Business
New Deli
After twenty years as a small chain of hole-in-the-wall sandwich shops, Austin-based Schlotzsky’s remade itself. Now it’s slicing up the competition.
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But whatever was lost in jettisoning the familiar image was more than gained in broader customer appeal. Even I, who regard fast food as an insidious plot to undermine America’s sense of taste, have eaten a Schlotzsky or two over the years. So to see what the expanded menu offered, one afternoon I engaged in a mammoth sampling. Like the majority of Schlotzsky’s customers, I liked the basic Original sandwich best. (Though the restaurant offers fifteen sandwiches, ten pizzas, six salads, and assorted extras, the four versions of the Original account for nearly 40 percent of its sales.) In essence the Original is an Italian muffuletta, served warm and based quite consciously on those sold to this day at New Orleans’ famous Central Grocery deli in the French Quarter. No one would confuse one of those gargantuan, gloriously sloppy wonders for a Schlotzsky, but the chain version is highly acceptable, especially when compared with competitors like Subway’s very ordinary cold deli sandwich. The multiple meats and cheeses give it a full body, and the rather harsh mustard adds an appealing bite. The only thing that doesn’t quite measure up—and I know this is heresy—is the unusual Schlotzsky sourdough bun. Appealing when warm, it grows coarse and oily when cold. That aside, the Original is still the best of Schlotzsky’s sandwiches, all of which are served on variations of the sourdough white bread (wheat, dark rye, and jalapeño-cheese). Except for the sauerkraut-spiked Reuben and the beefy, almost sweet Philly, the versions without mustard are bland. The sourdough-crust pizzas, however, are fine, especially the Southwestern, with its stylish strips of barbecued chicken breast.
Once Wooley and his partners had tweaked the menu and fiddled with the look of the restaurants, they decided they didn’t want to be in the business of operating their own franchises anymore. “Too many headaches,” Wooley says. They sometimes found themselves solving day-to-day problems such as broken equipment in stores hundreds of miles away. Over several years Schlotzsky’s sold off all but five of its company-owned stores. Then the business began slowly changing the way it related to its non-company stores to ensure uniformity in the food as well as the atmosphere. “It wasn’t easy,” says Wooley. “Early on, we had encountered a lot of resistance to change. It was like going into someone’s living room and telling them to rip up their carpet and install one that you liked. Their attitude was, ‘No! Now get out of my house.’”
One of the ways the company established control was with something new: operations manuals. The manuals started out as basic how-to’s and eventually grew into a series of nine fat loose-leaf notebooks. Wooley refers to them as the company’s bible, but they’re more like an encyclopedia. And they leave nothing to chance. Take, for instance, Volume 3, Chapter IV, section A, page 4, which dictates the proper procedure for preparing a “Bun, Cheesed.” Method: 1. Wearing a safety glove on hand holding bun, slice bun horizontally into two equal halves and position on work table with the top half of the bun directly above the bottom half for garlic dressing and cheese application. Do not overlap buns. 2. Using a squeeze bottle, apply the garlic dressing to each bun half using a 4 ring spiral pattern with a maximum bead of 1/8". And on, and on, and on.
As the manuals grew to cover everything from sandwich making to accounting procedures, Schlotzsky’s found that consistency and quality control were firming up. The company also instituted its own line of products, including olive oil, jalapeños, chips, and mustard, which its franchisees could buy at a considerable savings over national brands. Put on prominent display, the products and their spiffy labels spruced up the sandwich shops. To further ensure uniform operations and prevent inexperienced new franchisees from crashing and burning, the chain came up with the idea of a central training center. When it opened, in 1995 at the location on South Lamar in Austin, it was like a specialized vocational college; owners and their key employees worked in the kitchen chopping lettuce and slicing salami and took classes in how to run a restaurant.
If you’re thinking at this point that you would like to operate a Schlotzsky’s, here’s what it will take: The initial franchise fee is $20,000. On top of that you’ll need $100,000 to $120,000 for equipment, and you can count on borrowing another $125,000 for supplies, payroll, and more. Rent will require a chunk of change every month, and you’ll pay royalties to Schlotzsky’s amounting to 6 percent of gross sales. For your investment, you can use the company’s name and reputation—and you get your very own set of operations manuals. If you play your chips right, though, chances are good that you will make money: Entrepreneur magazine has named Schlotzsky’s the number one specialty-sandwich franchise opportunity in the country for five years running.
The company’s recent meteoric growth has put John Wooley in a tough position. These days he is making every effort to sustain his status as a reformed workaholic while at the same time perversely looking for more ways to grow the business. “Bread is our point of difference,” he muses. “It makes us unique. But it struck me that we did not have baking expertise. We should know about bread.” So a little over a year ago he inked a deal with upstate New York bread guru Dan Leader, the owner of the tiny, well-regarded artisan bakery Bread Alone, to run independent but complementary operations out of the same building. In 1995 the first of these opened at the South Lamar location and has been successful beyond anyone’s expectations, with sales of $2.6 million in 1996, far in excess of the $1.5 million projected. As one customer said, “You ended our family’s Saturday fights over where to eat, because everybody can find something they like there.” Another one hundred to two hundred such Marketplace stores could open in the future.
There’s also Schlotzsky’s expansion into foreign markets—a phenomenon that is happening with almost no effort on the company’s part. “We haven’t sought this out,” Wooley says. “The phone rings and it will be someone from Nova Scotia or Portugal wanting information.” At the beginning of this year, Schlotzsky’s was in ten foreign countries, including Canada, Mexico, Germany, Japan, and South Korea.
And Wooley continues to groom the company’s image. “We’re concentrating on getting out of strip centers—or at least, we’re not putting any new Schlotzsky’s in strips,” he says. The model for the future is a medium-sized freestanding building covering 2,600 to 3,200 square feet, with a dark brick facade and green-and-white awnings. The first opened in January in the Central Texas town of Bastrop. As always, Schlotzsky’s is moving cautiously, being sure its resources are not overextended, carefully maintaining quality and control. Eventually, Wooley hopes to have four thousand stores around the world, $3 billion in U.S. sales, and a national advertising campaign that will give Schlotzsky’s the name recognition of a McDonald’s or a TGI Friday’s. Not bad for a hippie sandwich shop.
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