he says. “Because of this, we anticipate closing an acquisition before the end of the year.”
Blackwell says the entire quick-service industry should consider the economic downturn as an opportunity to grab new customers. “In economically challenging times, the quick-service restaurant category has the opportunity to show customers that [it] is a high-quality, experiential-driven dining option,” he says. “Customers are looking for value in their dining and many are ‘trading down’ from casual dining spots and opting for quick-service. As an industry, I think we need to exceed the customer’s expectations on the value and the experience they can receive at quick-service locations.”
A Winning Combination
Blackwell says he did everything at his first Surf City Squeeze location, “from managing employees to mopping the tiles.” He adds that the most successful franchisees are those who understand that although Kahala is there to provide them with as much support as possible, ultimately it comes down to them.
“People who choose to go into franchising need to be aware that owning a business is hard work,” he says. “And, as I always say, those franchisees who are present and active in their stores become the most successful business owners in our system.” |
