The franchise restaurant market: Key benefits and challenges

Many people mistakenly believe that owning a restaurant franchise is a sure way of becoming rich quickly. However, opening and owning a restaurant is a complicated process that involves a lot more than putting together a menu and serving food to the masses.

For this reason restaurant franchise ownership is not the right choice for everyone. Being a restaurant franchise owner requires a particular type of personality, solid research, and a willingness to work within the confines of someone else’s entrepreneurial vision.

However, buying a restaurant franchise still remains a good alternative for entrepreneurs who are apprehensive about starting or investing in an independent restaurant business – especially during tough economic times.

In addition to training, marketing support and the brand’s reputation, being part of a successful restaurant franchise group can provide the potential franchisee with access to a vast amount of pre-investment advice and guidance from a host of independent experts.

A restaurant which is part of a franchise system already has a strategy in place. Everything from monthly specials to menu items has been pre-planned. This is a very important consideration for prospective franchisees who have no previous restaurant experience.

SOME MYTHS ABOUT OWNING A RESTAURANT 

People assume that owning a restaurant is fun and exciting, and a great way of making money, while perhaps even becoming famous. However, more than anything else, owning a restaurant is a lot of hard work.

Owning a restaurant means you will spend the majority of your time at work, especially in the beginning. This means that even weekends and holidays will be work days, and that you may well miss many of your family celebrations such as children’s birthdays, etc.

I will make lots of money

A restaurant owner can earn a reasonable living but only if he intends working in the restaurant. Many people believe that when they open a restaurant they will draw a salary, without actually cooking, managing or waiting tables. The short answer for this myth is: “If you don’t plan on working, don’t plan on getting paid.”

Don’t invest millions of Rands in a business in which you have no intention of playing an active role.  No-one will care about your restaurant as much as you do – if you don’t care, why should your staff?

I love to cook, so I should open a restaurant 

Those in the know will tell you that the best way of ending up loathing a favourite pastime is to turn it into a profession. On the other hand doing something that is your passion can also inspire you to work harder. However, you must keep in mind that cooking for close friends and family is not the same as cooking for strangers who are forking out hard-earned money for your food.

I will become famous! 

This is a fantasy, not a reality. You should not be in the restaurant business to become famous, but rather to make a living. These days, there are celebrity chefs everywhere, but they didn’t start out being famous, they started out with hard work!

BUYING A RESTAURANT FRANCHISE

Buying a restaurant franchise may be the perfect solution if you are looking for a turnkey operation as franchised restaurants can have several benefits over independent restaurants. Therefore, if you are comfortable working with a team and being told what and how to do things, a franchise may be the right move for you. However, they also have some drawbacks.

Here are some advantages and disadvantages to help you make the correct decision when deciding to buy a restaurant franchise.

Advantages

1. Financing

When approaching banks or other financial institutions for financing as a franchisee, you will be regarded as a more low-risk candidate. These traditional sources of financing are very familiar with the franchise model, which may ease the challenge of obtaining start-up financing.

2Instant Business

One of the main reasons why so many restaurants fail is the absence of a well-defined concept. Franchises offer the distinct advantage of already having a defined and proven concept. Consumers have been conditioned to seek out franchised food outlets.

3An established brand

The name recognition which comes with an established brand presents a huge benefit when deciding to purchase a restaurant franchise. This benefit will greatly reduce advertising costs during start-up. When you buy into an established franchise concept the branding has already been done for you. This is, however, not true when you buy into a fairly new franchise model. If that is the case, you should carefully question the franchisor about his marketing plan and how it will help you, before you buy into the franchise.

4Track Record of Success

Most food franchises have multiple units which have been operating for some time, making it fairly simple to determine and verify their track record of success. That can help you make an informed decision about the business before investing your hard-earned money.

5Franchisor Support 

Some of the benefits of becoming a franchisee include training, custom software, advertising campaigns, marketing materials, as well as personal, telephonic and e-mail support. This can be very useful for new restaurant owners who don’t always know what to do when they encounter problems.

6Group Purchasing

Due to the increased buying power of a restaurant group, food products and other supplies can be purchased at a much better rate than is possible for independent restaurateurs.

7Possibility of Turning a Profit Quicker 

Because you are benefitting from existing brand recognition, it may help you turn a profit quicker than opening an independent restaurant business. However, do not lose sight of the fact that you still have numerous costs such as loan repayments, franchise fees, business expenses, staff wages and other overheads. For this reason you have to have a long-term approach and have a financial buffer to support you through at least the first year.

8Prestige

Whether valid or not, many people associate a high degree of glamour with anyone who owns a food franchise business. The fairly high degree of status associated with this occupation is important to many prospective franchisees

Disadvantages

1Cost

The high initial investment associated with buying a restaurant franchise can be a major drawback for potential franchisees. In theory, however, you will recoup your initial investment cost sooner than if you had started an independent restaurant.

2Lack of Creative Freedom

As a franchisee you have little or no input in the menu, décor, or signage of your restaurant. If you have a certain theme or concept in mind, it may not mesh with a restaurant franchise.

3Brand and Menu Guidelines

Franchisors have to maintain quality standards in terms of customer service, product quality, etc. as well as the continuity of the brand at each outlet. For this reason there are many rules, regulations and company policies that have to be adhered to. Make sure you are prepared to abide by all the rules and policies before you buy the franchise. If you don’t follow these franchise regulations it can result in you losing your franchise rights and all your money and hard work!

4Fees

In addition to the cost of purchasing the rights to a restaurant franchise, you also have to pay royalties. These royalties include the cost of advertising, printing menus and other franchising support the restaurant group provides. Ensure that all the franchise fees are included in your budget. These fees and any costs you may incur for advertising campaigns can eat into your profits if you don’t plan and budget accordingly.

5Labour Challenges

Most restaurants need to employ a significant number of relatively unskilled employees to conduct their business. Staff turnover in these job categories tend to be very high; recruiting and retaining enough high calibre employees for these positions is often listed as the biggest challenge in any food franchise.

6Relatively Low Margins

The net margins of most food businesses are generally not nearly as high as other service-related franchises. Factors which are largely unique to the foodservice industry and affect margins include spoilage, pilferage, staff costs, etc. All of these factors play out against the backdrop of an environment that is very price sensitive, especially in fast food outlets.

7Quality of Life

The working hours in a restaurant business can be very long, and owners are often the first to arrive and the last to leave. The labour challenges can also be very frustrating and in the United States it is the main reason owners cite for wanting to leave this industry.

CONCLUSION

When evaluating a food franchise, a prospective franchisee needs clearly identify which skills are necessary to succeed. If you have the right blend of skills and personality traits, the food business can be very rewarding. The best ways to determine whether you have this blend of attributes is to actually spend a few weeks working in an existing unit, shadowing the owner.

Once you have spend some “real time” familiarising yourself with the day-to-day challenges of a particular food franchise, you will be able give some serious thought to the franchisee role in terms of the tasks required in a typical day or week, the hours worked, the investment and the possible returns. Then, make sure that you possess the qualities needed to succeed. Only then will you know whether being a restaurateur is right career path for you.

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