When most people think of a franchise business, they first think of hamburgers. Or pizza. Or coffee (and donuts). Or tacos. There are, of course, many different markets in which franchises thrive, but the success and growth of many fast food behemoths has meant that if you were to play a word association game and offer a “franchise”, most people would probably instantly respond with “McDonald’s”.
But your first thought shouldn’t be your last. When deciding whether or not to buy a restaurant franchise, you need to focus on the business characteristics of a franchise perspective. Only this can determine if this industry is the right one for you.
Popularity is one of the wonderful benefits of having a food business, but there are also some challenges you should be aware of before entering this industry. Here’s a breakdown of what you’ll need to keep in mind.
Integrated request. Consumers want consistency in their diet, so they’ve been trained to look for franchises. This can be a big plus for a startup, but make sure the food a franchise sells is sustainable. Marginal products can be precarious and fads fade.
Familiar financing. Traditional lending sources are familiar with the real estate and equipment needs of a fast food operation, which can ease the challenge of securing the financing you’ll need. Even better, lenders appreciate the often high revenue a typical food franchise offers.
Erase history. Many food franchises have multiple units and have been in operation for a while, which means you can get a clear idea of what works and what doesn’t before deciding to get involved.
Prestige. Many people think owning a food franchise is glamorous. This can be an added bonus for a future franchisee.
High initial investment. Most food franchises require significant funding to get started. Prep stations, sinks, stoves, ovens, grease disposal systems, ventilation requirements, customer seating and bathrooms are just the start.
Endless compliance. The government goes to great lengths to ensure that food is safe to eat. Complying with its regulations, both initially and on an ongoing basis, is time consuming and expensive. Franchisors must help a new franchisee deal with zoning, permits, and all other site-related issues. Ask existing franchisees for this support — and if the franchisor doesn’t offer it, look elsewhere.
The challenges of work. Most food businesses rely on a significant number of low-paid employees. Consequently, turnover can be very high. In fact, recruitment and retention is usually the biggest challenge for a food franchisee.
Relatively low margins. The food franchisee must control the cost of labor and goods in an environment that, especially for fast food outlets, is very price sensitive. The net margins of most food businesses aren’t as high as those of other franchises (especially service-related ones) – and that’s before you deal with spoilage, theft and other little issues. common to other companies.
Quality of life. You are often the first to arrive and the last to return home. Employee challenges can be so frustrating that they are the number one reason owners give for wanting to leave the industry. Then there is the question of what a person looks like after spending long hours every day in a food franchise. It’s not exactly a fancy scent.
Related: Should you franchise your business?
Image credit: MAX-O-MATIC
Now that you have a realistic idea of what this business looks like, let’s talk about whether you’re right for it.
The food industry can be very rewarding for someone with a special mix of skills and abilities, and these operators are some of the most respected in the entire franchise because of their success. But making sure you know what those skills are and have them is key.
How can you know? Go to an existing unit and observe the current owner until you have gained enough experience to have a clear idea of what is needed. (Some of the most successful food franchises require you to do this.) This tour won’t be quick. It will probably take at least a few weeks to be sure – a significant time commitment. But it’s infinitely better that you find out early (and before you risk your savings) if this business isn’t for you.
Another consideration: some food franchises use a simplified business model that avoids many of the disadvantages listed above. For example, they may not need your franchised outlet to cook, but instead use a curated system that sends out ready-to-serve food or just requires some basic assembly. These companies can avoid many of the toughest problems in the food industry, but that won’t solve those labor issues.
Think carefully about what is required of a food franchisee: the investment, the daily and weekly tasks, the hours. Do you have the skills required to succeed? Will this work be worth the returns you can reasonably expect, based on your research? Only by taking into account these many considerations can you know if becoming a restaurateur is right for you.