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“As a franchise you don’t start a journey, you actually board a running train“
The restaurant industry employs the highest number of people and, pre-Covid, it was growing at the rate of 9% YOY, which is higher than India’s GDP rate. Yet, restaurants see the highest failure rate as compared to any other industry. The restaurant industry attracts all kinds of people – from sportsmen, to actors, to businessmen and even politicians. Still, over 40% of new restaurants are unable to make it through their first three years. Surprisingly, even a business which has glamour, cash transactions, limelight, high growth rate and demand may not survive.
Perhaps you too have thought about owning your own business because you want to be your own boss. Should you start a business from scratch? Should you buy an existing business from owners who are seeking to sell so they can retire? Or, should you buy a franchise? In my experience, the top few reasons that can lead to the failure of a restaurant venture are lack of understanding of the restaurant business, too many decision makers, inconsistent menu and taste, supplier issues, incorrect location, high rentals, lack of management, no audits or controls, and ineffective marketing strategy.
On the other hand, chain restaurants and cafés have long lives. Mc Donald’s, KFC, Applebee’s , Chili’s, Starbucks, Gloria Jean’s Coffee, Dominos, Pizza Hut, TGI Friday, etc.; all of these brands have more than 1000+ outlets across various countries. These brands have been operating for over two decades and are still growing. And, while there are many advantages to opening a franchise, you will also find some challenges. Here are some pointers to help figure out whether a franchise would be the right choice for you.
Proven business model
You may pay a little more to buy a franchise than to open your own restaurant, but the franchise is already a proven system. It is already a successful business and generates profits. The biggest advantage of franchising is the reduction of the risk you will be taking for your investment. This is because franchises typically get up and running faster, and turn profitable more quickly. You may reach profitability sooner because your franchise is turn-key.
For the most part, standalone restaurant owners don’t have any support. But that is not the case with franchises. There are proper and dedicated teams which work on marketing, artwork, handling social media, and helping franchises in local marketing and corporate tie-ups. They constantly work on brand building and winning customers. A franchise owner also usually has access to a network of franchise entrepreneurs who have already been through the start-up process. So, not only is there a franchise support system in place, but also a network of people to offer advice.
As a franchise you don’t start a journey, you actually board a running train. Consumers are familiar with franchise restaurants, so you instantly have a ready supply of eager diners. The demand for your restaurant may be immediate, and customer acquisition costs will be lower, especially if you run a well-established franchise. Often, your guests will have eaten at your chosen restaurant while visiting another city, or they may have seen a commercial online. Because of this, you don’t have a hard sell when it comes to encouraging people to give your restaurant franchise a try. Do be sure when choosing your franchise to choose one that’s well-known and has staying power – it’s best to look for franchises that have a record of success. This helps you know that your odds are just as good.
“Whether you open your own restaurant or a franchise, your quality of life will be different than the norm”
For the most part, restaurant franchise owners are well-respected in their communities. Some restaurant owners may like the immediate notoriety that comes with opening a franchise. When running a franchise, you can capitalize on this reputation to market your restaurant and become a leader in your community.
Lower inventory prices
You can take advantage of the collective buying power of your franchise group and will most likely have lower inventory prices than a stand-alone restaurant. Your bargaining power with vendors is also likely to be higher due to the name recognition.
Audits and management support
Franchise Restaurants usually have a strong system and controls, which are applied at all outlets. There are often different audits which are conducted at each store. Mystery shoppers, quality assurance, timely staff training, inventory audits, SOPs training, accounts audits, operational audits, hygiene and safety audits; these audits are conducted to ensure that business will run smoothly. These checks and control are as important as oxygen. Many of these are usually missed in stand-alone places.
Finding restaurant help is challenging, and it is no different with a restaurant franchise. Restaurant workers are often transient, and turnover is normally quite high. Recruiting, training and retaining your staff is time consuming and costly. It can also be quite frustrating to train a new employee only to have them leave six months later. To help with employee retention, pay close attention to training and consider an incentive system to encourage longevity.
Life of a restaurateur
Whether you open your own restaurant or a franchise, your quality of life will be different than the norm. Hours are long. You’re often the first one there and the last one to leave. Your hours may not coincide with those of your family. It’s hard to take a vacation. From your birthday to Christmas, New Year’s Eve, Valentine Day, or any festival, you have to be at your restaurant.
These don’t go away. Every single year, your franchise owes royalty payments to the franchisor. This is usually for operations and advertising support.
Some franchisors may promise support, but in the end, they might not provide all that you need. You may find your marketing support lacking, or you may not have someone to bounce ideas off of. As we mentioned earlier, research this so you don’t end up in a bad situation.
Opening a restaurant is an exciting venture, and for many people a restaurant franchise is a good option. Do consider all the factors carefully before making your decision. Note that buying a franchise is good for team-oriented people. It is also a better option for those who don’t have a lot of industry or business experience, because they are usually well-supported by their head offices.
Take some time, consider your options and do your due diligence before making a decision.
- The article was originally published in Career Ahead October 2020 issue.