Every restaurateur wants to expand…at first perhaps by taking on and developing new sites. But a few very familiar global operators have shown there is a fast-track route to ‘supersizing’ your concept by selling it as a franchise to other entrepreneurs who share your dream.
Think of your menu. Think of the care you put into creating a whole variety of gourmet delights, each a feast to the senses, all served in a prestigious and stylish environment and enjoyed maybe a few dozen, or perhaps a few hundred, diners a day.
Then think of a small disc of ground beef in a bread bun, usually eaten out of card boxes under fluorescent tube lighting…and chosen by around 68million people every single day of the year in 119 countries around the globe.
Many factors work together to create the such a massive international success – many of them utterly alien to your view of a dining experience – but that exact same route to rapid expansion is available to ever restaurateur, whatever your style or status. That route is franchising.
The public face of McDonald’s may be a clown but he’s certainly no fool. Careful, professional use of the franchise principle – backed by a true passion for expansion – has turned one of the world’s most basic food items into the biggest and most successful eating phenomenon in history…and in doing so, set a few lessons we can all learn from.
In The Beginning
However many restaurants you build your chain into, whether it’s five or five hundred, the massively biggest step in that growth will be when you first move up from one to two. Expanding by the normal organic route, you’ll find all your fixed costs have doubled overnight and 50% of all your assets – material, financial and of course human – will be riding on a theoretical unknown that has not yet turned a cent.
With luck, and more to the point with sound, professional advice from experts such as Restaurant Secrets Inc, you are very likely to succeed…but not without a few sleepless nights for you and your bank manager alike.
On the face of it, the franchise route has none of these worries; it has fewer financial constraints and even fewer limitations to the speed of expansion but of course it is not without its own challenges and must only be approached with the right kind of advice at every level. It is a very different route from organic growth and one with massive potential but it would be a serious mistake to believe that freedom from these conventional limitations means it is easy. Like any explosion, it needs to be controlled, and controlled with the greatest care and expertise. At Restaurant Secrets Inc, we have advised many restaurateurs in their expansion, both organic and by franchise. And everyone has heard of a few entrepreneurs who have advanced recklessly, tempted by the holy grail of exponential growth, and ended up paying the ultimate price.
The entire ‘how-to’ of successful franchising would fill several libraries. We aim in this article to give you a sound outline of the process and we are of course here and very ready to help any business that is tempted to pursue it further.
Your Restaurant – The Brand
You have a brand, whether you realize it or not (and if you really don’t have one, you might as well stop reading here). That brand will include not just the name over the door but everything about it – the style of food, the price positioning and client profile, the theme of the décor and much more besides. Just think of Subway… even the smell is part of the brand. You can be blocks away but you know for sure that the familiar yellow, white and green sign is just waiting for you to follow your nose right to the door. Love or hate that smell, it’s worth a million and forms a very major part of the overall brand value.
Your own brand is at the heart of the franchise you are selling. In fact, of course, assuming within the term ‘brand’ you include your reputation, it is everything you are selling. Someone out there likes what you have and wants so much to be a part of it that they are willing to buy into it. If you can find that person – or they can find you – you have the beginnings of a successful franchise.
Remember, It Is Not What You Sell, It Is How You Sell It
Before you slam you ambition into overdrive, this might be the best time to slow down and look at the serious stuff. Here is where you will definitely need the expertise, whether it is just a good contract lawyer or more likely a specialist consultancy like Restaurant Secrets Inc. A lawyer might be able to put together a basic but viable franchise agreement while a specialist consultancy will not only take you through every stage but also connect you with a team of field experts such as lawyers, real estate agents etc.
Firstly, you have to define clearly what you are selling. A franchise partner will expect to see not just what your loyal diner sees but all the backroom stuff, from your financial accounts to leases, staff contracts, staff turnover levels and much more.
Within the accounts, you will need to show not only monthly or annual figures but also year-on-year growth to give a clearer picture of potential growth.
Remember, your franchisee-to-be will need to know if they can still make a bottom line by not just doing what you do but by doing it after paying you for the privilege of doing it! This will not only include royalties but also usually a marketing fund. Together, these may come to almost 10% of the franchisee’s projected profit so they will need to consider these carefully and it is your job to prove the case to them.
The legal stuff: For possibly obvious reasons, the legalities surrounding the franchise principle are complex. This is largely because some would-be franchisors in the past have been less than honest and also many franchisees have taken liberties by cutting corners and damaged the brand as a result. So if you find the legal stuff daunting, take heart; it is there for a reason. Issues such as trademarks and registrations, for example, are vital and can be a minefield in themselves. Also there are many national statutes governing the operation of franchises as well as all the inevitable contractual matters. We must be sure we get it all right.
Let’s get back to the brand that makes up your franchise. Of course, this cannot be quantified like a lease or a balance sheet, so it is pretty much up to you to define the esthetics and brand values of what they are buying into. But there is one major pitfall the buyer may be facing. A part of that value is whether the concept will translate to another site. If you only have one site, they may wonder whether its success is a stroke of luck that will not work twice and you cannot easily prove otherwise. On the other hand, the more units you already have – owned or franchised – the more this will speak for itself.
And finally, your prospective franchisee has gone through all the paperwork and decided to go with you. The legalities are completed, the contracts are signed and the journey to this point is complete. But really, this is only the beginning. They must now replicate all the alchemy that made your brand worth buying into, and they must do it in a way that upholds the values of your franchise, so you both have obligations to each other to ‘go by the book.’We have left this till last because it is at the final stages that it will come into effect, though of course all will have been laid out at the beginning because it makes up part of the parameters of the entire agreement…and again we strongly recommend you work this out with expert advice.
First, the franchisee’s obligation:You will have created a set of rules that define your business and the way things should be done. How strictly you enforce this to the letter is a matter for your choice but it is worth noting that the major names in this area keep things pretty strict. One franchisee of a global chain once put it perfectly: “I don’t even choose the brand of soap in the washroom but as long as I’m making money, that’s fine by me.”
Then there is your obligation: The franchisee’s staff can not of course read the book and get going. You will need to train them just as you do your own staff and here the franchise way hardly differs from owned units so probably needs little explanation.
The More The Restaurant Dependent On You The Higher The Risk Of Failure
Everything is now in place but of course this is no time for you to sit back. You now have one or more extra units to oversee just as though they were your own, although with careful delegation, you can be a little more hands-off. And in that case, you may find yourself with a little spare time to spend thinking about your next expansion.
We hope we have given you a taster of the benefits – and the pitfalls – of expanding via the franchise route. There is of course much, much more detail to be considered before embarking on this adventure and we at Restaurant Secrets Inc are ready to share all the experience and advice that you will ever need for the journey. Just give us a call any time and we are ready to share that journey with you.