If you’re thinking about buying a franchise, chances are you’ve considered a food franchise, and for good reason. Fast food franchises are among the oldest and largest franchises in the U.S.
It’s important to keep in mind that a food franchise can rank right up there with the most challenging businesses to run. Before you invest too much time looking at food franchises, make sure to weigh the advantages and disadvantages of this industry.
What Works: Food Franchise Advantages
Here are some of the upsides of owning a food franchise:
Status. Many people consider it prestigious to own a food business. If status is important to you, it can be beneficial to have others view you as an up-and-coming food tycoon.
Instant Recognition and Appeal. Food has universal appeal. People need to eat and trying out a new food franchise is usually an appealing prospect. This can be a big advantage to a new franchisee, as there is less of a need to convince people to try your product.
Financing. Most people need a loan in order to open a food franchise. The good news is that financing sources are plentiful. These lenders are very familiar with the costs of real estate, build-out, and equipment associated with food operations. So, in this industry you may have an easier time borrowing the money you need.
Established Operations. The best way to determine your fit with a particular franchise is to speak with its franchisees. Because many food franchises have multiple units and have been in operation for some time, it’s easier to gather sufficient data to make an informed decision.
What’s Challenging: Food Franchise Disadvantages
Be sure to take these challenges into account when evaluating whether you want to own a food franchise:
High Initial Investment. Food franchises typically require a significant initial investment. The business may require food preparation stations, ovens or grills, sinks and dishwashers, grease disposal systems and vents, customer seating and bathroom areas, and these are only the costs of the restaurant’s interior.
Low-Wage Labor. Labor challenges are usually listed as the #1 frustration in the food franchise industry. Most food businesses require a large workforce of hourly wage employees. People willing to accept an hourly wage are generally new to the workforce, needing extensive training and supervision. Depending on the market, effectively managing your employees may mean you need to be bilingual. Turnover can be high. Recruiting and training a sufficient number of employees takes significant time and expense.
Health Codes and Building Restrictions. Fortunately for the consumer, the government sets forth codes and guidelines to ensure that food is safe to eat. However, complying with all of these regulations is very time consuming and expensive. A good franchisor will assist franchisees with issues such zoning, permits, and code compliance. If the food franchise company you are investigating does not offer this assistance, cross it off your list. This is one area you won’t want to tackle alone.
Focus on Volume. The net margins of most food businesses are relatively low in comparison to service-related franchises. The markeup per unit of food is small and a large volume of business is required in order to make a profit. This is due to the cost of goods, labor costs, the rate of food spoilage, and the competitive nature of fast food pricing.
Quality of Life. Many people choose to become a business owner to gain some control over their work hours and spend more time with family. However, owning a food franchise frequently requires long hours.
Is this Industry Right for You?
How do you know whether you have the skills and temperament necessary to succeed as a food franchisee? 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. This experience will go a long way in helping you understand the business and determine whether you’re a good fit.
When evaluating a food franchise, you’ll want to ask yourself these questions: Are you willing to work long hours, at least until you can afford to put a manager in place? Do you have experience supervising teenagers, bilingual employees, and other hourly wage workers? How do you feel about working while surrounded by food aromas all day, every day? The food business can be very rewarding but it’s not for everyone.
If you’re feeling discouraged, keep in mind that there are many food businesses that are less complex to run than a typical hamburger and fries franchise. Some run very simplified operations without the need for grills, ovens, or fryers. For example, a sandwich outlet may receive its ingredients pre-cut, pre-sliced, and pre-cooked. These types of businesses may have fewer hassles and expenses.
It’s a Wrap
For the right person, a food franchise can be an exciting and lucrative business. But before you sink your life savings into a food-related franchise, make sure you understand all the requirements and have the necessary skills. Also make certain that the franchisor will provide sufficient training and support, so you’ll have a great shot at success.