Started in 1984 in Sauks City, Wisconsin, a city of just over 3000 people. Today Culver’s has over 900 locations and is one of the most profitable per-store franchises in the US, with over $3B in sales.

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Dave Young:
Welcome back to the Empire Builders Podcast. Stephen, when you told me today’s topic, I’ve heard of them, I’ve eaten there. I don’t know a whole lot and I know that their flagship is the ButterBurger. We’re talking about Culver’s.

Stephen Semple:
Yes.

Dave Young:
It’s a fast food chain, but the ButterBurger, it was always interesting to me the first few years that I drove by one and saw that it’s on their big sign. It’s like, “Home of the ButterBurger,” and you think, well gees, that can’t be healthy.

Stephen Semple:
I’ll take two.

Dave Young:
That’s right, load me up. But I have eaten there and they’ve got some kind of unique things, but let’s hear the story?

Stephen Semple:
Well, and here’s the interesting thing, I had never eaten there. I had never heard of it until I heard an interview where George Culver, the founder of Culver Restaurant. As I was listening to the interview and him talking about certain things, I got really interested in the story and started to dig into it and do some research and went, “Wow, this is really interesting.” Because they started in 1984 in Sauk City, Wisconsin, George and Leigh Culver. This is a city of just over 3000 people in the middle of the state, not a big location to launch an empire from. Today they have over 900 locations and they’re one of the most profitable per store franchises in the United States.

Dave Young:
That’s amazing.

Stephen Semple:
Yeah, they do 3 billion in sales and there’s 25,000 employees in this restaurant chain. The other part that I found that was so different, when we take a look at restaurant franchises, which they are, normally they’re built on this really narrow list of items. It’s a small offering, but they have over 50 items on their menu, all sorts of things. They’ll have pork tenderloin and they have this crazy wide menu item, which immediately my brain goes to they can’t be profitable. It turns out no, they’re actually highly profitable, which really flies in the face of conventional wisdom for a chain restaurant, it’s really quite remarkable.

Dave Young:
Makes you wonder how they do it and I’m itching to know.

Stephen Semple:
Yeah, so they started in, as I said, mid 1980s in Sauk City, Wisconsin. At the time, his goal was he wanted to have one successful restaurant. It was never about building a chain, and when they started in this small town, they were right across the street from other fast food places. As you said, today they’re famous for ButterBurger and frozen custard, those are their two big items that they’re really known for.

Dave Young:
They do a thing with their ice cream called the Cement Mixer or something like that. It’s like a DQ Blizzard, it’s got ingredients churned up into the ice cream or the yogurt. I don’t know if that’s what they’re famous for, but it’s kind of an interesting name.

Stephen Semple:
That is an interesting name, I love it. So when George started Culver’s, it was not his first restaurant experience. George’s dad was a dairy inspector and in 1961 wanted to get out of that and his dad bought an A&W drive-in. Now at this time, A&W’s where no sit-down, they’re all car hopped in the 1960s. This was really the height of the car hop trend, and at this point, George is 11 years old and many family businesses, he worked at the A&W, the whole family were expected to work there. At the time A&W was a seasonal business, so basically open in the spring, closed on Labor Day, so in the off season the parents would go get another job. Then in 1968, they sell the restaurant and they buy a farm kitchen resort. So basically 24 cottages, minigolf, all this other stuff plus a dining room.

They also lived there and everything in the restaurant was made from scratch, and George did all sorts of jobs. He really talked about how he loved the place and he went on the study biology in university, and when he graduated, his dad had health problems and George was asked to take over the family business. George said, no he wanted to go his own path. So his sister introduces him to a friend that helps him get a job at McDonald’s. So he gets a job as a manager trainee at McDonald’s in Madison, Wisconsin, and eventually he becomes a manager. After four years, he wants to have his own place, so he goes back to Sauk City and he wants to buy the A&W back. At this point, he’s newly married to Leigh and they approach George’s parents and they buy the A&W back that they had sold.

So how George says it, approached his dad and his dad was all enthusiastic, “Let’s do this,” and his mom was, “I’m not so sure, because there’s a reason why we sold this business in the first place.” Now, at this point, what they knew is they would need to build a new one, because they wanted to have seating, et cetera, all this other stuff. So the parents, the sister joined, and it did well, it did really well. It also allowed them to… They did close for six weeks and did a vacation, all this other stuff. They had $200,000 invested in it and somebody came along and offered to buy it for $350,000.

Dave Young:
What year was this when they rebuilt it?

Stephen Semple:
When they rebuilt it, it was 1972 I think.

Dave Young:
Okay, okay.

Stephen Semple:
Yeah, mid-seventies comes along, they sell it for $350,000 and they hold the paper. So they made a profit but not enough to live on, so they took the profit and decided to buy this other restaurant called the Ritz Supper Club, which they changed to the Culver Ritz Supper Club. Supper clubs are pretty popular in Wisconsin, and ran again as a family, did quite well, had it for two years. Then here’s the problem, the people who bought A&W from them were failing, so they got a call.

Dave Young:
And they’re carrying the paper, yeah.

Stephen Semple:
And they’re carrying the paper. They got a call, “Can you please take this back?” And he actually wanted it back for some reason, so he couldn’t wait to get his hands on it. So he took it back, but pulled it away from A&W, decided to become independent and he called it Culver’s Restaurant. What they decide to focus on was frozen custard and ButterBurgers. Now, frozen custard is soft-serve ice cream, basically made with an egg yolk. It’s more dense than ice cream, like you were talking about earlier. The ButterBurger, which I had no idea what a butter burger was, a butter burger is a bun that is toasted and buttered, and the burger is pressed on the grill. Today, it’s what we would call a smash burger, and these custard machines were expensive. It costs like $19,000 for a custard machine.

They decide to sell the supper club, and in fact, they sold the supper club to the people who they had bought the farm thing from. Anyway, it’s just like-

Dave Young:
Small town. This is how it works.

Stephen Semple:
So it’s July 18th, 1984 is when they opened Culver’s and it is slow, he describes it as being deadly slow. No one knew what frozen custard was, and no one knew what the ButterBurger was. Across the street was a Hardee’s, which was at the time the fastest growing burger chain in the United States, Dairy Queen is down the street, and this is the year the Blizzard was invented and launched, so they’re busy. So all around them, places are busy and they had no marketing funds. People could only discover the ButterBurger and frozen custard from having it, and it’s also premium priced. They had this large menu of pork loin, cod fillets, bone in chicken. Midway through the first year, they thought, we’re not going to make it, we’re just not going to make it. Somehow they managed to stumble through the first year and the second year was when the business started to work, word got out.

In fact, by the third year, people are starting to come from a long ways away, and in the third year they’re starting to make money. Supplier approached them and said, “You guys should look at doing a drive-through,” and they really resisted doing drive-through, because they had car hop, they had dine-in, and they looked at drive-through as just being this is just adding too much. They were told, “Look, if you do drive-through, this will take you to over a million bucks in this restaurant.” Eventually he relented and did it, and guess what? Took the business to over a million dollars out of the one restaurant.

Dave Young:
That’s impressive for a town of 3000.

Stephen Semple:
That is impressive. Yeah, so four years in, they decide to franchise. They got it set up, the franchise, they didn’t promote it. They had a family approach them and said, “Hey, we would like to franchise with you,” and they only did it for a year. The family who bought it only did it for a year and then withdrew from the franchise, it was a failure. What George decided after that he was not going to franchise again. A few years later, 1990, he decided to give franchising another go. What he learned, and I think this is a really important lesson learned, it’s amazing how many people approach us with the idea of franchising. What he learned is that you really do need to put together a formal training program. If you’re going to be in the franchising business. It’s not just, hey, just do this.

Today it’s a 17-week program and this also lets you get to know the franchisee and it helps you build culture. So over the next couple of years, they open 14 franchises. But here’s the other thing that people don’t realize about franchises, we all think we do this franchise, we train this franchisee, this is easy. There’s no work done, they run the thing because they’re entrepreneurs. No, franchises require a tremendous amount of support, they got to 14 and they suddenly realized they did not have the infrastructure in place to handle anymore. So what they did is they closed down franchising for a year to get the structure in place to be able to handle more franchisees.

Dave Young:
I was going to say, we’re talking about supply chain things. If you want consistency across the franchise, you’ve got to in some weird respect, follow even what McDonald’s has done where you build these giant plants to support everything. That’s the kind of thing you’re talking about or are you talking about a training system, all of it?

Stephen Semple:
It’s all of it, but there’s even another thing, the problem is the franchisee is you’re now the mayor in town and all of your franchisees have an opinion, and you need to listen to them. So for example, there was one very vocal franchisee who kept pestering George to change the name from ButterBurger to BetterBurger. No one knows what a ButterBurger is, we should just call it BetterBurger.

Dave Young:
I mean, the guy’s not wrong.

Stephen Semple:
Well, and George just said, “We’re not changing the name.” But the issue is, as CEO of a franchise, your job is to visit locations and act as a cheerleader, and you need others to inspect for compliance. This is a lot of work and you need to have this in place, it’s more than just the systems and the supply chain, it is also this emotional support you need to give franchisees, and you need to stay on top of them for things to stay compliant. If you want a great example of that, a great example of that is watch the Netflix show, The Founder, which is about McDonald’s. What you see in the early days at McDonald’s, they weren’t inspecting and people were doing whatever the hell they wanted to do. When you stop offering something and you create scarcity, all of a sudden everybody wants it.

So in that year of him saying no, it actually created more desire for franchises. They thought we’re going to lose our momentum here, and in fact, the exact opposite happened. You build a waiting list, and this other part of the job as a franchisee is really maintaining mindset. He talked a lot in this interview I heard about how mindset’s the most important thing, it’s the key to the team members. The only way you can do that is the franchisee has to be out there visiting the restaurants, promoting, talking about the mindset. That does not happen in a vacuum, and you need to build that into your franchising system.

So now in the nineties and the business takes off, but they create a really interesting plan for opening. What they realized was what they didn’t want to do was open up restaurants too close to each other, because then you’re just cannibalizing. So their whole thought process was we don’t want to have the most franchises, we want to have successful franchises. So what they realized was they found this magic point where they would open a restaurant 50 miles from the last restaurant, so it’s far enough away that you’re not cannibalizing, but it’s close enough then that new place, they probably have heard of Culver’s. So in other words, they didn’t need to create this marketing blitz to inform people of the restaurant, it’s close enough that there’s some people in town who have heard of it.

Dave Young:
Yeah, and if you’re 50 miles down a well-traveled highway, as opposed to 50 miles in some odd direction that nobody goes, you do create that, I don’t know what the right word is, synergy… I’m not going to say that word, that’s a business buzzword. But yes, you know about them.

Stephen Semple:
Right, and supply chain is also easier because I’m not all of a sudden going to something that’s three states over. With one exception, this is what they did, and when they broke from that exception, they found it really challenging. So their growth is open the next one just outside of the last one, expanding out in what they call these concentric circles. Now, in 2017, they sold 30% of the business to Roark Capital, who also owns a bunch of their competitors. For them, really it was a way to take some money off the table. When the pandemic broke out, their first thought was we’ve got to lay everyone off. But then he reminded himself, people are the key, we need to keep our people, we need to keep them. They were real happy at that point that they had the drive-through because they were able to pivot hard to the drive-through.

In fact, they opened a whole pile of restaurants during the pandemic. They opened a ton of restaurants during the pandemic and they were up 20% over comparable years through the pandemic, as we saw with a lot of takeout restaurants, it really worked for them. But to me, the thing that I found the most interesting in all of this is when you offer something new, if you don’t have marketing money to let people know about it, it takes time, even when the offer’s great. They clearly had a great product and when they opened the first restaurant, it took time for that to catch on, which is also why I think they found this opening in concentric circles because somebody would already know about it.

Dave Young:
You get the mindset of well they’re legit, they’re everywhere, they’re just down the road, so they must be good, must be a big deal.

Stephen Semple:
This is what we talk to our customers about is when you’ve got one location and you’re opening a second location, the best thing to do is open that location just down the road. First of all, logistically it’s easier, and secondly, yes, just down the road, you’re already known at least a little bit, you’re not completely unknown. There’ll be somebody, there’ll be a few people in that next town over that know of you, so it becomes easier for that next one to be more successful. But it’s also this role of franchising, I hear so often, “We’re just going to franchise this without this plan of…” No, franchising is work, you do need to have a training program, you do need to have a support system for these franchisees. Just because the person’s interested in your business and is entrepreneurial does not ensure success. You really do need to say, “I’m going to support these people,” and have a plan for how that’s going to happen.

Dave Young:
Well, and as a franchisor, because you’ve built this system, you’re really looking for people that are a little different than you, you want people that have an entrepreneurial spirit, but you don’t want innovators.

Stephen Semple:
Great point.

Dave Young:
You want people that can follow a plan, you almost want somebody that wants to be their own boss, but wants kind of a job where they’re their own boss.

Stephen Semple:
Yes.

Dave Young:
So operating a franchise is not a whole lot different from a regular job somewhere, but you’re your own boss, you don’t have to make all these decisions about what are we going to put on the menu? How are we going to hire people? How are we going to train people? How are we going to market? How are we going to do all these things? Where are we going to locate? No, the franchisor helps with all of those things, and then you basically follow the plan.

Stephen Semple:
Yes.

Dave Young:
So you need people that are good at execution and operation, you don’t want innovators because they’re the troublemakers. They’re the ones that say, “Hey, let’s try breakfast burritos,” and you’re like, “Well, we don’t do breakfast burritos.” So some of that puts some seeds for innovation, but you don’t want that in your rank and file franchisees.

Stephen Semple:
There’s a guy who I golf with every once in a while and he owns… Boy, last time he shared it with me, I think it’s five Tim Hortons franchises, so he’s doing okay.

Dave Young:
By the way, that’s a Canadian company, for those who don’t know.

Stephen Semple:
Yeah, and several of them are very successful. Not only does he own a few, he owns a few that are very successful. If you ask him, “What’s the key to being a successful franchisee?” He’ll sit there and say, “Follow the system, don’t fight it.” Follow the system, that’s what you do. Follow it, follow it, follow it, as crazy as that sounds, and that is actually where you’ll have the greatest success. As a franchisee what you need to do is you can’t just say, “Here’s the system,” you do need to support them, you do need to be their biggest cheerleader, and you do need to inspect.

Dave Young:
And train, train, train.

Stephen Semple:
And train, train, train. Absolutely, absolutely.

Dave Young:
Well, cool story. I got to go out and have myself a ButterBurger now, what are you having for lunch?

Stephen Semple:
Boy, I wish there was some frozen custard around, but we don’t do that up here.

Dave Young:
Everything else is frozen. Thank you, Stephen.

Stephen Semple:
All right, thanks David.

Dave Young:
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