Clovis Young

And what challenges have you faced using the franchise model?

Franchising is not a profitable business model until you get to a certain amount of skill.

The real problem is you’re better off having two company stores, or 20 franchise stores, but in between two company stores or 20 franchise stores it’s either a break even or money losing proposition.

I think franchises inherently are a cash cow: You sell a business, you make some money and then you get to charge money.

But in order to do it well – and this is where the real challenge comes in – you need to build an infrastructure around training, to teach someone who’s never been in your business how to be in that business, and you need to do that for about six to eight weeks.

You then need to have a team of people that can go around and support – on an ongoing basis – all kinds of initiatives and ongoing business practices, as well as the legal compliance side of it – they’re all complicated and challenging things to get right.

Franchising’s also about choosing the right partners, and we’ve had a very clear vision for the kind of people that we want to be affiliated with and associated with, and that means that we are really specifically looking for people that are passionate about Mexican food.

We are not interested in franchisees who are trying to decide if they should buy a pizza business or a Mexican business.

We are only interested in people that have come through and said, “The only thing I’m interested in is Mad Mex. I love the food, I love being there; I want to be a part of this new category and this new wave.”

So I think getting the franchisee partner right is probably the most important thing, and certainly one of the most difficult things.

In the first year-and-a-half we were in business we didn’t have a central kitchen preparation system, we didn’t have a lot of the systems that we have in place now.

Even though we were doing very good sales, a million-and-a half dollars in sales in a year, we still lost $200,000. So it’s still really hard to do really good food on a single store level.

That’s really an advantage that you have once you get to the scale of our business, and I think it’s very hard to compete on cost and our value. That’s our competitive advantage.

What was the development process involved in putting into place those systems?

In Australia, you need to have a labour model that makes sense.

In some countries, labour is really cheap, but you need to have your real estate strategy and your cost of goods strategy, those are the two defining elements of your business model.

In Australia, the labour component is probably the most important piece of it.

So from one store to three stores, we centralised the production of – we cook our meats, we cook our salsas, we cooked our black beans – things that are better cooked in a central place, so the guys in the restaurant are no longer making recipes, marinades, and cooking for six hours in a store.

The net result was that from the first year of business to the second year of business, the number of hours that we needed to run our store went from 550 hours a week to 380 hours a week.

Our cost of goods might’ve gone up fractionally, but our labour costs went from 50% of revenue to 32% of revenue.

Those are the kinds of things that, as you get a little bigger, you can take advantage of.

We have also become a lot more efficient in how we manage our produce and our fresh products, and how we get the best quality without as much labour.

For example, the lettuce comes in pre-sliced now and tomatoes come pre-diced and drained, but they’re done at 6am and then we receive them at 8am, so they’re super fresh, but they’re done somewhere not in store.

But there are some things which you just can’t avoid doing yourself, so we still spend a huge amount of time making guacamole from fresh avocados, and we slice and peel them.

You can buy frozen avocado paste that’s been pressurised, and it’s pretty good, but it’s just not good enough if you know what I mean.

We’re committed to a certain quality level that we just can’t compromise on.

What’s your growth been like?

It’s been pretty consistently about 100% per year.

So the first year we grew from one store to three stores, then from three to seven, seven to 15, and this year we should grow up from about 15 or 16 to about 35.

So this year’s actually seeing an increase in growth, and part of that’s the model has taken a couple of years to prove up, but now it’s really working well.

The revenue for the period ending June 30, 2011 was around $9.6 million.

For the year ending this year, which is coming up in June, we believe the revenue will be somewhere in the $22-$23 million area.

And next year we expect that to be doubled again.