Should You Open a Restaurant Franchise?
If you are planning to open a food service business, the idea of purchasing a franchise may be something you are considering. When you purchase a franchise you are essentially buying into an already established brand, name and overall business. There are many advantages and disadvantages to doing so. As you consider this option, you will want to weigh the pros and cons to see if this is a venture that will benefit you.
There are several advantages of buying into a franchise:
1) One of the biggest benefits of buying into a franchise is the instant brand recognition. Because the franchise has been established and may be located in many areas, people are already aware of who they are and what they offer. This means that you will have customers waiting for the day you open the doors. This is different from opening an independent business, where you will have to slowly build up a name and reputation.
2) When you buy into a franchise it is also simpler to advertise and market your business. The marketing strategy has been tried and tested by the franchise and you will operate under their auspices. Also, some of your advertising costs may be covered by the franchise, and chances are you will have a greater chance at success than if you started a brand new venture.
3) A thrid advantage of going with a franchise is that you are buying into a prearranged way of running things. The decor, the menu, the signage, the name and brand, have all been taken care of for you. You are also buying into a support network of trainers, managers and brand representatives who will be there to help you get your chain up and running. This is a big advantage for someone who is new to the restaurant business and is a great way to get a lot of help and support.
4) Another advantage of opening a franchise is that your buying power will increase. A large franchise is usually better able to negotiate deals with vendors because they are purchasing in higher volumes. You will benefit from that by getting better prices as well.
If you do opt for buying into a franchise, it is vital that you research the franchise thoroughly. Check their financial statements, speak to other franchise owners, do a background check. Find out their policies regarding royalty fees, service and support and advertising. In short, get all the information you can about the company, especially how much of an upfront fee they will require, before you pursue the franchise.
For each advantage to owning a franchise, there are at least one or more disadvantages.
1) The greatest disadvantage may be the amount of money that is required to buy into and maintain the franchise. Franchises usually require large upfront fees that amount to more than it would cost to open your own food service operation. Aside from the large initial start up fees, there are royalty fees. Royalty fees are usually required for the length of the business contract. There are also advertising fees and costly updates that you would be required to fund. This all adds up to quite a bit of money which could greatly cut into your profits.
2) Another disadvantage is same brand competition. There is not much that you can do if someone opens the same franchise within close proximity to your store. In this case you, as the franchise owner, will lose money when your customer goes to the same chain store, located closer to his office. The overall brand wins, but the individual franchise owner suffers as a result.
3) Another big disadvantage is the lack of freedom you have in any aspect of running the franchise. Franchises have established rules for all their operations, procedures and advertising and you will have to follow them if you want to retain the franchise. This means that you will not be able to use any creativity when it comes to the menu, the decor, ad campaigns and anything else that might go into running the business.
Whether or not to buy into a restaurant franchise is a big decision. If you have a large amount of cash to invest, and you are looking for a restaurant business to invest in that has a high success rate, then buying into a franchise may be right for you. If you are a chef, or have an interest in cooking and creativity, and are dreaming of opening some type of food service business, then a franchise is definitley not a good idea for you unless you find one that has more flexible terms and conditions than the norm.