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Food franchising: A review of some key fundamentals

By Wayne Maillet

There are some great franchise opportunities available in the food industry and there are also a few poor choices, but how can one tell the difference? What should a potential franchisee consider and look for in a food franchise system?

When looking at a franchise, it is important to conduct the necessary research to understand what is involved. A little homework at the beginning will avoid surprises down the road—no franchise or opportunity is perfect. The goal is to uncover the pros and cons and make an informed business decision.

What’s your budget?

Ensure the food-service franchise is within your investment range; many of them are not cheap and require a substantial financial commitment compared to other opportunities. For example, a full-service restaurant can cost as much as $5 million or more. Fast-food concepts can be a lower cost, ranging from $250,000 to $1 million. This money is to cover the cost of furniture, fixtures, and equipment. Hidden costs can include legal and accounting fees, liquor and city licenses, restaurant design and drawings, insurance, travel expenses (to attend training), and more. It is reasonable to expect one to have at least half of this amount in unencumbered assets. For this high-end investment, it is not uncommon to put together a group of investors.

Previous experience

Sometimes, a franchisor will require one to have previous restaurant experience. Alternatively, a potential franchisee can partner with an experienced restaurant manager. Both partners must be prepared to follow the structured business model. Consistency is the key with any franchise, but especially with a restaurant chain as customers expect the same experience no matter which location they visit. Therefore, a franchisee should provide the same menu, atmosphere, and level of service. There is little room for creativity. If one likes to use their imagination in the kitchen, a food franchise may not be the right choice.

How does one know if food-franchise ownership is right for them? Restaurants will typically require long hours and active management. A franchisee will be involved with the day-to-day operations, including handling unhappy customers, staff turnover, and sometimes even cleaning the bathrooms. If one does not have restaurant experience it might be worthwhile to work in a restaurant for a few weeks to get a better understanding of what is involved before making a long-term commitment. Some franchisors are happy to facilitate this.

The essentials

Beyond considerations unique to a restaurant concept, a successful food-service franchise will consist of the following key fundamentals:

Strong leadership

The franchisor must provide the type of leadership that earns the respect and trust of franchisees. Leadership should ensure an appreciation for the operating system, help internalize the desire to follow the system, and result in the franchisee’s profitability and success. Finally, they should provide a clear vision and explicitly define the company’s values.

Restaurants will typically require long hours and active management.
Restaurants will typically require long hours and active management.

Continuous improvement to the operating system

To succeed in franchising, the franchisor must have a plan for systematically monitoring the business model and customer satisfaction. Based on the feedback provided, adjustments are made over the long-term to ensure the franchisees continue to get a strong return on investment (ROI).

Focus on the customer

Strong franchisors listen to their defined customer and build the franchise concept around the customer’s expectations, wants, needs, and desires. The franchisor will then measure how well a franchise is doing in regards to serving and satisfying the customer. There is offered an evolving menu to remain fresh and relevant to the customer. Priorities will be to acquire and keep customers, and build goodwill, which will result in the customer being the best form of marketing.

Excellent franchisees

Successful franchisors believe franchises should not be sold, but rather awarded. The strong franchisor will have an efficient system for recruiting and awarding franchises to people who will:

  • Have the skillsets to be successful;
  • Build the value of the brand;
  • Follow the proven operating system; and
  • Use the ongoing support to dominate in local markets.

Effective manuals

At a minimum, the franchisor’s manuals should clearly and concisely document a proven operating system and allow franchisees to duplicate success. All aspects of the business model are documented so nothing is left to chance, creating consistency at all restaurant locations.

Effective training programs

A strong franchise system will have a carefully planned training program to assimilate new franchisees into the organization as smoothly as possible. Successful franchises will also provide ongoing training, which will help further develop existing franchisees and staffs skills and reinforce the purpose and practice of its systems and strategies.

Participative management

Leading franchisors constantly promote a franchise-wide strategic-partner relationship. Everyone should work together towards common goals of disproportionate market share, enhancement of brand image, and mutual profit. This is often done through franchisee advisory councils and continuous communication.

A focused staff

Successful franchisors will have a professional staff who will work in harmony with franchisees to help them deliver excellent customer service, build market share and work with fellow franchisees to dominate local and regional markets. There is a positive corporate culture.

Do your research

One must do their homework to ensure they are pursuing the right franchise. The system is strong if the items mentioned above are fully developed. Clearly, a franchise system with an established, recognized brand and numerous restaurant locations is a good indication of a strong system; however, there are many start-up franchises that will be equally as strong and present a great opportunity.

The established franchises are often sold out or have a higher initial investment, unlike a strong start-up concept. However, using the items described above can be a good indicator that these fundamentals are in place. For some, a restaurant franchise may be overwhelming, but for others they could not imagine doing anything else.

Wayne Maillet is a franchise management consultant and founder of Vancouver-based Franchise Specialists. Respected within franchise circles, he brings a realistic, practical understanding of business and franchising. This article is based on excerpts from his book, Franchising Demystified. For more information and to order the book, visit www.franchisingdemystified.com.

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