The grilled cheese is an American staple. With its countless varieties, there’s bound to be a version of the iconic sandwich that everyone can enjoy. Tom and Chee based its entire business model around this one sandwich and its many styles and has managed to make a success out of it. They started in a food tent on Fountain Square in Cincinnati, OH and have grown to a multi-unit, franchised chain in several states. They are currently seeking new franchisees to bolster their expansion across the country and take their numbers to new heights.
Tom and Chee’s Humble Beginnings
In 2009, founders, Trew Quackenbush and Corey Ward, opened their food tent in Cincinnati offering the quintessential comfort food: grilled cheese and tomato soup. In 2013, after an appearance on the hit ABC show Shark Tank, they struck a deal to expand their business. Brick and mortar Tom and Chee locations started popping up and the business was growing faster than imagined.
After the appearance on Shark Tank, Tom and Chee received 2,400 inquiries from potential franchisees. Through franchise growth, the company managed to reach over 35 locations. The fast expansion of the chain was enough to have Forbes name them as one of the top 10 most successful ventures to be featured on Shark Tank.
The appearance on Shark Tank didn’t just provide eager franchisees, it also produced a lot of hungry consumers who were excited to try the restaurant’s creations. Customers loved their wide variety of takes on the classic grilled cheese, as well as all the new innovations that were coming out of the Tom and Chee kitchen. With multiple tomato soup options, daily soups, salads, and off-the-wall desserts, they provide enough choices to keep customers coming back to try new things.
Within a few years of their Shark Tank appearance and fast growth, signs of trouble started popping up in the Tom and Chee world. Sales were diving and franchised locations were closing. By 2017, the chain had dropped from over 35 restaurants down to 23. It appeared that the novelty had worn off and people were no longer interested in unconventional grilled cheese sandwiches and soups.
In October 2017, it was reported that the company had been purchased by another Cincinnati-based restaurant chain, Gold Star Chili. According to reports, Tom and Chee was unable to repay a loan they had taken out, and their assets were being seized by the lender. Gold Star Chili had stepped in to save the drowning company on September 20, 2017, but news of the acquisition was withheld for nearly three weeks.
Nearly a year later, in August 2018, it was announced that Tom and Chee were being sued by one of their vendors, Sysco, over products they provided but never received payment for, as well as breach of contract due to failing to meet minimum order requirements. Neither Tom and Chee, nor their parent company, Gold Star Chili, provided comments on the situation, and as of the time of this review, there has been no word of any resolution to the lawsuit. Gold Star still appears to be moving forward with plans to expand the brand and revamp the current business model.
Gold Star Chili has big plans for the new look of Tom and Chee. They plan to shrink its footprint and lower costs to give them a fighting chance of success the second time around. With lowered costs and higher profit margins, they intend to, once again, grow the number of locations, and expand beyond the territories that previously housed Tom and Chee restaurants. Just as they did prior to their sale to Gold Star Chili, they plan to achieve most of their growth through franchise sales.
Purchasing a Tom and Chee Franchise License
In order to attain their goal of widespread expansion, Tom and Chee are seeking franchisees in a multitude of markets across the United States. While they will accept inquiries for franchisees in all areas of the country, they are giving special consideration to those looking to grow territories in the states that they are focusing on currently. Franchise opportunities are not available in all states at this time due to local franchising laws, but inquiries are still welcome, in case the those territories ever open up.
Tom and Chee are looking for specific characteristics in their new franchisees. They are seeking qualified candidates that have experience in running a fast-casual restaurant franchise, as well as financial strength to be able to pay for the license, start up costs, and any other issues that may arise before the location is able to support itself financially. They are also seeking franchisees who are interested in opening multi-unit franchises. They want owners who are committed to growing their territory by opening several stores within the same geographical area.
If the applicant passes the selection process, they will be eligible to purchase a franchise license for the price of $40,000. Tom and Chee want their franchisees to open several locations, but they do not offer discounts for the purchase of multiple licenses. They also do not offer any financing assistance for the purchase of these licenses. This, most likely, is to ensure that the franchisee has the financial strength to support the locations they are opening. As with all business, it can take some time before a restaurant makes enough money to support itself. The franchisee will need to have the money to carry the business until it starts sustaining itself and turning a profit.
The franchise license is not the only expense the franchisee will be responsible for. The estimated startup costs for each new location are between $402,000 and $835,000. These costs will cover the construction and/or renovation of the restaurant space, purchase of equipment, stocking inventory, and hiring and training staff. These costs will be required for each location that the franchisee opens.
Tom and Chee will also charge ongoing fees for royalties and advertising costs. Currently, they charge 6 percent of total sales as a royalty fee, and 1.5 percent in advertising fees.
Predicting Success Based on Current and Previous Franchise Performance
One of the biggest factors in deciding to purchase a franchise license is determining how successful that franchise has the potential to be. It should go without saying that purchasing a license for a brand that has a stronger track record of success is a better move than purchasing one with a long history of fails and issues within its system. However, a brand that has had problems may also have the potential to make a stunning comeback, if they change up their business practices considerably and focus on the areas that caused a lot of their problems previously.
As of 2015, Tom and Chee had a net franchise growth rate of 30. This is to be expected due to the large surge in locations following their appearance on TV. What comes as more of a surprise, is that their turnover rate at this same time was 10.39 percent. This figure, which is an average for the years of 2010-2015, depicts the percentage of open locations that have been terminated, reacquired, or transferred. Considering these numbers come from Tom and Chee’s heyday, it seems odd that their turnover rate was so high. It points to issues in the system long before the mass closures and lawsuit.
Tom and Chee have clearly had some problems in their history. With losses of locations and the lawsuit with Sysco, it makes sense that a franchisee would be hesitant to get involved with the company. Had they not been bought out by Gold Star, it is very likely that the brand would have failed completely and Tom and Chee would just be a distant memory. Fortunately for them, they have been pulled back from the brink and given a second chance at success. Franchisees have also been given a second chance to be a part of the brand.
Under new leadership, Tom and Chee has the potential to make a serious comeback. It has been proven once that the stylized grilled cheese market is one that people have interest in, and they stand a good chance at pulling it off again. By completely redesigning their business model, they have the opportunity to do things better and give their brand a boost back into the market. They have the advantage of knowing now what doesn’t work, and trying new strategies to find success.
Choosing Tom and Chee
There are many franchise choices out there to invest in, and it can often be a struggle to find the right one. In-depth research is critical to each franchisee, as they determine which brand is the best fit for their strengths, weaknesses, and financial situation. Investing in the wrong franchise could spell disaster for the owner.
The history of Tom and Chee could easily turn off a potential investor. Low sales, location closures, and lawsuits are not what franchisees are looking for in a healthy system. These problems could lead to low license sales and a failure of the brand to rebound under new ownership. However, for the savvy investor, who has experience with struggling restaurants, this may be the right choice.
Prior exposure to restaurant systems that are experiencing financial troubles would make a franchisee a great candidate to join Tom and Chee on their journey to redemption. These circumstances require a different skill set than successful chains, and if they have the right people behind them, they can fight their way back to functional and profitable standards. Knowing what works for a failing store, along with having the means to make those changes happen, give the restaurant the best chance.
For a new entrepreneur, or one who has not had any experience with a struggling restaurant, Tom and Chee may not be the best choice. It is a lot of pressure to try and revive a brand that is experiencing low interest, and without prior knowledge, the new franchisee may be lost as to how to help get it back on track.
While joining forces with Tom and Chee may not be a sound decision for everyone, it could be a great opportunity for the right franchisee. Gold Star Chili appears to be committed to bringing the brand back to its former glory and expanding to territories that were previously unexposed. With the new clientele in areas that have not yet tried Tom and Chee’s food, it produces the opportunity to find new customers that will turn into loyal followers. Enough of these customers in several territories could be the breath of life that the brand needs to rebound.