Suppose you’re thinking about buying a franchise. In that case, chances are you’ve considered one or any number of food franchises, and for good reason. Fast-food franchises have changed how America eats and are among the oldest and biggest franchises in the U.S.
But are you aware that food franchises can also be among the most challenging businesses to run? Before you invest too much time looking at which food franchise to buy, consider the advantages and disadvantages of owning a food franchise to determine if you have what it takes to succeed in this business.
There are some definite advantages to the food franchise business. Generally, these advantages are:
- Status. Many people consider owning a food business to be prestigious. If status is important to you, having others think of you as an up-and-coming food tycoon could be viewed as an advantage.
- Instant Recognition and Appeal. People need to eat, and they’ve become accustomed to looking for food franchises when hungry. This can be a significant advantage to a new franchisee – no need to convince people to try your product or go looking for customers.
- Financing Help. You’ll probably need a good-sized loan to open a food franchise, and there are financing sources that will be happy to help you. These lenders are very familiar with real estate, build-out, and equipment costs associated with food operations, so you may have an easier time borrowing the money you need.
- Proven Operations. The best way to determine if you could be successful in a particular franchise business is to talk to franchisees in the system. Many food franchises have multiple units and have been operating for a while. This will make it easier to gather sufficient data to make an informed decision.
There are also some substantial disadvantages to owning a food business. It is essential that you take these items into account when evaluating whether you want to buy a food franchise:
- High Initial Investment. Depending on the type of food a franchise prepares, a significant investment to get started is usually required. You may need food preparation stations, ovens or grills, sinks and dishwashers, grease disposal systems and vents, customer seating and bathroom areas – and this is just for inside the restaurant.
- Low-wage Labor. Most food businesses require a large number of hourly wage employees. People willing to accept an hourly wage are generally new to the workforce. Unskilled labor usually means they require extensive training and supervision. Depending on the market, you may find you need to be bilingual to manage your employees. Because turnover can be high, there is significant work involved to recruit and train sufficient people to keep the business going. Typically, labor challenges are listed as the number one frustration by franchisees in the food business
- Health Codes and Building Restrictions. Fortunately for the consumer, there are numerous codes and guidelines provided by the government to ensure the food we eat is safe. Unfortunately for the franchisee, complying with all of these regulations is very time-consuming and expensive. However, a good franchisor should be able to provide extensive assistance to a new franchisee with issues such as zoning, permits, and code compliance. If the food franchise concept you are investigating does not offer this assistance, cross them off your list and move on to the next one, as this is one area you don’t want to tackle on your own.
- Focus on Volume. The net margins of most food businesses are not as high as many other franchise opportunities. Compared to service-related franchises, your markup per unit of food is small when you consider the cost of the goods, the labor costs, food spoilage, and the competitive nature of fast food pricing. You have to do a large volume to make a profit.
- Quality of Life. We started the “Advantages” list with “Status,” and the flip side of that is “Quality of Life.” Most people choose to become a business owner to control their work hours and more time for family, interests, and fun. Owning a food franchise, however, often requires long hours as you are usually the first to arrive and the last to leave. These businesses are open every day and often into the night. And, as we mentioned, many food franchise owners find the labor challenges very frustrating, which can lead to early burnout.
When evaluating a food franchise, it is crucial to identify the skills you’ll need to succeed. Are you willing to work long hours, at least until you can afford to put a manager in place? Do you have experience working with teenagers, bilingual, and other hourly wage employees? How do you feel about smelling like fast food all day, every day? The food business can be gratifying to a person who has the unique set of skills necessary to be a successful restaurateur. Still, it’s not a business for everyone.
How do you know if you have the necessary skills and temperament to succeed as a food franchisee? Probably the best way is to go to work for an existing unit and shadow the owner for at least several weeks. Some franchise systems will even require this before granting you a franchise. The experience can be invaluable to help you understand the business and help you decide if you’d thrive or fail in the environment.
Not all food businesses are as complex to run as the typical hamburger and fries franchise. Some food franchises run very simplified operations without grills, ovens, and fryers. Take, for example, a sandwich outlet that receives all food pre-cut, pre-sliced and pre-cooked. These businesses avoid some of the hassles and expenses mentioned above but still have to deal with food spoilage and labor issues.
Food franchise owners are some of the most respected and successful franchise operators in the industry. For the right person, a food franchise can be an exciting and lucrative business. But there are many reasons why this business is not for everyone. Before you sink your life savings into a food or food-related franchise, make sure you understand all the requirements, have the necessary skills, and that the franchisor will provide you with the extensive support you will need to run a successful business.
Managing a restaurant is hard work with long hours. There often is unplanned and untimely employee turnover, some drama, a great deal of code compliance. It requires tight financial management around loss, spoilage, waste, theft, and breakage. Restauranteurs are indeed executing their passion play because they could make a lot more money in many other industries within franchising other than “food” for the investment.
However, I constantly hear inexperienced people say:
“I love the food, and it will do so well where I live.” Or, everyone has to eat, so there is a built-in customer base. That candidate could be correct, but if his goal is to create flexibility in his schedule, but he finds himself in the store serving the food instead of being with his family at an event, it doesn’t matter how tasty the food is if he is working rather than enjoying his family during several hours that he’ll never recover.
If you find yourself loving the concept or loving the food, don’t become infatuated with the franchise. Instead, stick to buying that meal, not the business. Just because it looks good or tastes good from the counter’s customer side doesn’t suggest that the enjoyment is equal on the owner’s side.
I cannot stress enough that you must look at a business from a business mindset. Don’t go down the road of regret.
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