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The Honolulu Advertiser
Posted on: Monday, April 9, 2007

Expanding

By Andrew Gomes
Advertiser Staff Writer

Ted Tsakiris, left, and Rich Stula, the founders of Teddy's Bigger Burgers, figure O'ahu can support 10 Teddy's restaurants. And they see potential in places ranging from Windward Mall to Hale'iwa.

DEBORAH BOOKER | The Honolulu Advertiser

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Local burger joint Teddy's Bigger Burgers grills some big sandwiches, but with only three O'ahu stores after nearly a decade, the business is small by restaurant- chain standards.

That, however, may soon change. Company co-founders Ted Tsakiris and Rich Stula are launching an ambitious plan to add some serious size to the company via franchising.

Teddy's is seeking franchisees to open stores on the Neighbor Islands, Japan and four states initially on the Mainland Arizona, Nevada, New Mexico and Texas while opening up to seven more company-owned stores on O'ahu with operating partners.

The Honolulu company is poised to join a small handful of other Hawai'i-grown restaurants including L&L Drive-Inn, Maui Tacos, Bad Ass Coffee Co. and Roy's Restaurant that have expanded to the Mainland or beyond through franchising or similar partnership agreements.

Tsakiris and Stula said they spent the past two years and about $200,000 developing a franchising program, including a franchise agreement and 3-inch-thick operations manual as a strategy to grow the business they established nine years ago.

"Some people say three locations in nine years is nothing," Tsakiris said. "We have been developing a hard-core operation."

Teddy's has had a slow and sometimes unsteady evolution, receiving national acclaim but also stumbling a little in developing their product and new restaurants.

IT ALL BEGAN IN 1998

Tsakiris and Stula, who cooked up their business plan over backyard cookouts with help from their wives, opened the first Teddy's on Monsarrat Avenue on the slopes of Diamond Head in 1998.

The venture bootstrapped with some credit-card financing, a little self-help store construction and lots of labor over the grill by Tsakiris and Stula was a quick hit with its 1950s decor, thick old-fashioned milk shakes and $4- to $9 hand-pattied burgers made to order.

A Kailua store opened in 1999, followed by Hawai'i Kai in 2002. The cramped Monsarrat restaurant moved in 2003 to an expansive former Jack In The Box space in the Waikiki Grand Hotel on Kapahulu Avenue.

But a 2004 experiment with an "express" model open only for lunch in Downtown Honolulu was short-lived, largely because it was difficult to justify expenses and find employees to work only a few hours in an area with no free parking.

A planned store in Kapolei also was canceled about two years ago just before signing a lease because of difficulties staffing the store.

"We tried to just run (stores) with managers, but managers just didn't care the same," Stula said.

The challenges led Tsakiris and Stula to take a two-year hiatus in trying to open more stores in favor of developing a franchising model.

A FRANCHISING LESSON

The expansion plan, however, is not without risk.

Mark Ellman, a celebrity chef who moved to Hawai'i in 1985 and founded Maui Tacos in 1993, has endured an unfortunate experience franchising his popular chain of Mexican quick-casual restaurants.

Ellman had high hopes in 1998 when he partnered with the national submarine-sandwich restaurant operator Blimpie International Inc. to open at least 41 Maui Tacos on the Mainland.

Blimpie, as operating partner, opened about 30 franchised Maui Tacos stores, according to Ellman, but only 11 are open today in eight states and Washington, D.C.

Ellman, who as a minority partner has no control over Maui Tacos franchising, said some stores closed because of poor locations or operators, and that the franchising plan has suffered under a series of operating partner changes as Blimpie was acquired by investors in 2002 and then sold again last year to another company that transferred Maui Tacos franchise operations to another owner.

Ellman separately owns and operates eight Maui Tacos in Hawai'i, and soon will open a ninth at Royal Hawaiian Shopping Center in Waikiki. Ellman said his restaurants do well, but he wishes his franchising experience had been different.

"I wake up every day and pray things will get better," he said.

SLOWLY BUT SURELY

Tsakiris and Stula said they have been cautious about interest from investors offering to open Teddy's restaurants everywhere from Canada to New Zealand. "We'd like the money (from franchise and royalty fees), but we love our product," Tsakiris said.

Instead, the Teddy's founders have proceeded slowly, and are talking to some potential franchisees but haven't made any decisions.

Teddy's estimates it will require $350,000 to $450,000 to open each restaurant. The company, through affiliate Bigger Franchises LLC, plans to charge a $40,000 one-time franchise fee and a royalty fee equivalent to a percentage of gross sales 4 percent in the first year, 5 percent in the second year and 6 percent in the third and following years.

For more O'ahu stores, Teddy's plans to take on operating partners who would run a store and share in its investment and profit up to 25 percent.

Stula said the operating-partner arrangements allow a partner to gradually earn rights to buy ownership stakes in 5 percent increments.

The setup, he said, has worked well, allowing the co-founders to concentrate on broader operations.

"You cannot grow a company working over a 4-foot charbroiler," Tsakiris said.

The Kailua store partner is Erin Sandon, who started with Teddy's as a 15-year-old cashier. The Hawai'i Kai store partner is Henry Telles, an information-technology professional who moved to Hawai'i after the dot-com bubble popped.

Tsakiris said Teddy's is looking for an operating partner for its Waikiki store, and hopes to open at least one more store on O'ahu by the end of the year.

Tsakiris and Stula figure O'ahu can support 10 Teddy's, and they see potential in sites such as Pearlridge Center, Windward Mall, Mililani, Waikele, Kahala and Hale'iwa.

"There are a lot of communities we think we could do good in," Tsakiris said. "We have a solid brand. It made it over the threshold. It's got staying power."

Reach Andrew Gomes at agomes@honoluluadvertiser.com.

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