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How a 19-year-old turned a sandwich shop into a billion-dollar business

Business Insider Australia Business Insider Australia 11/09/2016 Kate Taylor

© Provided by Business Insider Inc Jimmy John's has come a long way since 1983, when Jimmy John Liautaud opened his first sandwich shop.

On Thursday, Jimmy John's announced that Roark Capital Group had signed an agreement to acquire a majority interest in the company. Neither party disclosed the price, but the sandwich chain was reportedly valued at $2 billion when it prepared to IPO in 2015.

Jimmy John's started 33 years ago as a single location in Charleston, Illinois. Liautaud, a recent high-school graduate, opened the sandwich shop -- which had just four sandwiches on the menu -- after taking out a $25,000 loan from his father.

"The location was surrounded by bars," Liautaud says about the first shop on Jimmy John's website. "Perfect! Students drink, they get hungry, I'd stay open late, and I would feed them. Boom!"

© Provided by Business Insider Inc In 10 years, Liautaud opened 10 locations. Soon, Jimmy John's began franchising and expanding across the US.

Liautaud is upfront about problems the company encountered while expanding, especially when franchising locations instead of keeping all sandwich shops company run.

In 2002, Jimmy John's had 160 shops -- but, according to Liautaud, 70 were failing. So, he stopped selling franchises, and took 18 months to focus on damage control. While seven shops closed down, Liautaud says he was able to help turn business around at the rest.

© Provided by Business Insider Inc "I learned a lot from that experience so I changed the rules for allowing people to buy into my system as a franchisee," he writes on the company website. "I explained in detail how tough running a Jimmy John's can be. I explained the long hours, the unforgiving weather, the late nights, the weekends, and all of the sacrifices that go along with the industry. I made it tough for people to get into the system."

Focusing on franchising helped Jimmy John's become one of the hottest franchise concepts in the US. Last year, the chain was named No. 1 on Entrepreneur Magazine's Franchise 500 list.

The chain emphasises its lack of artificial ingredients and use of fresh produce. Also key -- Jimmy John's is focused on speed: Liautaud claims his workers can make a sandwich in 60 seconds flat.

However, the Jimmy John's has faced some problems in recent years. 

In 2014, the chain faced backlash -- and a lawsuit -- for requiring employees to sign noncompete agreements, meaning they couldn't work for competitors such as Subway or Potbelly for two years after leaving their jobs. Jimmy John's reportedly stopped recommending franchisees use noncompete agreements later in 2014, and officially agreed to stop including the agreement in hiring documents in New York as part of a settlement with the New York attorney general's office in June 2016. 

© Provided by Business Insider Inc Jimmy John's also received some negative press in 2011 when Liautaud threatened to move the company's headquarters from Illinois to a more tax-friendly state. The founder never followed through on the threat, and the company remains headquartered in Champaign, Illinois. 

Last year, Liautaud came under fire after photos surfaced of him posting with dead elephants, a rhinoceros, and a leopard taken during a 2010 safari. He has since said he doesn't hunt big African game anymore.

© Provided by Business Insider Inc Liautaud will continue to serve as chairman of Jimmy John's board of directors and remain the company's largest single individual shareholder following Roark's acquisition.

"I've spent two years getting to know the Roark team," Liautaud said in a statement on Thursday. "They are best-in-class people that have the knowledge and expertise that will help us take this brand to the next level."

Jimmy John's is just the latest in a long list of chains acquired by Roark. The private equity firm is the majority owner of restaurant chains including Arby's and CKE Restaurant (the parent company of Carl's Jr. and Hardee's), as well as concepts outside of the food business, such as Drybar and Anytime Fitness.

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