Why Franchising Didn't Take At Panini Kabob Grill In California

Forbes

5 days ago

Franchising hasn't clicked at Panini Kabob Grill, but the chain is expanding on its own. Pictured is ... More its Del Mar, San Diego location.
For many restaurant chains, franchising, which requires less capital, is the fastest route to growth. But don't tell that to Mike Rafipoor, the founder of Panini Kabob Grill, a hybrid fast-casual and full-service Mediterranean eatery that has expanded to 25 locations, all in California.
His first outlet opened in 1998. But by 2017 he was ready to franchise and opened up 5 franchised outlets, but for a variety of reasons, bought back 4 of them by 2021, proving that franchising doesn't always jell with every restaurant concept.
Prior to launching Panini Kabob Grill, Rafipoor was a serial entrepreneur who was a part-owner of two nightclubs, operated a sushi restaurant, and had run the second-largest car wash chain in Orange County. When eating out, he dined at mostly eateries that served entrees filled with preservatives that weren't the healthy food he craved. He figured he could do better so he opened his Panini Café (its original name) in Corona Del Mar in 1998.
Its goal, he says, was to serve food that was 'healthy and fresh but would appeal to customers who, like me, may not have grown up with hummus and tzatziki (a salted yogurt and cucumber dip).' He added kabob to its name and that propelled sales of kabob, and then he added 'grill' because paninis and kabob are cooked on it.
He self-capitalized that first location since most banks were hesitant to fund restaurants with their high failure rate. Once Panini Kabob Grill proved a success, he was able to secure bank loans of $3 to $4 million dollars, and repaid them, as he terms it, 'one kabob at a time.' He obtained a loan from Corbel Capital Partners to help fund expansion, but he is still 100% owner. The loan will help him open 4 company-owned locations in 2025 and 5 the next year.
Rafipoor opened a second location in La Hoya that cratered, but its next in Beverly Hills soared, and he recognized that he needed to identify locations with a mix of 60% commercial tenants and 40% residential. His goal was creating a blend of luncheon and dinner sales with sufficient foot traffic combined with takeout or delivery.
Fast Casual Meets Full-Service
He refers to his eateries as a blend between fast-casual and full service. Guests place their orders at a counter, and then, he describes it as a 'full, dine-in experience with food brought to the table, drinks refilled, and the team checks in that everything is delicious.'
Its healthy menu includes Atlantic salmon, hormone-free chicken, cage-free eggs, and choice cuts of filet mignon and lamb. He says its ingredients cost more but are worth it.
Most guests spend in the $20 range per person, more aligned with fast-casual eateries such as Chiptole or Sweetgreen, but guests checks can rise to over $40 a person when family-style platters are ordered to share.What Went Awry with Franchising
Back in 2017 when he was interested in expanding quickly, he met with a franchising consultant from Chicago, assembled a franchising package and started marketing it. It led to 5 Panini Kabob Grill franchisees. But the problem, Rafipoor asserts, was that most of the franchisees owned multiple QSRs (quick-service restaurants) or fast-casual eateries and lacked the expertise to run more of a full-service concept that relies on takeout and third-party delivery.
Rafipoor was also able to keep a close view of what franchisees were doing because he had built an elaborate camera system that enabled him to check-in and monitor what was happening at different stations and areas in the restaurant. He could actually spot trouble and intercede to help an employee correct a situation.
It's All About the Franchisee
He also learned that 'not all business owners are suited for the hospitality industry, and not all franchise owners are a good fit for full-service. It is time-consuming, grueling work.'
He also points out, quite candidly, that its franchise agreement was very restrictive and required that franchises had $5 million in liquidity and lived in a 5-to-6-mile radius, and needed to work 50 to 60 hours on premises. Moreover, preparing dishes in a scratch kitchen model was highly demanding.
So he reached the conclusion that for 4 of his franchisees 'the time investment and hands-on approach were not the style or type of business that would work for them,' cites Rafipoor. Only one worked out and is still on board. In 2021 he bought back 4 of the franchisees, which are now company-owned.
Going Beyond California
Now he's looking to expand beyond California to nearby states such as Arizona and Nevada in the coming year, but they will all be company-owned, not franchised.
Until now keeping all of its locations within the state of California made his 25 eateries more efficient. It 'established an infrastructure in California to streamline operations, where all purchasing is centralized, ensuring consistency across all locations,' he explains.
Rafipoor describes his target audience as people who are 'health-conscious individuals with active lifestyles and families who value made-from-scratch meals.'
He describes Panini Kabob Grill's competitive edge as the fact that all meals are made from scratch, so 'everything is prepared fresh daily, including our marinades, sauces, breads and sides.'
Asked the keys to its success, Rafipoor replies: 1) Putting its guests health first is the cornerstone of what it does while ensuring that every dish is made to order, 2) Training staff is critical from kitchen prep work to serving the meal of boxing up the kabobs, 3) Location, choosing sites that balance between commercial and residential spaces.