Great Harvest Sees Success with Hub & Spoke Tweak

The bready concept Great Harvest Bread Co. is two years into a new format tweak, and it's seeing success and growth as a result.

The term "hub-and-spoke" is perhaps overused in the franchise industry, but maybe the most precise use is how Great Harvest does it. At the hub are the traditional bakeries that traditionally had limited seating and a lot of space to mill grain and bake lots of bread. The spoke's serve as more traditional cafes, still baking cookies and muffins but with ample seating and a more robust menu including sandwiches and salads to compete with its closest competitor.

"So you're still baking there, but not the bread, so you're saving about 1,000 square feet," said Eric Keshin, president of Great Harvest Bread Co. "It allows us to go downtown or urban areas, places where Panera cannot go. So were trying to create an efficient model for multi-unit operators."

And recently, the brand decided that all new locations would have seating, adding the cafe element to the legacy bakery model. He said the brand remains a "freedom franchise" so it's more of a playbook than a rule book. So he's not forcing bakery operators to remodel, but encouraging them to expand with spokes.

"So for less money than it would take to update that store, they can put that money into adding a cafe to the area. Or give them the option if they don't want to do that, they can split their territory and someone else would build the cafe and they'd share the 'Royalty'," said Keshin.

He said that freeform operational model is working well for operators at both ends of the wheel.

"We work with the owner of the franchise in Charlottesville and we operate a cafe at a university and they supply us with the bread," said Keshin. "They get a percentage of the royalty of the school location."

He said that model has driven real growth, leading to eight new locations in 2018 and driving development agreements up by 17 percent. Nine such cafe deals have been signed in existing markets. By the end of 2019, he said the company projects 33 percent of the system will be operating on the hub-and-spoke model as operators add a second or third cafe.

Buildout costs and cash-on-cash returns is a big factor there. A combined hub and spoke costs about $700,000 to build out and pull in about $1.6 million on average with 17.4 percent EBITDA.

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