There
are many different types of business format franchises, but when most people
think of a franchise business, their first thought is of food. The success
and growth of the many big brand-name fast-food franchises makes this a
logical first stop in the thinking process.
When
evaluating restaurant franchises, you must focus on the characteristics of
the business from a franchisee's perspective to determine whether this
industry is the right one for you. There are some wonderful advantages to
having a food business, but there are also some challenges you need to be
aware of before proceeding in this industry.
In
assessing a food business, the main advantages are typically considered to
be:
-
Built-in
Demand. Consumers have been trained to look for franchise food
outlets, which can represent a big advantage for a startup. You need to
make sure the product offering of the food franchise has "staying
power" in the marketplace rather than being a fad or fringe product.
-
Ease
in Financing. Traditional lending sources are very familiar with the
real estate and equipment needs of a prepared food operation, which may
ease the challenge of obtaining startup financing. These sources also
like the relatively high revenue production of a typical food franchise.
-
Track
Record of Success. Many food franchises have multiple units and have
been operating for a while, making it fairly simple to determine and
verify their track record of success. That can help you make an informed
decision about the business prior to getting involved.
-
Prestige.
Whether valid or not, many people associate a high degree of glamour
with a person who owns a food franchise business. The fairly high degree
of status associated with this occupation is important to many
prospective franchisees.
In
assessing a food business, the main disadvantages typically include:
-
High
Initial Investment. Most food franchises require a significant
investment to get started. Food preparation stations, sinks, stoves and
ovens, grease disposal systems, venting requirements, customer seating
and bathroom areas--the list goes on.
-
Zoning
and Code Compliance. The government goes to great lengths to ensure
that any food business meets numerous codes and guidelines so the food
product is safe for the public to consume. Complying with these
regulations, both initially and on an ongoing basis, is time consuming
and expensive. Virtually any food franchisor will provide extensive
assistance to a new franchisee in terms of dealing with zoning, permits,
code compliance and all other site-related issues, because the new
franchisee probably doesn't have a clue how to do this whereas the
franchisor has lots of experience on these matters. If a food franchisor
doesn't offer extensive support on these matters (you can determine this
during your conversations with existing franchisees), pick a different
one.
-
Labor
Challenges. Most food businesses require the services of a
significant number of low paid employees to conduct their business.
Turnover of these employee positions is normally very high, and
recruiting and retaining a sufficient number of acceptable quality
employees is typically listed as the number-one challenge in any food
franchise.
-
Relatively
Low Margins. In food operations, the franchisee has both the cost of
goods sold and labor costs to contend with in an environment that is
very price sensitive, especially in fast-food outlets. The net margins
of most food businesses are not nearly as high as other (particularly
service-related) franchises, and you're also dealing with spoilage,
theft and other issues that you don't find in many other types of
franchise businesses.
-
Quality
of Life. As mentioned above, many people associate a high level of
status with owning a food business, at least until they understand the
facts of a typical food franchisee's life. The hours can be very long,
as you're often the first to arrive and the last to go home. The labor
challenges can be very frustrating and are the main reason owners cite
for wanting to leave this industry. Then there's also the issue of what
a person smells like after spending long hours each day in a food
franchise.
The
secret to success in evaluating any food franchise (or any franchise for
that matter) is to clearly identify the skills necessary to succeed, then
make sure you either have them or go do something else. The food business
can be very rewarding to a person who has the special blend of skills and
aptitude to make the business work, and these operators are among the most
respected in all of franchising because of their success.
The
obvious question, assuming you don't have previous experience running a food
business, is "how do you know whether you have these skills and
aptitudes?" The best answer, and one that is actually required by a few
of the most successful food franchises, is to go to work in an existing unit
and shadow the present owner until you've gained enough experience to know
for sure. This isn't going to be a process involving an hour or two--more
likely it'll take at least a few weeks to know for sure. The time commitment
involved may seem high, but it is infinitely better for you to find out
early (and without risking your life savings) if this business is not for
you.
A
final consideration related to food franchises is this: Some food franchises
run very simplified operations and can provide a business model that avoids
a number of the disadvantages listed above. These are typically businesses
that don't involve cooking a product, at least not on site. They may use a
commissary system to deliver ready-to-serve products, or products that only
have to be assembled in order to serve, to the franchise outlet. These types
of businesses, like a Subway outlet, can avoid many issues but almost always
still have to deal with the employee issues discussed above.
Give
some serious thought to the franchisee role in terms of the tasks required
in a typical day or week, the hours worked, the investment and the possible
returns. Make sure you know what it takes to succeed and that you possess
those qualities. Then you'll know whether being a restaurateur is right for
you.
