Finding & Vetting Local VendorsApril 29, 2015

These slides are part of a free webcast from rd+d magazine. There is a link to the webcast on Slide 6.

Today’s Objectives

• Discuss growth-chain strategies for finding/vetting reliable vendors/GCs for build-out projects

• Discuss franchisee/vendor issues – dictate or guide?

• Identify red flags and stumbling blocks• Share recommended best practices• Answer your questions!

Thanks to Our Sponsor

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Learn more atwww.TriMarkUSA.com

Meet Our Panelists

John DruseVice President of

Design & Construction

Del Taco

Steve HendersonDirector of

ConstructionNoodles & Co.

Bob WitkenDirector of

Construction & Development

RAVE Restaurant

Group

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Del Taco Development

Del Taco – Ramping Up for Fast Expansion

• Past development average — 18-20 stores per year

• Roughly half company-owned/half franchised• Acquisition by Levy Acquisition Corp. underway• Future development impact — potentially double

or triple store count within 24 months• Having vendors in place to support rapid growth,

particularly in new markets — but also in existing markets — is critical

Finding GCs/Vendors• Pull in every available

resource• Tap industry connections

for leads – i.e., RestaurantPoint

• Tap multi-brand franchisees – have they used vendors for other brands/other markets that I don’t know about?

Del Taco Vetting Strategies

• Make sure they’re of a size that makes sense for us – not too big, but not a “mom & pop”

• Conduct financial due diligence – AIA A 305 Form/Contractor’s Qualification Statement

• Tour their facilities– What are their capabilities?– Do they have enough machines/manpower?– How innovative are they?– Do they work in the most effective way?

• Focus on long-term relationship potential vs. lowest price

Del Taco Vetting Strategies

• Use them on a trial basis in a corporate store• Test/determine their problem-solving abilities

“Restaurants are hard. There are tons of variables. The kind of vendors we want are the ones that are problem-solvers.”

Franchisees – Dictate or Guide?

• Provide authorized vendor list for computer equipment, kitchen packages, etc.

• Encourage use of authorized vendors for signage but will approve others they may have used before

• Give a lot of leeway on architects, civil engineers, contractors – we don’t dictate– Leaning toward regional authorized consulting

groups

“I like to give them some freedom in the things that could give them the most problems, like their GC,

architect, civil engineer.”

Noodles & Company Development

Noodles & Company – Aggressive Growth Ahead

“Of the 450 or so stores developed in our 20-year history, probably 200 of those restaurants have opened in the past 5 years.”

Noodles & Company – Aggressive Growth Ahead

• 12-14% growth expected for the near future• 50-60 new openings in 2015• 80% or more will be corporate stores• New markets:– Upstate, NY– Yonkers/White Plains NY,– Oklahoma (Tulsa, OKC and Stillwater),– Phoenix AZ, – Toronto Ontario Canada – first international

expansion.

Finding GCs/Vendors Finding them is relatively easy…• They solicit us• Personal connections• Peers’ referrals• Trades’ referrals• Noodles’ project

managers’ insights

Vetting Strategies …Vetting them is tougher• Always do reference checks –

subs, other restaurant brands• Require CPA-audited or

reviewed financials. “Compiled” is not enough.

• Start looking/vetting w/in 6 months of knowing we’re going into a new market

• We use third-party partner for assistance

Franchisees – Dictate or Guide?

• Most are multi-brand operators with own contractors/vendors in place

• We provide referrals and resources• They typically bid projects out competitively to

existing vendors and referrals but are free to use their own network of contractors -- as long as they’re building to approved plan specs and quality levels

RAVE/Pie Five Pizza Development

Pie Five – Fast-Growth Fast Casual

• Launched in 2011• Texas-based• More than 40 locations in 9 states• More than 450 announced franchised and

company-owned units under contract in 16 states and the District of Columbia

• Key growth markets: Dallas/Fort Worth, Houston, Chicago, Atlanta

Finding GCs/Vendors • Leverage existing relationships• Tap franchisees• Talk to your facilities managers• Call peers or ex-employees who

may have moved to other brands

• Join associations and network, i.e.,– RestaurantPoint– Restaurant Facility

Management Association

“We’re all looking for the same results: on time, on budget, no issues.”

Vetting Strategies• Start with AIA A503 form/GC

Qualification Statement• Run credit reports, check

references• Visit other projects they’ve

done• Talk to their subs• Require site visits and visits

to our offices• Review plans together• Set expectations, timelines,

deliveries• Trust your gut

Franchisees – Dictate or Guide?

• Franchisees have a choice of which KEC that they want to use

• All suppliers/vendors are approved by corporate

Buy Local?

Benefits of Local Contractors – Del Taco

• Local relationships with subs• Local-market knowledge• Relationships with city/knowledge of local

inspection, permitting issues• Local nuances that only local/regional GCs would

know – saves time, money

Benefits of Local – Noodles & Company

• Recently expanded contractor base from a few traveling with us nationally to 10-12 regional firms

• Better customer service, follow up, representation• Better local market knowledge• Ongoing relationships with local trades – more

work gets them better pricing, better long-term support

• Easier qualification/vetting process – they have a presence in the market and more at stake locally

• No travel expenses

Benefits of Local Contractors – Pie Five Pizza

• We use a mix of local and traveling general contractors

• National architect to ensure consistency • Prefer local contractors– Suits our plan to build out each local market– Fast response time when we want to move to

the next project in the market– Relationships with local inspectors– Good connections to local subs and unions– Helps build the local economy

Beware!

Red Flags to Watch For in theVendor Vetting Process

Druse’s Big Red Flags

• Unpaid subs/lien rights• Always looking for more money• Poor response to issues/problems – emerge

after a store or two• Unwillingness to “play nice” with other vendor

partners – us vs. them attitude

Henderson’s Big Red Flag

• Any contractor who says they always build on time, on budget, with no change orders or punch list– No set of plans is perfect and no project is ever

perfectly aligned with the plans!

Witken’s Big Red Flag

• Ask for cost to bond the project. If they have a high bonding cost or are not bondable, that’s a red flag.

Best Practices – Closing Thoughts

• Do your research/due diligence before committing to a contractor

• Get and check references – both trade and operator

• Develop a clear understanding of the suppliers’ capabilities, strengths and weaknesses

• Trust your gut. Walk away if it doesn’t feel right – mistakes are very costly

Questions?

Thanks to Our Sponsor

We are TriMark,And We Bring It!

Learn more atwww.TriMarkUSA.com

Future rd+d Webcasts

August 26, 2015

Green Building Strategies

Comments/suggestions: Contact Dana Tanyeri, dana@zoombagroup.com

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