Owning A Piece Of The Pie. Is a Food Franchise For You?





Food-related franchises are certainly the most visible type of franchise concept. Interestingly enough, they represent the largest percentage of franchised businesses in the world.

I’ll admit that before I became involved with franchising, the visual I had of a “franchise” was a nice sized, clean building, which was the center of activity at breakfast, lunch, and dinner, on Main Street USA. (This visual always seemed to have pimply-faced teenagers taking orders at a shiny chrome counter, robotically saying “Welcome to Mc _____, may I take your order?”)

Ray Kroc, a genius of a man, started the most famous food franchise of them all in 1955. It was around the time that freeways were being built, and his vision included building these fast food restaurants pretty much everywhere that there was an exit ramp from these freeways. I think his vision turned out to be right on target. Here are the latest numbers:

 

“More than 30,000 local restaurants serving nearly 50 million people in more than 119 countries each day.” According to the McDonald’s Corporation website (as of January 30, 2007).

Those numbers are certainly impressive. Wouldn’t mind owning 3 or 4 of those franchises, huh?

Here is where fantasy and reality collide. I know from experience. (My first job was in a restaurant. I was a dishwasher, and even had a time card. Yipee! In hindsight, I wish I would not have picked a Chinese restaurant as my first entry into the job market. 5 course dinners produced too many dirty dishes!)

Restaurant work is really hard. Owning a restaurant is really, really hard. The hours are ridiculously long, the HR issues are horrendous, and the way that food costs rise and fall makes for a sometimes unpredictable profit margin. I would like to add one more thing. The hours are ridiculously long! If you haven’t had the pleasure of being on your feet for 15-16 hours a day, then you just haven’t lived.

I was recently part of a panel on self-employment options at a local college. Sitting to the right of me was the co-founder of a regional home fix-it chain, that at one time had 1800 employees. He now runs a business incubator, and said “managing employees is the hardest part of small business ownership.” I totally agree with his assessment, as I was in charge of a couple of dozen employees once upon a time, as a full service restaurant manager.

The director of one of Ohio’s Small Business Development Centers was also on the panel, and agreed with my assessment of the franchised food industry. “The restaurant industry is known to have extremely high failure rates. A franchise does however, come with a system, and that is certainly an advantage if you are going into that industry.”

Some of you will say that I am not painting a pretty picture. (When I do paint, I don’t paint in abstracts … I paint scenes that are life-like and real)

The reality of investing in a food franchise is that the work is extremely hard, the hours are long, the up-front investment is generally on the higher end of the franchise spectrum, and the employee turnover issues can be overwhelming, at times.

There is, however, a bright light at the end of the tunnel! If you have experience in the restaurant industry, the issues that I pointed out are ones that you already know about. Going into a business that you know a lot about does have its advantages. There are after all, a lot of very successful food franchise owners.

So, if you are thinking about investing in a franchise of your own, and are leaning towards a food franchise, you now know a lot more than some other folks who may have invested in a food franchise, without doing a lot of homework. You just increased your chances of success.

Image: Shutterstock

14 Comments ▼

Joel Libava - Franchise Expert


Joel Libava Joel Libava is the Franchise Expert for Small Business Trends. Joel, The Franchise King®, equips today’s prospective franchise owners with time-tested, proven techniques designed to increase odds of success. He does this through one-on-one coaching, and gobs of useful content that can be found on places like Small Business Trends, SBA.Gov, and his award-winning franchise blog, The Franchise King Blog . He’s been featured in Entrepreneur® magazine, and is frequently called upon by national media outlets and publications for his no-spin insights into the world of franchising.

14 Reactions

  1. We all can appreciate your honesty and I think it’s important that potential franchisers start their businesses with their eyes wide open. I can’t even imagine the dedication it takes to run a restaurant. Dealing with the health department and finding responsible, dependable help sounds very stressful.

  2. Too often the potential franchise owner forgets that the franchisor is not in business to build the franchisee’s business. They are in business to sell franchises. Most people who consider this as an opportunity to become a successful business owner forget that they have as a business partner the management of the franchisor. Find out who those management people are!

    Some franchise owners are successful others are not. Talk to members in both camps before considering a purchase.
    Many franchise agreements blatantly favor the franchisor, overcharge for marketing, equipment, and training. Read the contract critically. Run the numbers. Ask both a CPA and an attorney for input on the contract.

    I admire the small business owner who successfully manages any sort of food related business. They deal with all of the regulatory issues that business owners face PLUS the health department.

    For someone considering a franchise purchase I always suggest that they find a current franchisee to work for, outside of their own market. Be upfront and honest about working for them as a learning experience. Be there best employee they ever had and learn what the owner really pays for. Giving 3 to 12% of gross revenues is a huge consideration. Do the homework!

  3. Amanda,
    The HR stuff IS stressful. For sure. Jan, some of your suggestions were very good. Thank you. As for franchise agreements blatantly favoring the franchisor, of course they favor the franchisor! If you decided to spend $200k + to franchise your idea, your franchise agreement would favor you, too. Overcharging? That is something that I don’t really hear about, from the folks that I have helped find opportunities for. Also, I never suggest “working” for a franchisee. Visiting a couple of franchisees at their place of business, or going out on some sales calls is fine {If it is a b2b type opportunity}. If one asks the right questions, one tends to get the facts.
    Joel LIbava

  4. Anita Campbell

    Hi Joel,

    I love the way you gave insights into what it is really like to have a franchise in this industry. Can’t wait to read about other industries (hint hint).

    🙂

    Anita

  5. A good franchisor is as interested in the success of the franchisee as anyone. While the interests of the two may differ, having successful businesses to sell and buy are in everyone’s interest. If the franchisee community for a specific company is unhappy, that generally reflects in the franchisor’s ability to sell new franchises. And don’t forget, you are usually paying a percentage of sales to the franchisor.

    So ask the franchisor to put you in touch with some franchisee (frankly, if they don’t offer to, run). Don’t be afraid to go into a unit and start a conversation with the owner. Read the blogs of both successful and unhappy franchisees, your bound to find both types.

    A franchise is not a guarantee of success, and even the strongest business concepts will not survive an un-involved owner, so be prepared to work hard and to become part of the business. Understand what is necessary to be successful BEFORE you buy. Understand what the franchisor is offering, and as important what they are not offering.

    Beware franchisor who require that you buy only from them (not a central supplier, but actually from the franchisor so that they have an interest in higher costs not lower). Understand what the franchisees like and dislike about the company and the business. And then, like a marriage, make the commitment to succeed.

    Greg Semos

  6. Martin Lindeskog

    Martin Lindeskog

    I say the same as Anita. I can’t wait to hear about other industries… I think one great new franchise could be a tea chain store with high quality pure bulk tea.

    Joe: How many food franchises are they? Is this the biggest field?

  7. Martin,
    Other industries? Another hint? Ok. Ok. Anyway, the food franchise sector is the largest, and new ones are being started all of the time. But most of them won’t be as big, or as successful as THE ONE that Greg Semos {Who commented above you} works for. The best of the best.
    Thanx for your insight, Greg.
    Joel Libava

  8. I can see where you’re coming from here, Joel. And Jan’s insightful comment says a lot about the matter. . .”Too often the potential franchise owner forgets that the franchisor is not in business to build the franchisee’s business.”

    And simply a name won’t guarantee business. And these business hours are long! Employee integrity is a whole other issue. Bottom line: HUGE dedication.

  9. Martin Lindeskog

    Martin Lindeskog

    Joel,

    Thanks for the reply. We will talk more about my franchise idea. I believe that the “event industry” will grow. If you add the networking element and the possibility of an exchange of ideas, I think you a valuable combination.

  10. Great article. I’m looking to open a franchise, but not necessarily a food franchise. This article reminded me why! I am open to purchasing an existing business, not necessarily a franchise, but I’m not sure where to look. Do you have any suggestions?

  11. Joel Libava

    Kara,
    Where to look depends on what it is you think you are looking for. BizBuySell.com has a large database to look over. Also, there are bound to be some business brokers in your area. I suggest calling some local business attorneys, bankers, and CPA’s. They may know who the good business brokers are in your area. Business brokers have “listings” of their own. Local businesses for sale.
    Good luck!
    Joel Libava
    the Franchise King Blog

  12. Thanks for the advice! I’ve checked out BizBuySell.com. I’ve also checked out BizTrader.com, and they had a good database as well. I noticed they also had brokers on there. Good call on calling local business attorneys and such.

  13. @Joel & @Kara – try http://BizAg.com which has a database of over 100,000 businesses for sale.

  14. Owning a franchise is a 2 edged sword, if you really know what your doing and have resources to execute your plan, then paying the franchise just adds expense, on the other hand, franchises can bring name recognition, support and credibility.

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