Tips For Buying A Franchise – More than 200,000 quick-service restaurants in the United States are not considered members. Instead, these locations are franchised, meaning that the company (the franchisee) allows one person or a group of employees (the franchisee or franchisees) to operate the restaurant under the franchise agreement.
At first glance, opening and operating a restaurant franchise seems simpler than building your own restaurant concept. The brands are established, and most of the advertising comes from the corporate office. But that doesn’t mean franchisees have an easy path to restaurant success. There is a unique set of challenges that come with franchising. Here are 7 of them, and what to do about them.
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The franchisor and franchisee are a group. For a franchisee to succeed, the brand must fit the franchisee, and the franchisee must fit the brand.
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Franchise agreements are also long-term relationships – 10- to 15-year contracts are the norm. It is very important to find the truth. This means that the approval process can often be long and difficult.
To speed up this process, be sure to collect all the documents you need and follow the franchisor’s requirements. The lengthy approval process can help prevent many other problems down the line, whether financial or ethical. For franchisees, take this time to evaluate whether the franchise is right for you
Potential franchisees should be prepared to put up a lot of money upfront to get the business up and running. Between upfront licensing fees and unlocking costs, that money can easily break into six or even seven figures.
Some franchisors even require potential franchisees to have hundreds of thousands of dollars in cash on hand, making the bill even higher.
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In addition to this one-time opening investment, franchisees regularly pay commissions based on selling and operating expenses. For example, McDonald’s charges a service fee of 4% of total monthly sales, while Subway charges 12.5% of weekly gross sales for franchise royalties and advertising.
There is no specific way to avoid costs and fees, as they are usually required to reach an agreement with the franchisee. However, you can work to lower your opening costs by looking for contractors and remodelers in your area to see who can give you the best price, which can lower the cost of opening your restaurant. You may also consider purchasing an existing franchise instead of opening your own, which will result in lower maintenance and repair costs.
One way to solve this is through integrated restaurant technology, such as POS and restaurant programming software. When franchisees have detailed data on sales and employee performance, they can make powerful cost-saving changes. If you can shave a few percentage points off the expenses, the franchise fee becomes easier to manage.
Partnering with preferred brands gives franchise owners access to brand recognition and relationships. But it can also work on you. When several Chipotle locations suffered foodborne illness outbreaks in late 2015, the country’s reputation took a hit — even some of their 2,000 locations at the time could be traced to the outbreak. Multi-location restaurants are closely monitored in the media because of their presence across the country. One person’s slip in one restaurant, big or small, can affect the performance of other places.
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The first step to avoiding this problem is to meet the highest standards of service. If these major issues affect your brand, there’s comfort—for you and your loyal customers—knowing that your site is blameless.
If a major issue arises from the situation (see Chipotle’s half-day closure for food safety training), all you can do is stay close to your franchisee to see what is expected of you during these times.
Independent restaurants get to define the theme of their restaurant, change the menu whenever they want, and work to establish a place in their community.
It’s common for franchises to have promotions, new menu items, LTOs, and rebranding efforts ordered from the top. This is not a bad thing – and changes are not made in a vacuum. They have been researched, tested and proven to increase revenue and/or profit – a win for franchisors and franchisors.
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This can be frustrating for owners who don’t feel like they have control over their business. They are the ones who live it day by day. But this does not mean that the voice of franchise owners is not heard.
Franchisees who have ideas to improve the business, but cannot act on them, can always hold their position. Explain your point of view, with numbers to back it up, and there’s a good chance your ideas will be considered. If you can, recommend a survey to send to other franchisees. Maybe you’re not the only one who thought so. Change is possible, but more so considering all the moving parts of a national franchise.
However, there may be an opportunity for the franchise to become a character. After all, some fast foods—the Big Mac, the KFC bucket, the $5 long, and the filet-o-fish—were all created by one person.
Operating your franchise in a big city like New York, San Francisco or Chicago? If so, you will need to follow an additional set of laws known as the Fair Work Week Laws, which apply to the state of Oregon and the cities of:
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These rules apply to restaurants operating in the above regions that have between 20-56+ locations worldwide and/or a workforce of 500+ people worldwide – standards that franchise locations typically meet.
The rules add significant changes to employee management and scheduling, and require affected restaurants to compensate employees for last-minute changes, share schedules at least two weeks in advance, and/or allow input into the schedule, among other things.
Know the laws and regulations in your area. In addition, you will also enjoy the resources available to you in your large restaurant group. For example, many franchisees require all of their locations to use employee scheduling software that helps them schedule more easily and avoid violating workweek laws.
Overall, the restaurant industry has about 75% employee turnover. However, franchises tend to see significantly higher turnover rates compared to the industry average, with fast food industry turnover double that of 150%. For example, Panela’s sell-through rate is approaching 100%, while Domino’s is recovering from a reported 107%.
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Among the reasons for such high turnover are the need for workers to live in these restaurants (which allows dissatisfied workers to find work elsewhere) and the reliance on young and inexperienced pools, which tend to have little incentive to stay in the franchise for years. Finally.
Working for a franchise seems like a good idea for aspiring restaurant workers because of the brand recognition, but it can unfortunately attract some less talented people because of its perceived simplicity. Be sure to take the time to find and hire the right people, such as actively searching for candidates and interviewing questions for the restaurant.
“As people continue to return to the hospitality industry, restaurant owners should consider implementing incentive programs to help them hire quickly and retain successful employees for the long term,” says Ryan C. Whitfill, partner at Culhane Meadows. .
A final common franchising problem is market saturation for a single restaurant. Believe it or not, Chick-fil-A made more money than McDonald’s and Starbucks combined in 2020, according to this QSR report. And that’s with 15% fewer working days per week!
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There is a long list of reasons for this, but population density is at the top of the list. Chick-fil-A operates one out of six McDonald’s or Starbucks stores, and nearly a dozen Subhu stores. With fewer stores, each Chek Chek becomes unique, and subsequently, attracts more of the crowd to that particular location.
If you operate a restaurant franchise (especially a fast food restaurant franchise), you can expect strong sales due to your product recognition and convenience, but you also need to know your potential market share. This is based on knowing how close a restaurant is that has the same name and menu as you.
If there are too many locations for your restaurant in your town or city, it can take away from innovation and can affect your sales. After all, being one of two McDonald’s in a city seems more economically attractive than being one of seven McDonald’s in a given city, right?
Before opening a franchise, conduct a feasibility study to determine how you will fit into the area where you are looking to open a store. Force yourself to sit down and think about your sales forecast compared to costs – and what other franchises are doing. It can play on that imagination – it can help you choose the best place to increase sales.
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Provide excellent customer service and quality food so it shows in your online reviews and word of mouth. People can choose your location over another location nearby.
Although opening and operating a restaurant franchise comes with its own unique challenges, most of them can be solved with a change of mind, new processes or a phone call.
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