Choosing a Restaurant Franchise? 11 Important Points to Keep in Mind!
An exhaustive guide to all factors to take into account for anybody who is looking to open a restaurant franchise
Success is very successful. Ok, that is an obvious and repetitive statement. My point is, if something succeeds everyone wants to know how you did it and replicate it. The even more enthusiastic would like to see if there is a way to ensure their own success by riding on the proven track. Break this into strategy and that is what is the entire gamut of having a franchise is, isn’t it?
Having a restaurant franchise has already found currency. It might be good to consider a franchise if you do not have much experience and don’t want to re-invent the wheel. You don’t have to start from the beginning and learn the entire process but enter the game through a side door. Some also choose to be a franchisee to minimize the risk and an added advantage of the backing of a proven brand.
So, the risk of business may be minimized, but does not make the route fool proof. Here is a list of the factors to consider before choosing a restaurant franchise option:
Brand Popularity of the franchisor
This is the first reason why you would look to be a franchise. Because the franchisor brand is popular, it has a brand recognition that would draw customers to it. It will also mean that you do not have to sell the idea of the brand and what it stands for, it has a certain critical pull factor. But does it really? There are many restaurants that are turning franchisors, make sure you have the clear understanding of their brand value before you get on board. Research thoroughly more than just word of mouth. How is the flagship restaurant rated in customer experience? Where does the brand or company (if you are looking for a franchise of an MNC one) stand on the popularity scale? These are some of the questions that you must have satisfactory answers before you start choosing a franchisor.
Brand presence in the local market if any and if not in any similar market
Look for presence and performance of other franchisees of the franchisor you are considering, in your city or town. Does the brand recognition ring true there as well? If you would be the first to become the franchise of brand x in a territory consider studying how they have fared in a similar market. For instance, if you will be the first franchise in a tier-II city study how the franchise has done in other tier-II cities. What makes a restaurant profitable (or not) can give you good pointers for your market.
Upfront fees and royalty
So, this will be your financial investment in the business. What is the upfront fees, that which you have to pay before you even open shop? What is the percentage of royalties? What is the time-frequency that they need to be paid? What are the terms or exceptions for the payments? Would your performance of business be linked to royalty payments? Understand the terms well and if you have trouble with the financial jargon you can always reach out to a professional such as a CA.
Profitability and comfort level of existing franchises
This is vital and also a good place to find out about the franchisor. Take your time, find out the location of the existing franchisees and visit a few. Apart from understanding how well the business is doing, you will also have a good idea of how they are being treated by franchisors. Franchise industry meets may also be an accessible way to network and understand the workings of current franchisees.
Track record and operating duration of franchise systems
In addition to experience of individual franchisee it is need to understand what the brand reputation as a franchisor is. What is the duration that the brand has franchisee operations? Understanding these systems, how well the frameworks have been put in place and if they function on ground as projected on paper are all crucial to understand. While duration itself is not an indication of a well-functioning franchise, it may prepare you, the franchisee to the systems you will have to operate within.
Clearly understanding all the terms and conditions
A franchise is a relationship, one that come with its set of rules. In this case the rules are set by the franchisor and you the franchisee is for the most part only abides by it. Take into account what are the requirements of the brand, what rules are there in place and why. Depending on industry, type of food, rules vary. For instance, Hyderabad based Cream Stone, the premium brand ice-cream chain insists that a lease agreement for the franchisee location be signed for a duration of nine years. This is to make sure that after a good investment, the retail location unavailability doesn’t arise.
Support system and team of franchise
A restaurant business needs nurturing, it requires the owner to bat, bowl and field all at the same time. Even all rounders need support from the captain. An involved franchisor can not only help in required amounts of the agreement but provide valuable insight. For instance, how to work through lean periods of sale, how to stand out as an option for the customer without breaking your marketing budget. Make sure the official mentor not just has the obligation to support franchisee but also has built an eco-system of support. The success of failure and success of their current franchisees is usually a good indicator to begin your research.
Your connect with the product
It is not work if you enjoy it. It doesn’t have to be your favorite food but there must be a connection to what you sell and you. You never understand the hype around a biriyani, but become a franchise for a chain, chances are you will find business exhausting. Over tim , forced enthusiasm will not even fool you. If it is something that you have a connect and interests you, the higher the chances of giving it your all.
Innovation and in tune with the times
Food culture is all about the curiosity and element of trying something new. Which means that restaurants, franchisor all need to think ahead to just keep up with the time. Understand that brands that you be involved with are here to stay and have a culture of innovation.
Financial predictions of business
This is the safety net that franchise can offer that is attractive to so many people. The fact that a reputed brand can, likely assure a certain extent of business, terms and conditions applicable of course. So, it would help to understand the financial history of the franchisor, how much business do the franchisee do. Given a particular location, what are factors that have impact the business of a franchisee. What is competition to the proposed franchise and how different can margins be in that case? All businesses draw a blueprint hoping to make be able to predict when their bottom line turns green. In a franchise system there are parameters that can help you calculate and you must use it to your advantage.
Exit options if things fail
We put in our best effort hoping to succeed and take calculated risks for business. But sometimes if something can go wrong, they just may. It is prudent to have a back up plan in place for the event. How to protect your investments, financial or otherwise when the franchise does not take off? Read the fine print and see if there can be secure your interest to some extent at such a stage.
Running a restaurant can be challenging, being a franchise can help with some of those challenges. Read up right, take due diligence and ultimately give it your all. Good luck on your franchise journey!