The restaurant industry lost one of its revolutionaries last week, though it’s strange to apply that label to an arch capitalist like Abe Gustin.
He’ll be remembered as the person who founded Applebee’s, even though the concept was actually the brainchild of Bill Palmer, now of Up The Creek Without a Paddle. What Gustin truly founded was a simpler, far more effective approach to franchising, with the principle of partnership elevated to an art form.
Plenty of franchisors pledged to make their relationship with franchisees a symbiotic one, but Gustin had learned how empty those words could be. As he would candidly recount in interviews, being a franchisee of Taco Bell in the mid-1980s had taught him how subordinate the licensee could be. He felt the home office was dictating the terms and controlling franchisees’ growth, instead of working in tandem.
Gustin said he tried to set up Applebee’s franchisee programs to be just the opposite. For one thing, he limited the number of franchisees to a few dozen, so the field-level operators wouldn’t be competing with one another for turf, sales or employees.
And they were given a firm say in what they served, and not only through the advisory council that virtually all chains set up to give franchisees a voice in shaping menus. Long before local specialties were given the spotlight they get today, Applebee’s franchisees were invited to fill out their menus with regional specialties. The home office set about 80% of the listing, and the field operators chose the rest.
More important, franchisees attested that the home office heard what they said—maybe not all the time, but enough to make them feel they had a strong influence on the brand’s direction.
When franchisees felt their territories were running out of room for more Applebee’s restaurants, the home office went out and bought a second franchise concept, Rio Bravo. Since it, too, was developed in part by Palmer, headquarters figured it was the right means for franchisees to keep opening outlets.
It was wrong, as franchisees and investors soon let management know. Rio Bravo didn’t work for the system, so the brand was divested. Everyone went back to expanding the Applebee’s chain again, using smaller prototypes and smarter siting strategies.
The proof of Gustin’s approach to franchising was Applebee’s phenomenal growth. Before he controlled the brand, it was owned by W.R. Grace, which treated it like a glorified lemonade stand. It grew to 42 stores, if memory serves me correctly, which made it a miniscule part of the chemical giant’s portfolio. Its other restaurant holdings, just to put it in perspective, were Del Taco and Houlihan’s.
When Grace decided to exit the restaurant business and sell those brands, no one seemed to even notice Applebee’s. Houlihan’s was the plum. With barely any notice taken, Gustin was able to secure what would become casual dining’s longest string of restaurants.
It would grow to far more than 1,000 restaurants, a size more befitting a fast-food chain than a group of full-service places. But Gustin and his lieutenants—some might say disciples—made it happen.
The fuel was franchisees’ capital. Gustin kept the fire stoked.
The industry shall miss him for sure.