Back yard business.

Back Yard Burgers Offers Franchises, Prepares for Public Stock Offering

WHEN A BACK YARD Burgers location opened on Cantrell Road last year, Brent Bumpers decided to try the restaurant.

"The first time I went there I was immediately interested," says the Little Rock businessman. "I've never thought there was a fast food burger out there that is comparable to what you can make at home."

Bumpers and a friend from Oklahoma are about to break ground on a their first Back Yard Burgers location in Tulsa. They are committed to open three in the Tulsa metropolitan area.

Since the chain was founded in Memphis, Tenn., in 1987, it has experienced 50-100 percent growth each year. It has 44 stores in 13 states.

In addition to selling franchises, the company has filed to have a public offering of 1.3 million shares of its stock. By the second week in June, the stock should be available at $6 a share.

According to a company press release, one reason for the stock sale is to retire debt. The other purpose is to assist with a three-way merger between Back Yard Burgers Inc., Double S Development Inc. -- the company's largest franchisee -- and American Back Yard Burgers Franchisee Corp.

"We believe in the franchise system. It works well for us," says Barry Pitts, the director of franchising for Back Yard Burgers.

"We are actively seeking franchisees in most of the U.S.," Pitts says. "Our goal is to become a national company."

Although there are some far-reaching locations such as San Diego and Las Vegas, Pitts says most of the franchise locations are in the south-central and southeast United States.

So far, Pitts says one area of the country does not necessarily prove better than another.

"I don't think it's so much geography as it is management," Pitts says. "Hamburgers and chicken sandwiches work just about everywhere."

In 1992, franchise and company-owned restaurants grossed just over $20 million with $500,000 in earnings.

Tom Hilburn, a co-owner in five central Arkansas locations, says his restaurants average $1 million in annual gross sales.

"We get a much higher return on sales for investment than the bigger guys do," Hilburn says.

Restaurants like Back Yard Burgers and Rally's Hamburgers, which both feature double drive-through structures but no inside seating, cost hundreds of thousands less to own than a McDonald's or a Wendy's. But they are supposed to be able to handle the same volume.

A Back Yard Burgers franchise costs $300,000-$400,000.

That includes $200,000 for the building and equipment; $35,000 for signs and canopies; $25,000 for the franchise fee (which includes four weeks of training for three management members); and $80,000 for site work.

After that there are lease payments and a 1 percent advertising fee and a 4 percent royalty fee to be paid to the company.

Hilburn says it's tough to compete with the national advertising power of the larger chain restaurants, and for that reason he wants to ensure he gets the most for his money in Little Rock.

"We're not going outside of Little Rock until we saturate this market," Hilburn says. "You've got to get more for your buck."

His next four stores, including two this year, will be in central Arkansas.

It's obvious that Hilburn and other franchisees believe in the Back Yard products.

Bumpers says he not only wanted something he could be proud peddling, but he wanted something that he would enjoy eating.

Pitts is on the same wavelength.

"We serve a really high-quality product," he says, explaining how green leaf lettuce is used instead of iceberg and rings of red onion are favored over chopped white onions.

"I think you can sum it up in one word," Pitts says, "and that's taste."

Risks and Rewards for Franchisees

Rewards

* You're buying a mentor.

* You receive initial training in all aspects of running the business.

* The parent company becomes your research and development arm.

* You have the marketing advantage of known trademarks, service marks and logos.

* Consumers can count on uniformity in the delivery of products or services.

* The mass purchasing power of hundreds or thousands of franchised outlets means big cost savings to you in the purchase of products and supplies.

* Prior to your purchase, the franchise company is required by law to disclose information on the company's background, operations and financial stability.

* You have a 90 percent chance of succeeding if you buy a franchise.

Risks

* The up-front costs can be substantial.

* That same helpful guidance may become restrictive as you mature in the business.

* The parent company may not deliver all it promised in terms of ongoing management support and new product development.

* Other franchise owners within the same system can tarnish the company's image by delivering inferior products and services.

* You must always operate within the parent company's set of rules.

* You may discover the home office is receiving hidden payments from suppliers with whom you are required to do business.

* All the information you need to evaluate the franchise is not contained in the company's legal disclosures.

* The only success rate you should be concerned with is the success rate of the franchise you're buying.

Source: The American Franchisee Association of Chicago.