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Gold Star ready to grow

Gold Star ready to grow 
Gold Star Chili is expanding – across the globe, beyond the Midwest and in your grocery store aisle.

The regional chain of 95 chili parlors has an agreement with a Chinese consulting company to open three test stores in Beijing, China, before the end of June.

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The Linwood-based chain, which owns five of its parlors and franchises the rest, also will open six new stores closer to home this year, its first expansion in three years.

It’s also seeing fast sales of seven items currently on shelves and in freezer cases at grocery stores. More product development is under way to test new menu items.

“We’re getting much more comfortable with our investment model and our ability to attract franchisees,” CEO Mike Rohrkemper says.

Diversification has been a key strategy for Gold Star as it recovers from several tough years. According to a National Restaurant Association survey of quick-service restaurant operators, annual sales at most restaurants nationally have been flat or down since 2008. Gold Star had same-store sales declines through August 2010, when it shifted its marketing strategy away from heavy promotions.

Today, same-store sales are up 10 percent year-to-date, and the amount customers spend per visit is creeping up.

Gold Star’s growth is coming across the board, Rohrkemper says.

In existing stores, sales have grown with the introduction of new menu items and limited-time sale events. A chili burrito is now available with rice, and milkshakes are offered year-round. Promotions like Coney Mania, which offers 99-cent cheese coneys a few times a year, and Facebook Mondays, which lets customers print a coupon that appears exclusively on Facebook, have generated buzz.

This week, Gold Star will start heavy promotion of its vegetarian chili, which tastes similar to the traditional chili but is made of vegetables.

If sales continue to grow, that could be the next product that Gold Star sells by the can at retail stores. Sales of canned chili, frozen chili spaghetti and newer items like chili dip, mac ’n’ cheese and chili bits are up 3.9 percent year-to-date.

“We have to demonstrate it’s something that will move to get shelf space,” Rohrkemper says.

New store growth is coming from Gold Star’s system of recruiting, retaining and training store operators. Its 50 franchisees today own no more than five stores each, so owners can be entwined with their local communities. A scientific method of matching up the right investment with market demographics is helping the chain expand into new cities like Russell and Somerset in Kentucky.

Falling real estate values also have helped Gold Star expand its real estate portfolio. It now owns about 20 properties within Ohio, Kentucky and Indiana. In many of those cases, it leases space back to a franchisee.

A franchisee’s investment today ranges from $380,000 to retrofit an existing space up to $1.2 million to build a higher-end, freestanding store.

Future expansion will likely come within a 150-mile radius around headquarters.
“We’re looking at outlying areas for natural expansion of the brand,” Rohrkemper says.

The chain also will test its luck overseas in China, where many national restaurant brands are building operations.

“The credit market has been very tight here,” says Matt Haller, director of communications with the International Franchise Association. “That’s the biggest challenge in our industry right now. The biggest opportunity is through international expansion.”

The company licensing Gold Star’s concept in Beijing also helped Papa John’s build thousands of restaurants in China.

Gold Star deliberately built in extra capacity when it combined a commissary, warehouse and office building in Linwood in 2002. It cooks about five 400-gallon batches of chili a day in two 600-gallon kettles.

It hopes to grow its Gold Star Food Manufacturing Group, which provides a cost-effective ways for manufacturers to make other stews, soups, sauces or chilis during Gold Star’s downtime.

Throughout the downturn, Gold Star kept its prices down to meet customers’ desire for value. But the chain’s biggest challenge this year will be maintaining them.

Commodity prices around the globe have spiked, forcing prices of cheese, beef and potatoes to all-time highs. The restaurant association survey showed that 64 percent of operators nationally said cost control was more challenging in 2010 than 2009.

The chain’s purchasing group has worked to source items from new locations, like beef from Argentina and Australia.

It also will lock in prices on items whenever possible.

“Most of that increase, we’ve protected our franchisees and menu prices,” says Mike Mason, vice president of operations and franchise development.

“We thought strategically last year, it made sense to absorb that.”