How To Start A Franchise Restaurant Business – The company has more than 200,000 quick-service restaurants in the United States. Instead, these locations are franchised, meaning that a company (the franchisor) allows an individual partner or group (the franchisee(s)) to operate the restaurant location under a franchise agreement.
At first glance, opening and operating a restaurant franchise may seem easier than building your own restaurant concept. Brands are established and most of the marketing comes from corporate headquarters. However, this does not mean franchisees have an easy path to restaurant success. Franchising presents unique challenges. Here are 7 of them and what to do with them.
How To Start A Franchise Restaurant Business
Franchisors and franchisees are a team. For a partnership to be successful, the brand must be compatible with the franchisee and the franchisor brand.
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Franchise agreements are also long-term relationships – contract terms of 10 to 15 years are common. It is essential to correct it. This means that the approval process is often lengthy and intensive.
To speed up the process a bit, make sure you gather all the documents you need and meet the franchisor’s requirements. Whether financial or cultural, a longer approval process can help avoid more problems down the road. As a franchisee, take the time to evaluate whether the franchise is right for you.
Prospective franchisees must be prepared to raise a significant amount of money to get the business off the ground. Between the upfront license fee and opening costs, the amount can easily run into six or seven figures.
Some franchisors require potential franchisees to hold hundreds of thousands of dollars in cash by adding to the invoice.
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In addition to these one-time opening investments, franchisees pay regular fees based on sales and operating costs. For example, McDonald’s charges a service fee of 4% of gross monthly sales, while Subway charges 12.5% of gross weekly sales for franchise rights and advertising.
There is no way to avoid the royalties and fees usually required to enter into an agreement with the franchisor. However, you can work to lower your opening costs by finding contractors and renovators in your area who can offer you the best prices, which will lower the cost of opening your restaurant. You can also consider buying an existing franchise instead of opening your own, which can significantly reduce renovation and remodeling costs.
Another way to solve this problem is with integrated restaurant technology such as POS and restaurant planning software. When franchisees have accurate sales and employee performance data, they can make powerful money-saving changes. If you can save a few percentage points on costs, the franchise fee will be easier to manage.
Membership of well-known brands gives franchise owners an advantage in terms of awareness and brand affinity. But it can also work against you. When several Chipotle locations contracted foodborne illnesses in late 2015, the brand’s overall reputation took a hit, and at the time only a few of its 2,000 locations were being tracked for outbreaks. Because of their national presence, restaurants with multiple locations are the focus of media attention. Cheating by one person 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 maintain the highest possible service standards. When these big issues hit your brand, knowing your location isn’t to blame can be a huge comfort to you and your loyal customers.
If the situation becomes a major problem (see Chipotle’s latest half-day food safety training course), the only thing you can do is stay in close contact with your franchisee to understand what is expected of you during these times.
Independent restaurateurs can set a theme for their restaurant, change the menu at any time, and establish a niche in their community.
It’s common for franchisees to dictate promotions, new menu items, LTOs, and rebranding efforts from the top. That’s not a bad thing, change doesn’t happen in a vacuum. They are researched, tested and found to increase sales and/or profits – a win for franchisees and franchisors.
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This can be frustrating for owners who don’t feel in control of their business. They are the ones who live day by day. But that doesn’t mean franchise owners aren’t being heard.
Franchisees who have ideas to improve their business but are unable to implement them can always contact their head office. Explain your point of view and back it up with figures. Then there is a good chance your ideas will be considered. If you can, suggest a survey to send to other franchisees. Maybe you’re not the only one who’s thought of that. Change can happen, but given all the moving parts of a national franchise, it’s a plus.
However, individual franchise companies have room to vary. Finally, some iconic fast foods—the Big Mac, the KFC 5-foot bucket, and filet-o-fish—were created by individual franchisees.
Do you operate your franchise in a big city like New York, San Francisco or Chicago? If so, you must comply with an additional set of laws known as the Fair Labor Laws that affect the state of Oregon and these cities:
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These rules apply to restaurants operating in the aforementioned locations, and have 20 to 56 locations worldwide and/or have more than 500 employees worldwide, with franchise locations always meeting the criteria.
These laws introduce significant changes to how restaurants manage and organize their workers, require affected restaurants to compensate their workers for last-minute shift changes, provide at least two weeks’ notice of the plans, and/or require them to comment. planning
Know the laws and regulations in your area. You will also benefit from the resources available to you in your larger restaurant group. For example, many franchisors require all their locations to use employee scheduling software to help organize their work more easily and avoid violations of fair work week laws.
In general, the hospitality industry has about 75% employee turnover. However, franchisees have a significantly higher turnover rate compared to the industry average, which is 150% double the turnover rate at fast food locations. For example, Panera’s turnover rate is approaching 100 percent, while Domino’s is reeling from 107 percent turnover.
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Reasons for high turnover include the constant demand for workers at these restaurants (allowing disgruntled workers to easily find elsewhere) and the reliance on younger, less specialized workers, giving franchisees less incentive to stick with someone for years. .
Because of the brand awareness, a franchise restaurant can be a good idea for restaurant workers who want to work, but unfortunately, it can also attract some less qualified candidates because they prefer the convenience. Make sure you take the time to find and hire the right people, for example be proactive in sourcing candidates and asking the right questions in a restaurant interview.
“As more people return to the hospitality industry, restaurant owners need to consider implementing creative incentive plans that help them hire employees quickly and then retain successful employees for the long term,” said Culhane Meadows partner Ryan C. Whitfill says.
A final common franchise problem is saturation of the same restaurant market. Believe it or not, according to this QSR report, Chick-fil-A won more per location in 2020 than McDonald’s and Starbucks combined. And 15% fewer working days per week!
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There’s a long list of reasons for this, but location numbers top the list. For every six McDonald’s or Starbucks, there is a Chick-fil-A branch every ten meters. There are fewer stores, and each Chick-fil-A is more unique, thus attracting more people to each location.
If you run a restaurant franchise (a fast food franchise, to be more specific), you can expect strong sales based on your brand awareness and convenience, but you need to be aware of your potential market share. Because you know how close another restaurant with the same name and menu is.
If you have too many restaurant locations in your city, it can affect innovation and affect your sales. After all, having two McDonald’s in one city sounds more economically attractive than having seven McDonald’s in the same city, right?
Before opening a franchise, do a feasibility study to see how you can stand out in the area where you plan to open your business. Forcing yourself to look at your sales projections against expenses – and what role other franchise locations play in those projections – will help you choose the best location to maximize sales.
This Franchise Opp Comes With A Dual Threat Revenue Stream
By providing great customer service and great food quality it shows in your online reviews and word of mouth. People may choose your location over another location nearby.
Opening and managing franchise restaurants comes with its own set of challenges, most of which can be solved with a change in mindset, a new process, or a phone call.
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