The Bottom Line
When to Franchise?
To franchise or not to franchise? That is the question that often signifies a very successful restaurant, so you deserve sincere congratulations for making it to the point of pondering this style of expansion. Franchising is a big step that can lead to great financial success and national—perhaps global—recognition, but it is also a big risk. Franchising will completely transform your business, your operations and your brand.
If your restaurant is sound in its financial position and operational procedures, has established its brand and maximized its potential within its property boundaries, then you’re in prime condition to consider expansion. If the above criteria haven’t been met, then the best thing is to perfect your first establishment before thinking about the next. Best to learn to walk before you run.
When franchising, your label is on the storefront your product is being served inside, but someone else is effectively running the show. Consider these items in this undertaking:
You’ve explored other expansion options.
Franchising is a great expansion opportunity, but not the only expansion opportunity. Wholly owning a second location is often the logical next step for a successful restaurateur. As the owner, you will now be splitting time between locations, relying more heavily on your general managers to handle day-to-day operations.
Consider the benefits of full ownership vs. franchising. Of course, if you already own multiple locations and are looking to grow even further, franchising’s benefits are further magnified.
The benefits to owning multiple locations vs. franchising
• You’re in complete control.
• Your brand will remain more ‘local, family-owned and operated.’
• Your profit share will be higher from each successful expansion.
• Most importantly, it’s easier to manage one new location and get a hold on your expansion first, before exploding with multiple new locations.
The benefits to franchising over owning
• Franchising is much easier to scale, since you have franchisees doing most of the legwork.
• You can earn more overall, with quantity of royalties across many locations surpassing the higher profit/location you’d get by owning a few locations.
• You’ll have more buying power with suppliers.
• Financial risk is shared with your franchisees.
You’re in complete control of your brand.
Franchising is essentially entrusting your brand and your livelihood to others, asking them to become extensions of you and the business you built. In order to successfully pass the torch onto someone else, you need a sound concept of your brand and the pillars your franchise needs to communicate.
Franchising will almost immediately spark concern among your loyalists and pose potential damage to your brand. Be prepared with a clear communication strategy for how franchising will strengthen your business and your guest experience without hindering the authenticity found in your original location(s).
You can ensure consistency of your product.
With a successful franchise, guests will get the same experience no matter which location they visit. The food will taste the same, the atmosphere will feel the same, and the service will be the same. Sure, even McDonald’s features different menu items according to market needs across the world, but consistency is key for the core product.
Regulating menus, suppliers and sourcing, décor and hiring standards among other practices is vital to ensuring that your product is consistent across locations.
You can establish clear communication channels with your franchisees.
Before you even start conversation with a potential franchisee, you should have a defined communication plan that covers how often you plan to check in. Consistent updates, scheduled and surprise store visits and thorough reports should be planned out before the new location even exists.
Hiring practices for franchisees should be established as well, to make sure you have the right people running your business. Restaurant experience, net worth and other factors are vital to make sure you don’t just have someone who can shoulder the financial risk and operate a successful restaurant, but also someone who shares your core values and passion for the brand.
You have a solid business model in place.
Revenue growth sits at the heart of franchising, so structuring the right deal is vital in ensuring financial success. If you’re going to extend yourself in the form of a franchisee, it should be worth your while. Establishing royalty rates, profit-sharing and other monetary standards will allow you to clearly evaluate your ROI and compare the financial success of multiple franchise locations.