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FRO-YO, BURGER JOINTS TURN OUT FOR FRANCHISE EXPO

November 16, 2012

Crain's New York Business


For all the burger joints, pizzerias and frozen yogurt chains that have proliferated in New York City over the years, only to shutter, there are plenty of others waiting to take their places.

"I like New York because it's a central hub," said Anthony Russo, proprietor of Russo's New York Pizza, and one of more than 300 exhibitors attending the three-day International Franchise Expo at the Jacob K. Javits Convention Center ending on Sunday. This is the expo's first year in New York City after a 20-year run in Washington.

Mr. Russo, a native of Paterson, N.J., founded his business in 1992 in Houston, Texas. He figured that the lack of East Coast-style pizza there would give the company room to grow. Two decades later, he wants to bring the New York-via-Texas pizza to its titular city with a branch of the original franchise, Russo's Coal-Fired Italian Kitchen, a sit-down Italian restaurant. Russo's has 32 locations in Texas, Florida, Tennessee and Arkansas and 26 more under development.

"There's no coal-fire experience here," he said, explaining how New York could support yet another Italian joint. Brick-oven and Neapolitan-style pizzerias abound, but old-fashioned "red sauce" restaurants like John's Pizza and the potential Russo's are fewer in number these days.

The perpetually hungry crowds who can anoint a restaurant with their patronage make the market worth venturing into, in spite of intense competition that drives up rents and other expenses.

"What you get in exchange for the population density is higher costs across the board," said Lane Fisher, a partner at FisherZucker, a Philadelphia law firm that represents around 70 franchise brands.

To start a Russo's, a franchisee needs about $450,000 of cash in hand. Added to that are high costs in labor and construction. Prime real estate can be the biggest expense, but a steep price is worth paying "if it's a trade area with good potential," said Mr. Russo.

High expenses, combined with the tight credit market of recent years, have made it popular to launch franchises businesses that operate from owners' homes—or cars—like tutoring, cleaning services and dog walking. A company called Fetch provides franchise opportunities in pet-sitting and dog-walking and has one location in Manhattan so far. A CruiseOne retail franchise costs under $10,000; once involved, franchise owners—there are around 10 in New York City already—can sell cruise tickets from home offices with barely any overhead.

But small, low-overhead businesses don't profit from the crush of street traffic the way retail locations here do, said Michael Rozman, co-president and chief strategy officer of BoeFly, an online marketplace that connects lenders and franchisees.

That big market allows for multiple brands in similar industries to succeed in New York—there's a bagel shop on every corner after all.

"In the food space, there are always industries that are darlings of the marketplace," Mr. Fisher said. "Hamburgers seem to be one of them. Yogurt is another one at the moment."

The market for hamburgers and frozen yogurt might appear saturated. But there are franchisees who still want in. Five Guys, the burger chain with 22 outlets in New York City, has sold out all of its franchise opportunities across the United States. Fortunately, there's Smashburger, a Denver-based franchise, which opened its first New York City restaurant in Brooklyn last summer, and Mooyah, whose franchise director said he hoped to find a local development partner for the burgers, fries, and shakes restaurant at the IFE.

Some businesses believe they need a dress rehearsal before setting up shop in the New York market. The Noodle House, based in Dubai with locations across the Middle East and Europe, wants to prove itself in Dallas, Washington or Boston before landing in this city.

"We've got to be sure we have strong foundations in order to be able to develop that growth," said Olivia Bilenkij, who does business development and franchising for the restaurant.


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