Building an Empire: The Success Story of a McDonalds Franchisee

Date: AUG 14th, 2006

Topic: Franchise News

Ed Bailey is an excellent example of the success one can achieve through franchising. Early on in his franchising career, Ed dared to push the envelope by pushing system standards and creating an upscale dining experience at McDonalds.

It was bold moves like these that helped Mr. Bailey amass some 61 McDonald''s franchises that earn an estimated $135 million annually.

Ed has since branched out and purchased two Patrizio restaurants now ranking right up there with restaurant icon Norman Brinker when it comes to influencing how Dallas grabs a bite to eat. Strangely enough, most people have probably never heard of him.

Over the past 22 years, Mr. Bailey has silently amassed a small empire of 61 McDonald's becoming one of the most successful franchisees in the world. He now serves over 115,000 customers a day.

Ed achieved his success by going upscale in a no-frills fast-food world. His restaurants have high-end fixtures such as Austrian crystal chandeliers, Ralph Lauren wallpaper, granite floors, mahogany booths and incandescent lighting to name a few.

Mr. Bailey's McDonald's at Montfort Drive and LBJ Freeway was built in the form of the world's largest Happy Meal and is adorned with gigantic sculptures of Ronald, Big Macs, French fries and Cokes. It has been listed as one of the 10 most unique McDonald's out of 30,000 worldwide by the Travel Channel.

"My vision is to create an adult ambience that works well with kids so the whole family can enjoy the experience," says the 60-year-old franchisee. "People want to eat in a nice place, even when it's McDonald's."

"Kids love us, but we have to retain them as they get older," Mr. Bailey says. "That's the challenge."

Mr. Bailey has never sought publicity, fearing his adult-friendly format might prove to be a fleeting fancy. This is a strategy that fits well with corporate headquarters, as the brass hasn’t been keen on putting the spotlight on individual operators.

When asked why Mr. Bailey was able to amass more than 60 locations, the response came in official form.

"Ed Bailey's restaurants have served the needs of our guests and helped build McDonald's brand presence in the metroplex by offering quality food, providing clean restaurants and friendly service. His organization has taken pride in reinvesting in the restaurant experience."

Mr. Bailey is confident he's on the right path, especially since the McDonald's system seems to be following his strategy. Since 2002, McDonald’s has remodeled more than 5,000 locations around the world to make the restaurants more attractive to adults.

Growing up in a suburb of Cincinnati, Mr. Bailey earned his psychology degree from the University of Cincinnati, later completing a stint in the U.S. Marine Corps reserves in the Vietnam era. He then became a traveling salesman. In 1972, the 24-year-old opened a men's designer clothing store in Cincinnati. The store was an instant success but years later would fall under hard times due to rising interest rates.

At the same time, one of Mr. Bailey’s best customers, the local McDonald's franchisee, was spending more than ever on himself. He had just put in drive-through windows, and business had gone up 30 percent.

"His business was cash. My business was credit card, which hurt. I had cash receivables and didn't get my money until I sold the clothes. I thought, 'What's wrong with this picture?' " said Mr. Bailey.

He wrote McDonald's, went through the interview process and trained each night at a nearby restaurant.

At the time McDonald’s was unhappy with the performance of their other operators in the Dallas market and offered Mr. Bailey a small unit in Valley View Mall in 1984. The food court store cost him an estimated $180,000.

"They wanted to bring a new guy in, and I was the new guy," recalls Mr. Bailey, who moved his family of four to Plano at the time "I was tenacious and aggressive and proud of it. Less than a year later, I was offered a second restaurant."

That unit in The Colony was his first designer McD, with fixtures found in trendy restaurants.

"It was a complete departure for McDonald's, so management came down to look at it," he says. "They scratched their heads and said, 'Well, let's look at the results in six months and see if this makes a difference.' "

Did it ever.

In 1992, Mr. Bailey opened unit number seven at Preston Road and Royal Lane at the same time McDonald's entered what is now known as its low-cost era.

The Priciest

The most expensive McDonald's built in the United States that year came with a $650,000 tab. A corporately owned unit less than three miles down the road was the least expensive, costing half as much. The regional VP chastised Mr. Bailey severely for his apparent folly.

"Two and a half years later, I bought that store because McDonald's wasn't making any money," he says, stating fact more than bragging. "I was doing 40 percent more in sales in basically the same trade area."

He bought the older McDonald's at Montfort and LBJ in 1999, had it leveled and then built his $1.8 million monument to the Happy Meal. The location would go on to pay for itself in four years.

He currently has 61 McDonald's and plans to open at least two more by year's end. Sales and profits are reportedly higher than ever.

An average McDonald's generates just above $2 million a year, according to the company. Mr. Bailey’s do "better than the average," he says, but franchise rules prevent him from being more specific.

His expansion rate has slowed from opening eight stores a year to just three. But Mr. Bailey didn't want to get complacent. Ready for a new adventure, he recently bought two Patrizio restaurants.

In doing so, he's going against the corporate grain yet again. McDonald's doesn't like their franchisees working with other restaurant concepts and says it is "evaluating our franchisee's involvement in other business ventures to avoid any negative impact on our McDonald's business."

Mr. Bailey says he's in compliance with his franchise agreements and has plans to move forward to tweak and then overhaul the popular Italian food original in Highland Park Village.

An attention-grabbing twist to the $6.5 million deal was thatMr. Bailey agreed to pay an annual royalty of 2 percent of sales in perpetuity to Mr. Knox's Foundation for Sick Children, which provides medicine and equipment to hospitals and doctors in Third World countries. That will amount to an estimated $200,000 this year.

Mr. Knox, (also owner of Café Pacific) wasn't sure he wanted to sell Patrizio but three things convinced him that he and Mr. Bailey were a good fit.

"Everything he and his wife, Lee, take on, they improve," Mr. Knox begins. "And if past success is the predictor of future success, then he's the guy to expand the concept. Finally, I just like the guy."

Fine Dining

So what does Ed Bailey know about fine dining and vintage wine? For one: Employ people with more smarts than you have.

Mr. Bailey recently hired Enam Chowdhury, former maitre d' of The Mansion on Turtle Creek, and James Rose, formally director of operations for Bob's Steakhouse.

Mr. Bailey also understands that the guest is ultimately the boss.

"My goal is to exceed the customer's expectations, whether it's McDonald's, where you spend four bucks for a combo meal, or Patrizio, where you spend $20 for dinner.

"We're not naïve enough to think we can achieve perfection, but we're naïve enough to try to every day."

And Mr. Bailey won't rest on his standards.

"There is nothing more vulnerable than entrenched success," Mr. Bailey says. "Companies look in the rearview mirror and not down the road with a strategic mission.

"If you don't have a destination, any road gets you there."