A Restaurant Franchise?

There are many different types of business format franchises,but when most people think of a franchise business, their firstthought is of food. The success and growth of the many bigbrand-name fast-food franchises makes this a logical first stop inthe thinking process.

When evaluating restaurant franchises, you must focus on thecharacteristics of the business from a franchisee's perspectiveto determine whether this industry is the right one for you. Thereare some wonderful advantages to having a food business, but thereare also some challenges you need to be aware of before proceedingin this industry.

In assessing a food business, the main advantages are typicallyconsidered to be:

• Built-in Demand. Consumers have been trained to look forfranchise food outlets, which can represent a big advantage for astartup. You need to make sure the product offering of the foodfranchise has "staying power" in the marketplace ratherthan being a fad or fringe product.

• Ease in Financing. Traditional lending sources are veryfamiliar with the real estate and equipment needs of a preparedfood operation, which may ease the challenge of obtaining startupfinancing. These sources also like the relatively high revenueproduction of a typical food franchise.

• Track Record of Success. Many food franchises havemultiple units and have been operating for a while, making itfairly simple to determine and verify their track record ofsuccess. That can help you make an informed decision about thebusiness prior to getting involved.

• Prestige. Whether valid or not, many people associate ahigh degree of glamour with a person who owns a food franchisebusiness. The fairly high degree of status associated with thisoccupation is important to many prospective franchisees.

In assessing a food business, the main disadvantages typicallyinclude:

• High Initial Investment. Most food franchises require asignificant investment to get started. Food preparation stations,sinks, stoves and ovens, grease disposal systems, ventingrequirements, customer seating and bathroom areas--the list goeson.

• Zoning and Code Compliance. The government goes to greatlengths to ensure that any food business meets numerous codes andguidelines so the food product is safe for the public to consume.Complying with these regulations, both initially and on an ongoingbasis, is time consuming and expensive. Virtually any foodfranchisor will provide extensive assistance to a new franchisee interms of dealing with zoning, permits, code compliance and allother site-related issues, because the new franchisee probablydoesn't have a clue how to do this whereas the franchisor haslots of experience on these matters. If a food franchisordoesn't offer extensive support on these matters (you candetermine this during your conversations with existingfranchisees), pick a different one.

• Labor Challenges. Most food businesses require theservices of a significant number of low paid employees to conducttheir business. Turnover of these employee positions is normallyvery high, and recruiting and retaining a sufficient number ofacceptable quality employees is typically listed as the number-onechallenge in any food franchise.

• Relatively Low Margins. In food operations, thefranchisee has both the cost of goods sold and labor costs tocontend with in an environment that is very price sensitive,especially in fast-food outlets. The net margins of most foodbusinesses are not nearly as high as other (particularlyservice-related) franchises, and you're also dealing withspoilage, theft and other issues that you don't find in manyother types of franchise businesses.

• Quality of Life. As mentioned above, many peopleassociate a high level of status with owning a food business, atleast until they understand the facts of a typical foodfranchisee's life. The hours can be very long, as you'reoften the first to arrive and the last to go home. The laborchallenges can be very frustrating and are the main reason ownerscite for wanting to leave this industry. Then there's also theissue of what a person smells like after spending long hours eachday in a food franchise.

The secret to success in evaluating any food franchise (or anyfranchise for that matter) is to clearly identify the skillsnecessary to succeed, then make sure you either have them or go dosomething else. The food business can be very rewarding to a personwho has the special blend of skills and aptitude to make thebusiness work, and these operators are among the most respected inall of franchising because of their success.

The obvious question, assuming you don't have previousexperience running a food business, is "how do you knowwhether you have these skills and aptitudes?" The best answer,and one that is actually required by a few of the most successfulfood franchises, is to go to work in an existing unit and shadowthe present owner until you've gained enough experience to knowfor sure. This isn't going to be a process involving an hour ortwo--more likely it'll take at least a few weeks to know forsure. The time commitment involved may seem high, but it isinfinitely better for you to find out early (and without riskingyour life savings) if this business is not for you.

A final consideration related to food franchises is this: Somefood franchises run very simplified operations and can provide abusiness model that avoids a number of the disadvantages listedabove. These are typically businesses that don't involvecooking a product, at least not on site. They may use a commissarysystem to deliver ready-to-serve products, or products that onlyhave to be assembled in order to serve, to the franchise outlet.These types of businesses, like a Subway outlet, can avoid manyissues but almost always still have to deal with the employeeissues discussed above.

Give some serious thought to the franchisee role in terms of thetasks required in a typical day or week, the hours worked, theinvestment and the possible returns. Make sure you know what ittakes to succeed and that you possess those qualities. Thenyou'll know whether being a restaurateur is right for you.