Should You Buy a Restaurant Franchise or Go It Alone? Weighing the Pros and Cons
by Caron_Beesley, Community Moderator
- Created: February 2, 2012, 7:40 am
- Updated: April 30, 2012, 6:59 pm
Are you interested in the restaurant or food service business, but don’t know whether to go the franchise route or start your own business from scratch?
The food service industry is the largest and most prominent sector in franchising today, and while not entirely risk-free, it’s often perceived as a safer bet for new business owners.
Of course, restaurant franchise ownership isn’t for everyone. Being a franchise owner requires a particular type of personality, solid research, and a willingness to work within the confines of someone else’s entrepreneurial vision.
Below are some pros and cons that are worth bearing in mind as you explore the franchising option.
The Pros of Being a Restaurant Franchisee
1. Franchise Restaurants Have Clarity of Concept
One of the big reasons many restaurants fail isn’t the lack of a strategic plan, but the lack of a well-defined concept. A restaurant’s concept is embodied by many things – the food product, operating philosophy, and customer relations. It’s about what you sell, who you sell it to, and what your competitive advantage is. Franchises offer the distinct advantage of an already defined and proven concept – something to think about as you weigh the pros and cons.
2. The Brand is Established
Closely tied to having a clear business concept is the fact that when you buy into a franchise, much of the branding has been done for you. Now, this doesn’t mean that you have an instant hit on your hands. This is especially true if you are buying into a fairly new franchise model which may not have a proven marketing plan in place. Before you buy into the franchise, quiz the franchisor about its marketing plan, and how it can help you.
3. Support from the Franchisor
Becoming a franchisee brings with it many benefits you won’t get as an independent restaurant owner, such as training, custom software, advertising campaigns, marketing materials, and phone and email support. This doesn’t mean you can disengage your business brain. Remember, you are part of a network of franchisees, and getting help right when you need it isn’t always realistic; be prepared to exercise your problem-solving skills too.
4. Group Purchasing
This is a big win for a small business owner in startup mode. If you are an independent business owner, it will take some time to build up the buying power to qualify for discounted rates on purchases. Franchisors, however, buy in bulk and pass those savings on to you.
5. Turn a Profit Quicker (Perhaps)
I’m hesitant about putting this in the pros category because there are no quick wins in business. Yes, you will benefit from existing brand recognition and that may help you turn a profit quicker than going it alone, but you still will have costs from the get-go, such as loans, franchise fees, business expenses, payroll and other overhead. So, don’t expect an instant hit on your hand. Think long-term, and as with all small business owners, have a financial buffer to carry you through at least the first year.
The Cons of Being a Restaurant Franchisee
1. Franchising Isn’t an Entrepreneurial Model
SBA guest blogger and franchising consultant, Joel Libava (aka “The Franchise King”) makes the point in his book, “Become a Franchise Owner” that “…becoming a franchise owner means you are investing in someone else’s entrepreneurial vision.” What does that mean? Well, how much creativity and trailblazing does following someone else’s business model and vision afford you? If you see yourself as the next Smith & Wollensky or Gordon Ramsay, then owning a franchise restaurant may not be right for you.
That being said, becoming a franchisee doesn’t mean you are entirely bound to the franchisor’s way of doing things, as Joel points out: “Who’s doing the hiring and firing? Whose name is on the commercial lease? Who’s the one trying to grow your business? You are. You’re the franchise owner. Sure you have to follow the rules. Does that make you any less of a business owner?”
2. Brand and Menu Guidelines
Each franchise has guidelines that control not only what’s on your menu but how your restaurant looks – it’s a proven formula that works. There’s no room for entrepreneurial diversification here and that means no spicing up the menu or using ingredients that aren’t approved. You’ll also need to abide by customer service standards.
I touched on this in the profitability point above: there is no getting away from franchise fees that, according to Libava, can be anywhere from $150,000 to more than $1 million. This and any costs you might incur for advertising campaigns can eat into your profits if you don’t plan and budget accordingly.
- Opening a Restaurant Franchise: Your Essential Checklist
- SBA Guide to Buying a Franchise
- How to Research a Franchise
- Choosing a Franchise in a Competitive Industry
- Opening and Running a Restaurant – A Legal and Regulatory Checklist
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