Of burgers and pizzas

Classic Burger Joint and Tomatomatic talk expansion through franchising

It all started in 2010 with a small shop flipping burgers in a mainly residential area of Achrafieh facing Sodeco Square. Seven years later, Ministry of Food – the hospitality management company that owns the restaurant brands Classic Burger Joint (CBJ) and Tomatomatic – boasts a total of 30 CBJs and five Tomatomatics (with a sixth on its way in Hazmieh), and its growth and expansion targets don’t end there.

According to Angela Sawan, franchise manager at Ministry of Food, the company aims to have 100 outlets – including the two brands both locally and regionally – by 2020; an ambitious figure for a company that only began to aggressively franchise in 2016.

A solid foundation

From the start, CBJ resonated positively, particularly with young Lebanese, who were drawn to its trendy branding and modern vibes. Karl Ghorra, the company’s CFO, says that despite local instability, the numbers have been growing since day one, with a steady year-on-year increase. “Last year the increase was perhaps not as strong as before due to the economic situation in Lebanon and the region, but we managed to maintain profitability and even increase it despite a slower increase in sales,” explains Ghorra.

In terms of an increase in sales, store-to-store comparisons both locally and regionally have yielded very good results in the last few years, according to Ghorra. He adds that this is despite the heavy cannibalism in 2016 brought on by many CBJs and Tomatomatics opening in the same year. For full-fledged year round stores in solid locations, Ministry of Food aims to have an annual turnover of close to $1 million per year, per store – another ambitious estimate – with a profit margin of 25 to 30 percent.

The faces of the Ministry

Sawan attributes the success of Ministry of Food to its founders, whom she says are all active partners and come from diverse backgrounds that provide unique strengths to the company. Donald Battal, whom Sawan calls the “guru in F&B,” uses his expertise in the hospitality sector to drive innovation, research and development, and the vital expansion strategy.

Brothers Boudy and Walid Nasrallah are the founders of the design company Wonder Eight and are behind the branding and marketing strategy of both CBJ and Tomatomatic. Sawan says that although Wonder Eight is a separate company, and Ministry of Food has their own internal marketing department, there is a lot of synergy between the two.

Also among the partners is chef Ahmad el-Chami, who developed the menus, and Maroun Chammas, a financial entrepreneur who supported the formation of Berytech and the Beirut Digital District, he brings expertise in economic development and public relations.

The company observed that sales from their pizza delivery far outweighed dine-in sales, and decided to reconceptualize Tomatomatic as quick service and delivery

Burger beginnings

While plenty of diners have been serving burgers in Lebanon since the 1990s (examples include Roadster Diner and Crepaway), Sawan argues that CBJ was the first to pioneer dedicated burger joints in Lebanon. The “burgers only” concept was already a big trend in the USA and Europe in 2009, when Ministry of Food decided to adapt it to the Lebanese market, attracted by the idea of a single-item operation. “Burgers were a trend outside of Lebanon, and so, we thought of being entrepreneurs, in a sense, and bringing the trend to Lebanon. It was in the vision of the founders of the company to create single-itemed stores where the focus is really on perfecting this item,” says Sawan, explaining that operating such a model is easier because one can control costs better and focus on innovating the main menu item.

CBJ expanded fast, and following their first outlet in Sodeco, they opened a branch in Jal el-Dib that Sawan describes as a strategic location, which allowed them to serve a larger consumer base. The Jal el-Dib store was followed by joints in Uruguay Street, Zaitunay Bay, Hamra, and Le Mall Dbayeh.

Time for pizza

A year after the launch of the first CBJ, and fueled by its success as a single-item F&B concept, Ministry of Food’s partners introduced Tomatomatic, which operates in the same model as CBJ, only here the focus is pizza. The first Tomatomatic was launched in 2011 as a casual dine-in concept located in the same Sodeco building that housed CBJ.

However, the company observed that sales from their pizza delivery far outweighed dine-in sales, and decided to reconceptualize Tomatomatic as quick service and delivery only. Sawan argues that the American-style pizza they bake is inherently better suited for delivery, and illustrates her point by giving the example of Pizza Hut rebranding itself from a dine-in concept to PHD, a delivery only model.

Tomatomatic relocated its operations to Geitawi, where Sawan says they have lower visibility than in Sodeco but are more central, and thus, able to deliver to a wider area. Other benefits from the change to the quick service model include lower rent and lower expenses when compared to a dine-in concept.

CBJ’s franchising presence

Sawan says that Ministry of Food’s main goal from the start was to grow their brands through franchising. “We wanted to expand the footprint of [CBJ], and we wanted to franchise the concept,” says Sawan.

Internationally, CBJ has franchise outlets in the UAE (Dubai), Kuwait and Cyprus, with plans for an expansion to Iraq also in the pipeline.

While at first the company was directly operating its stores in Lebanon, it began franchising domestically in 2016, the “year of the franchise” for CBJ. “The big leap for franchise was in 2016, when we started franchising locally, and therefore doubled our store number. We also had multiple franchisees abroad, and each one worked on a parallel development project. So, in Kuwait we opened four stores, in Dubai two … There was one opening every five weeks in the last 18 months,” says Ghorra.

The first three franchised branches of CBJ in Lebanon are fully operational year-round and are located in Mansourieh, ABC Achrafieh and Jounieh. They now include the franchise in North Lebanon, where the franchisee for the region has opened a shop in a food court in Zgharta, as well as seasonal kiosks in Balamand, Cedars, Ehden and Batroun.

According to Ghorra, each store opening takes between four to six weeks for logistics such as marketing, training and identity development, and utilizes all the company’s operations staff (16 to 20 people in the head office, plus the team of Wonder Eight who have implants in the company to support franchise expansion).

The franchisee territory for Tomatomatic outlets is divided into zones – each of which has between 50,000 to 100,000 potential customers

More pizzas in the oven

Growth for Tomatomatic has been slower, and only two franchises were granted in 2016. “For Tomatomatic, we are now focusing on growing the brand locally like we did with CBJ. We tested the franchise model by operating the store ourselves, and then by franchising locally. So, we are ready to go regionally when the time is right,” says Sawan, explaining that they plan to have 10 Tomatomatics in Lebanon and one franchise in Iraq by the end of 2017.

Sawan enthusiastically explains that Ministry of Food’s aim is to grow Tomatomatic into multiple stores that act as a network. “It is a brand that lives and feeds on outdoor marketing campaigns, so what we do is take a chunk of the marketing money we make from each store and invest it into that campaign. The more branches we have for Tomatomatic, the more we can afford to spend on outdoor marketing, and the more clients we get,” she elaborates.

To ensure that oversaturation does not occur, says Sawan, the franchisee territory for Tomatomatic outlets is divided into zones – each of which has between 50,000 to 100,000 potential customers – and is delineated by a 15-minute drive by a motorcycle at a speed of 40 kilometers per hour.

All delivery calls are directed to a unified call center, which dispatches the order to the assigned territory. Sawan says they invested over $50,000 in the modern hardware and software for the call center, which is shared with CBJ. It was established a year and a half ago, and Ministry of Food sell its services to their franchisees. “This allows us to control and streamline the service, and at the same time reduce our overhead cost.”

Franchising the brand

Ministry of Food has a well-defined franchising model in place to ensure that everything runs smoothly. Domestically, Sawan says they mainly sell single-unit franchise licenses, but they have given multi-unit franchises in certain areas such as north Lebanon. “In multi-unit franchises, the franchisee takes over the territory and is in charge of expanding the brand there,” explains Sawan, adding that the opportunity exists in south Lebanon for a similar model.

According to Sawan, the profile of a local CBJ operator is an entrepreneur with a senior or management post in an F&B operation “who shares the same culture and values of the company and appreciates our brand.”

However, the profile differs regionally as franchises are given to very large territories, so seasoned F&B developers or corporations are required, explains Sawan. “To qualify, these operators should have had success in managing brands that are similar to CBJ in that they are casual. For example, our franchisee in Kuwait is the development agent of Subway, and in Dubai he is the franchisee of [Kahwet] Leila,” she says.

Meanwhile, Tomatomatic is described by Ghorra as having a “low barrier to entry” business model. “It is much easier to get a franchise for Tomatomatic, at least financially and training-wise. You can also be a non-F&B person and get it,” he says.

The money trail

As for franchising fees, Sawan explains that there are two main expenses: an area development fee and a unit franchise or license fee, which is related to a single location. Additionally, there are ongoing royalty fees and marketing contributions.

The area development fee differs from one country to another, according to Sawan, while the license fee is based on the number of branches. The more outlets the developer adopts, the cheaper this fee becomes.

Ghorra explains that the initial fee is related to the number of branches a franchisee will take on in a country or area, and the monthly fee is a fixed percentage of turnover. All in all, he estimates that it costs $120,000 to start your own Tomatomatic, while it would cost three times more for a CBJ.

Grilling for growth

As Ministry of Food grew its number of franchisees and developers, it had to become vertically integrated to be efficient and competitive. The company originally had a central kitchen in Lebanon, but when planning for franchising, they decided to close it in favor of having their suppliers produce the company’s proprietary ingredient using its recipes.

Although these suppliers have an exclusive contract with Ministry of Food in Lebanon, this is not the case regionally, as Sawan explains. “Outside of Lebanon we changed this because franchisees were asking for facilities closer to their territories to cut down on shipping expenses. So, we started to approve factories in the GCC region, and we added a factory in KSA to our portfolio. This factory will help our Kuwaiti and Dubai franchisees when they want to import and also help us when we expand to KSA,” explains Sawan.

When it comes to Tomatomatic, Ministry of Food is more lenient on ingredients, and while some items are integrated into the supply chain, the majority can be locally sourced according to certain specifications. “The only two ingredients which must be used like us are the Italian tomato sauce brand that we use and our secret spices recipe,” says Sawan.

The profile of a local CBJ operator, according to Sawan, is an entrepreneur with a senior or management post in an F&B operation “who shares the same culture and values of the company and appreciates our brand”

A new marketing approach

Marketing and promotion was another area that Ministry of Food had to rethink in order to facilitate their brand expansion. Sawan explains that at the beginning, franchisees would come up with marketing ideas or promotional campaigns based on their outlets’ needs or performance, and Ministry of Food, through Wonder Eight, would do the production and send them the materials to use.

However, with the increasing store count, this strategy was no longer viable. “We decided to elect local marketing agencies wherever franchisees are to drive the brand. So, we asked regional agencies to pitch for the brand, and we selected the best agency to present our brand there,” says Sawan, insisting that they will still feed the agencies a brand level strategy to use, which will be “strictly followed up on and supported by the head office in Beirut.”

Facing the competition

In a landscape covered with international and Lebanese franchises, such as the Gulf, it is hard to stand out from the crowd. Sawan sees several areas where their brands have a competitive edge for their brands over American or European franchises. One of them is market adaptation and cultural literacy, whereby they adapt their marketing strategy based on each country.

Examples include the Kuwaiti burger (a best seller produced only for Kuwait, which includes flavors that nationals appreciate), the soup and dates served during the holy month of Ramadan, and the fish or mozzarella burgers they add to the menu during Lent. “Cultural literacy is high in our brand identity, and this is what the international brands might miss. For us, it’s easy to cater to such requests since we have less bureaucracy, are fast and supportive in that area, and are only a short plane ride away,” Sawan explains.

In countries where there is a large Lebanese presence, Sawan sees brand loyalty playing a role in sales. “Up to 30 percent of our clientele in Dubai are Lebanese, and in a market as competitive as Dubai, loyalty really makes a difference,” says Sawan.

Only time will tell

“Our vision and our aim is franchising,” repeats Sawan emphatically, and indeed, it is clear that all of the company’s energy has been poured into this goal.

Sawan sees the region becoming increasingly competitive, and with the struggling GCC economy, they are now shifting their franchise focus to emerging markets with  high population densities and improving economic situations, such as Egypt or Turkey.

It is still too soon to tell if Ministry of Food will hit the 100 store mark by 2020. Many Lebanese-grown concepts before them have tried to expand this way, only time will tell if Ministry of Food holds the keys to franchising success.

Nabila Rahhal

Nabila is Executive's hospitality, tourism and retail editor. She also covers other topics she's interested in such as education and mental health. Prior to joining Executive, she worked as a teacher for eight years in Beirut. Nabila holds a Masters in Educational Psychology from the American University of Beirut.

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