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Restaurant franchise
Posted on 10/5/10 at 12:53 pm
Posted on 10/5/10 at 12:53 pm
Anyone have any experience opening one? What are the pros/cons in your opinion? Biggest risks? TIA
3
Posted on 10/5/10 at 12:55 pm to EOT
I don't have any answers for you but I'd imagine the answer to your questions depends on the franchise in question.
For example, I'm pretty sure Subways don't offer any territory exclusivity. I can open a subway right across the street from yours.
For example, I'm pretty sure Subways don't offer any territory exclusivity. I can open a subway right across the street from yours.
Posted on 10/5/10 at 2:01 pm to EOT
Restaurant Failure Rate is extremely high.
Posted on 10/5/10 at 2:05 pm to Ringeaux
quote:
Restaurant Failure Rate is extremely high.
Due to...?
Posted on 10/5/10 at 2:08 pm to EOT
Too many competitors in an industry that has almost no restrictions limiting start ups.
My bank, for example, had in its loan policy that we would not make a loan to any start up restaurant. Period.
And this was back when banks wanted to make loans......
My bank, for example, had in its loan policy that we would not make a loan to any start up restaurant. Period.
And this was back when banks wanted to make loans......
Posted on 10/5/10 at 2:09 pm to Ringeaux
quote:
Restaurant Failure Rate is extremely high.
To be fair, he did say franchise. I imagine the failure rate among franchises is lower - and among really established brands even lower. That said, the restaurant business is a tough way to grind out (hopefully) a 15% ROE or so.
Posted on 10/5/10 at 2:18 pm to Tiger JJ
I agree. Usually, well established franchises have HUGE start up fees. It's all risk/reward but in this economy where alot of folks are watching thier pennies the rest. business would scare the hell out of me.
Posted on 10/5/10 at 2:35 pm to Ringeaux
quote:
Usually, well established franchises have HUGE start up fees.
We researched opening a Cane's franchise in Clear lake, TX and the start up requirements were astronomical. The only two I remember vividly were $500,000 liquid (in personal account i.e. not loan), and had to be within a ridiculously small location radius to a certain size university (so I would have had to open it up in the 3rd ward instead of an area averaging $70,000 household income).
There were lots of other small requirements related to previous food service management/ownership, real estate size, and profit sharing agreements.
They requirements struck me as abnormally high and restrictive when compared to a McDonalds or Wendys, but I never researched alternatives so I may be wrong.
This post was edited on 10/5/10 at 2:38 pm
Posted on 10/5/10 at 2:36 pm to Tiger JJ
quote:
the restaurant business is a tough way to grind out (hopefully) a 15% ROE or so.
Brutal hours to be "marginally" successfull if you live in any non metropolis. It's really not worth it unless the chef or brand has cache already.
Posted on 10/5/10 at 2:38 pm to MSMHater
quote:
We researched opening a Cane's franchise in Clear lake, TX and the start up requirements were astronomical. The only two I remember vividly were $500,000 liquid (in personal account i.e. not loan), and had to be within a ridiculously small location radius to a certain size university.
There were lots of other small requirements related to previous food service management/ownership, real estate size, and profit sharing agreements.
They requirements struck me as abnormally high and restrictive when compared to a McDonalds or Wendys, but I never researched alternatives so I may be wrong.
I came down from New York in 2002 to meet with Cane's about starting up some franchising - potentially up north. This was before they had done any. They were good to go, but they wanted me to move to BR for 9 months and work in every position in one of the stores so I knew the biz inside and out.
So short-sighted not to have done it.
Posted on 10/5/10 at 2:39 pm to Tiger JJ
quote:
So short-sighted not to have done it.
Always looks better in hindsight, right?
They were VERY successfull by the time I inquired. About late 2006.
This post was edited on 10/5/10 at 2:42 pm
Posted on 10/5/10 at 2:42 pm to MSMHater
We do accounting for a couple of franchise locations in nola. IDK if they all work like this, but for ours, the franchise fee and the proportionate share of advertising completely obliterates their margins. Its not like they're living under I-10 and eating cat food or anything though.
Posted on 10/5/10 at 2:45 pm to MSMHater
quote:
Always looks better in hindsight, right?
I knew at the time it would probably be smart to take the plunge (I quit my then current job about 3 months later anyway).
Posted on 10/5/10 at 2:47 pm to Tiger JJ
quote:
(I quit my then current job about 3 months later anyway).
That makes it a TERRIBLE story JT.
Posted on 10/5/10 at 3:52 pm to kfizzle85
quote:
IDK if they all work like this, but for ours, the franchise fee and the proportionate share of advertising completely obliterates their margins.
It all depends on what type of restaurant it is. Cane's franchise fees is pretty high only because of what they sell. Chicken and fries. The cost of their products is not high compared to their sales so they can take more fees. I can't remember off hand how much it was....thinking close to around 10%. Not sure though. More casual, sit-down type restaurants are probably around 4-6% of net sales and advertising fees vary but it's lower than the franchise fees.
Pros: Recipes, branding, training, etc. are all set for you.
Cons: Upfront cost, franchise fees, having to follow certain guidelines
Posted on 10/5/10 at 4:00 pm to tigers444
I can't go throwing around names, but the ones I work with cover a local franchise and a national one (we have more but I'm a new guy so...). In both cases, their gross margin is fine. I'd always been told that overhead is what sucked the life out of restaurants, but, at least in the case of these two franchisees, that's not the case; it's the franchising fee and the mandatory advertising fee they pay to the parent co. It literally halves their net income in a good year (this year) and makes them almost unprofitable in a bad year (08).
Posted on 10/5/10 at 4:13 pm to kfizzle85
That's not good. The % must be pretty high....assuming it's based on % sales. I just threw out Cane's number from what I heard. I don't work for them. I work in the industry though so I know a little about it. Advertising fees are pretty standard with the added costs of being a franchise. 09 caught up to a lot of companies around here. Starting to pick up a little.
Overhead does play a big part in a company closing. Restaurant owners should look at the numbers often and see where they all there money is going. It's amazing to see how much they spend on what.
Overhead does play a big part in a company closing. Restaurant owners should look at the numbers often and see where they all there money is going. It's amazing to see how much they spend on what.
Posted on 10/5/10 at 4:19 pm to kfizzle85
Yeah most have to contribute 5% of revenues to the parent for advertising expenses. That just crushes margins when you are already facing pressure on gross profit from rising food costs. Interesting how the parent plays middle man on the food shipments and arbs the spread considerably.
Posted on 10/5/10 at 10:21 pm to bananarama
The funny thing is, for one of them, I've literally never seen an advert for them in this area. I mean ever.
Posted on 10/6/10 at 7:22 am to MSMHater
I have to keep it generalized but here are some figures. 5% off the top for royalties and advertising. Total first year investment for inventory, build-out, franchise fee < $150K. Location would be in the 4th biggest city in the US. Average margins of existing restaurants are anywhere from 15-40%.
ETA: Catering is the difference in margins.
ETA: Catering is the difference in margins.
This post was edited on 10/6/10 at 7:30 am
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