The Claymont Steak Shop has quietly launched a franchise program designed to bring its much-loved cheesesteaks to hungry diners beyond its three current stores in northern Delaware.
When you consider that its cheesesteaks have won eight straight Best of Delaware awards from Delaware Today magazine’s Upstate voters, it’s no surprise that the Claymont Steak Shop is taking a conservative approach to this stage of its growth.
The company hopes to leverage the strength and recognition of its brand locally by focusing early franchise marketing on Delaware and possibly adjacent counties in Pennsylvania and Maryland, eventually spreading out to other markets in the region.
“We’ve set a high bar for quality,” said Demi Kollias, who has owned Claymont Steak Shop since 2005. She purchased the original store from cousins Bob Hionis and Sam Demetratos, who opened the location in Claymont in 1966. “I’ve met so many people over the years who asked me to open a store in their area.
Kollias, a native of Greece like Hionis and Demetratos, says the success of the two stores she’s opened in Newark and north Wilmington has encouraged her to finally move forward with expansion through franchising. But that doesn’t mean you can expect to see a Claymont Steak Shop on every corner by the end of the year.
“We’re not looking to do 10 stores in 10 months,” Kollias said, noting that she has 13 years of experience as a 7-Eleven franchisee in Philadelphia. “We’ll be growing very slowly and getting some experience in this aspect of the business. But I know the concerns of franchisees, what they need, and how hard they work. We’re very focused on helping them be as successful as possible.”
Both Kollias and Cathy Ziccarelli, who heads up marketing for the organization, said they’ll be approaching the franchisee vetting process very carefully. There’s been interest since they put up their OwnAClaymontSteakShop.com website, but there are no hot prospects on the menu yet.
It is clear from a review of the website that it isn’t cheap to open a successful quick-response restaurant (as opposed to a takeout place like the very successful Capriotti’s). Costs to get the special sauce behind the award-winning “fresh, never frozen, rib-eye steak sliced right on the premises (not to mention the pizza and other menu items that can include beer and wine) include:
- Estimated start-up costs ranging from $552,800 to $625,500, which includes “expenses to outfit your location with the necessary equipment, fixtures, and initial inventory.” Those costs also include professional advisory fees from third parties and three months of working capital.
- Initial franchise fee of $40,000 that is included in the estimated start-up costs.
- Ongoing royalty: 6% paid weekly
- Brand development fee: 1% of revenue
- Local marketing investment: $2,000 per month
- $10,000 set aside for Grand Opening activities
Each prospective franchisee is buying a “territory” that includes a “radius encompassing 125,000 in population or a three-mile radius, whichever is less.” The company is offering three-unit agreements for qualified multi-unit owners. The site says, “some Claymont Steak Shop owners will own more than one unit.”
Ziccarelli says franchisees should be able to open within six months of committing to a location and signing their lease, but it could take longer if they decide to build their own store. Ownership will help franchisees evaluate real-estate options, select equipment, and decide which of three versions of restaurants they’ll open, including option that allow franchisees to offer beer and wine in their stores and another that lets them offer a more streamlined menu.
The company expects each franchisee will employ 10-12 people in a store. Despite the growth of third-party delivery services, the site makes it clear that all of its restaurants “provide in-house delivery as a service to our customers.”
Franchising advisor Michael Seid says the marketing costs seem reasonable, but may need to increase once the company ventures out of Delaware into areas where its brand isn’t as well known. He said the idea of creating territories in a radius is “old school – nobody shops in a circle and territories are declining, particularly in big-city markets.” He said there are many places with small populations with “tons of Subways and Dunkin Donuts that do just fine.”
Seid, the managing director of West Hartford, Connecticut-based MSA Worldwide, which has been described by the International Franchise Association as “the leading strategy and tactical advisory firm in franchising,” also said prospective franchisees should compare their start-up costs to the “Item 19 estimate of annual sales” in the franchising prospectus to determine whether their revenues will support their debt service. He said first-year sales should be somewhat equivalent to the investment, with cost of goods and labor (including the manager) being under 60 percent of that amount.
Ziccarelli said Claymont Steak Shop is only sharing those numbers with prospective franchisees who sign a confidentiality agreement.
SMB Franchise Advisors of Doylestown, PA, advised Kollias and her team on franchise structuring. Its website says it’s been in business since 2006 and that President and CEO Steve Beagelman is a “franchise industry veteran of more than 30 years” and that “SMB has assisted over 200 companies grow their concepts.”