How to Start a New Franchise Part I: Restaurant Industry
The franchise industry is set to grow for the eighth consecutive year, fueled by tax reform, deregulation and an upbeat economy. Franchise establishments’ gross domestic product is forecasted to increase by 6.1 percent to $451 billion in 2018.
Food and beverage concepts continue to lead the industry in establishment growth – particularly quick-service and full-service restaurants. Franchising presents the perfect growth strategy for restaurant owners who want to expand their brand. However, even if you have a successful one or two-location restaurant concept, you may need to alter the concept to make it more conducive to franchising.
This article serves as the first in a series explaining how concepts in different verticals can become successful franchises.
Here are a couple reasons to franchise your restaurant, as well as components to check off to ensure your restaurant is a good fit for the franchise model:
One of the most formidable barriers to entry for any restaurateur is capital. Expanding your corporate-owned restaurant footprint – even by just one location – requires substantial time and financial investment. Securing the resources you need for expansion can be a challenge for restaurateurs, especially if they’re heavily involved in the day-to-day operations of their existing locations.
Franchising, however, helps restaurateurs bypass these roadblocks. Since franchisees provide the initial investment in the restaurant, growth can occur for the restaurateur at a much lower cost. As a franchisor, your initial investment is limited to the development of your franchise documentation, legal coverage, initial franchise support personnel and infrastructure and franchise recruitment costs. In comparison to the relative high costs of opening an additional single location – especially given the significant growth potential you’re offered as a franchisor – this is a much better return.
Of course, it’s important to keep in mind that as a franchisor, you’ll have considerable ongoing expenses – particularly for training and support. But, in terms of initial investment, you’ll have a much lower capital investment for each individual location.
Additionally, since your franchisees are in charge of signing leases and other service contracts, you can grow with virtually no contingent liability. So, not only are your initial investment costs significantly reduced, your ongoing risk and liability are minimized through franchising.
Reliable, Motivated Talent
While the strong job market is a boon for top talent and job candidates, it’s not as great for businesses – especially in the restaurant industry. With turnover rates at an all-time high, restaurant manager retention is a severe industry pain point. In the past year, turnover rates for restaurant managers have lingered between 38 and 60 percent, making it increasingly difficult for restaurateurs to secure and retain top talent to run the day-to-day operations of their restaurant.
Franchising allows the franchisor to avoid these problems by having a highly-motivated franchisee responsible for the local leadership and retention of their key employees, a much more effective long-term solution for both franchisor and franchisee. You will no longer have to spend months recruiting and training a manager only to see them leave. As a franchisor, you can focus your efforts on vetting high-quality franchise candidates, who you can be guaranteed will be in it for the long haul. And since franchisees have a personal stake in the unit, restaurant performance also often improves.
Components Your Restaurant Needs to be a Successful Franchise
While franchising is a sound growth strategy, there are some things you need to take into account before becoming a franchisor.
You must first decide if your concept is conducive to the franchise growth strategy. If not, you should enlist the expertise of franchise advisors and professionals to help you find ways to change that. Here are three important areas you need to make sure you have covered before franchising your restaurant:
Building a well-known brand takes time. As a potential emerging franchisor, you’ve likely already cultivated strong brand awareness on a local level. And while your future franchisees will be in charge of maintaining this solid reputation in their markets, you need to ensure your restaurant is credible from the start.
Potential franchise candidates should be able to pinpoint your unique differentiators and professional design right away. If you’re already getting unsolicited franchise inquiries even before you’ve started franchising, that’s a solid sign that your brand is a strong, scalable investment in the eyes of prospects, and a good indication that your franchise will sell across markets.
Your restaurant also needs to replicable. This is one of the cornerstones of successful franchise brands. No matter which location your guests visit, they should expect the same high-quality food and service.
After outlining your brand standards and operations, it should be clear to you whether your concept can be easily executed by others. As long as your concept has clear direction and easy-to-follow guidelines and operations manuals, your restaurant should be replicable in other markets. One consideration in food will be your willingness to be flexible with changing menus to satisfy local and regional palettes. Knowing your brand and your customer will drive this decision.
- Return On Investment
One of the first things franchisees will inquire about is ROI. Franchisees expect hard data to back their decision to invest in your brand. So, you need to make sure your restaurant will provide an adequate return for not only you, as the franchisor, but also for your franchisees.
To determine a mutually-beneficial ROI for all involved parties, you should adjust your corporate locations profit and loss statements to reflect the additional line item expense of royalty fees and national marketing ad funds, typically adding 8 to 10 percent more costs to a franchisee’s business. If your franchisees can generate a decent ROI even with these items subtracted from their theoretical bottom line, your restaurant is likely a good candidate for franchising.
With 550 new restaurants opening each month, now’s the time to begin growing your restaurant footprint. And with numerous benefits – from capital infusion and limited liability to high-level management retention – growing your restaurant through franchising could be the best way to accomplish your goals.
Winmark Franchise Partners
For help franchising your restaurant from franchise advisors, turn to Winmark Franchise Partners. With 30 years of franchising experience and more than 800 franchise owners representing more than 1,200 locations for five brands, Winmark Franchise Partners can help grow your brand through sound strategy and expert franchise advice. For more information, contact us here or at (844) 452-4600.