Franchising can be a path to growth and is a business model that allows an owner to grow their brand through expansion by others. In the restaurant industry, most chains have grown to the size they are through some combination of opening company-operating units along with growing their franchised units. Navigating the franchise path includes examining your restaurants business model, selecting the right establishment location and many other facets this article will explore so you can answer – is franchising right for your restaurant brand?
If you are thinking of franchising, you must first have an operating business model that has demonstrated that it can be successful through a proven track record of sales and profits. While in rare cases restaurant brands have successfully franchised after only opening a single corporate-owned location, this is not common. Operating multiple successful corporate restaurants prior to franchising gives you more credibility and further proof that you have a sound concept. Additional factors include:
You will need selection criteria to use as a baseline for evaluating any potential locations for franchisees. These should include demographic targets, building size, signage requirements, parking and traffic counts. Other important elements to consider are:
Even though your restaurants may be profitable for you, your concept should be profitable for your franchisees. That means that even with the addition of royalties, marketing funds and other franchisee costs, your franchisee can still be profitable. Not only do your franchisees need to be profitable, but if they become your franchisee, they need to see a strong, potential ROI. Here are ways to achieve this:
For most successful restaurant franchisors, this means growing concentrically based upon your “home” market. While your brand may be legendary in one area, you may still be unknown in others. Growing concentrically will leverage your brand-awareness, maximize your ability to support your franchisees and increase the value of your marketing dollars. Before you begin your journey to growth, don’t forget these business requirements:
If your vision can ignite the passion of others and your plan reflects a realistic path for growth, congratulations you are on the right track! With that being said, you will need to decide how you want your franchise to grow. For example, Chick-Fil-A mandates that their franchisees be owner-operators which limits the number of units that any franchisee can purchase and operate. Other franchisors make seek out only multi-unit developers. It is imperative to think about this before you begin franchising.
Expansion through franchising, while an attractive path for many restaurateurs, is certainly not suited for all operators. While entrepreneurship is a highly desirable trait to have when you develop your concept, it will take another set of skills to propel your vision forward.
David Foster is a seasoned restaurant and hospitality consultant.
For questions, reach out to Baker Tilly's restaurant practice leader, Todd Bernhardt.