For many franchisors it always seems like the sky’s the limit. But Penn Station East Coast Subs has subscribed to a different philosophy during 25 years of successful growth: Look down, not up.
Since founder and CEO Jeff Osterfeld opened the first Penn Station in downtown Cincinnati in 1985, the chain known for its legendary Philadelphia Cheesesteak Subs has grown to more than 220 locations in 12 states. The numbers have not come in leaps and bounds, but instead have followed a steady course, with only two closures in that time, an astounding accomplishment in the fickle restaurant industry.
“We take a long-term approach to growth,” said Craig Dunaway, Penn Station’s president. “If a tree’s roots grow deep, over time the tree will become much stronger. It will take longer to accomplish, but in the end the tree will be much more grounded and will survive longer.”
Penn Station is looking to open 100 new restaurants in the next three years, targeting markets such as Chicago, Detroit, Nashville and North and South Carolina, as well as increasing its presence in a number of existing markets.
That growth is expected to come from area developers who are well versed in multi-unit operations and able to commit to opening at least five restaurants, though that number will vary depending on market size. Dunaway said it’s an ideal opportunity for entrepreneurs with prior restaurant experience, as well as small, active investment groups that must have at least one member with previous multi-unit restaurant experience who serves as a full-time managing partner.
Gordon Hahn’s first experience with Penn Station came while visiting his daughter in Indianapolis. No stranger to the business, Hahn was the managing partner for a group that was the first Panera Bread franchisee in Chicago, eventually opening 31 bakeries in six counties.
Now a Penn Station franchisee with his son as minority partner, Hahn sees the same potential after opening his first restaurant in the Chicago suburb of Lombard last August. Hahn has plans to initially develop five locations and Dunaway
foresees having 20 to 25 Penn Station
restaurants in Chicago by 2015.
“Chicago is a good market because Penn Station is different from other sub chains with its fresh-grilled meats and hand-cut, made-to-order fries,” Hahn said. “Penn Station has a very good return on investment if you are hitting average unit volume sales because the concept is not labor intensive and the food cost is very reasonable.”
Dunaway said Penn Station painstakingly ensures that franchisees intimately understand the company’s operations, systems and procedures in order to maximize ROI. Because Penn Station dedicates so many resources to its franchisees, Dunaway said it’s important that franchisees invest the same passion.
“We want active investors, not a group of investors looking for a sideline business,” Dunaway said. “We require specific restaurant experience for the managing owner because we want to train the franchisee to our system, not the nuances of how to operate a restaurant. It’s about understanding the unique aspects of the investment.”
Having already developed one brand with little or no recognition in the Chicago market, Dunaway said Hahn has the background to do the same with Penn Station.
“Gordon understands developing systems from the ground up and understands how to develop and build a team,” Dunaway said. “With his operational background, multi-unit experience and hands-on approach, he’s really an ideal franchisee.”
Conversely, Penn Station has proven an ideal franchise for more than two decades. Through March 2008, the company had experienced 45 consecutive months of comparable store sales increases (current period vs. the same period the previous year) and had never had a year in which system-wide sales didn’t increase over the previous year. Sales were off slightly for the latter part of 2008 and 2009 due to the recession, but while many restaurant brands are still struggling, Penn Station has rebounded quickly with seven straight months of positive comparable sales.
Penn Station and its franchisees have prospered because of the deep roots that the company has established and it’s a select group. Dunaway said 500 franchise candidates might be considered before a chosen few are selected.
“We have never jumped all over the country into new markets because it wouldn’t have allowed us to flourish and set deep roots,” Dunaway said. “That is why in the long term, the Penn Station brand and franchisees succeed.”
FOR MORE INFO
Penn Station inc.
1226 US Highway 50
Milford, OH 45150
Contact: Craig Dunaway