Advantages of Franchising in the Restaurant Industry
Attempting to operate a restaurant from the ground up is not an easy venture to pursue. Rather than attempt to start your own restaurant from scratch, securing a franchise can provide you with a flourishing business without the struggle of getting the company off the ground.
When you think of restaurant franchises, you may think of big names like Starbucks or McDonalds, but there are also all kinds of smaller restaurants willing to franchise their locations as well. So, why should you start a franchise in the restaurant industry? While we answer this question throughout the piece, we will also provide links to restaurant franchises listed on our very own website, Franchise.com.
What Is the Purpose of Franchising?
This is a fairly common question we hear from people looking to get into the restaurant business who are apprehensive about working with an already established company. Some people are worried about not being able to truly be their own boss, but that is a misconception about franchising. Let's break this down further. What is a franchise? It is an agreement between a franchisor (the established business) that wants to sell their business concept and a franchisee (you) who wants to invest in starting a business. The franchisee is buying the right to sell the franchisor's goods or services under their existing business model and trademark.
The franchisee will have to pay an initial upfront fee (think of it as a down payment) to get the new business started. Both parties then sign an agreement that covers the monthly royalty fee, advertising and marketing fee, and anything else both parties agree on. These documents can look quite different depending on the type of arrangements both parties have settled on, the type of business (franchise or business opportunity) and the industry.
Is Franchising a Restaurant Profitable?
Unfortunately, this is not a simple yes or no question. Bigger names brands will generally have an easier time getting business through the doors in the early stages, but that does not mean smaller or more local brands cannot turn a healthy profit.
Dickey's Barbecue Pit, a more local franchise, has an initial franchise fee of $20,000 and offers veterans a 25% discount off the initial fee. Dickey's has a liquid asset requirement of $100,000 for all potential franchisees. They also estimate that total investment in their business will range between $256,360 and $323,789. We must also make it clear that the numbers shown throughout this section are subject to change and only reflect the costs of these businesses at the time this post was written.
With this comparison and recent reports showing over 200,000 franchise restaurant establishments in the US, deciding not only what restaurant to franchise, but whether or not it is profitable is not a simple question to answer. It will be easier in the early stages to see positive returns for brands like Burger King as you will not need to do any heavy lifting on the marketing or advertising side. Does this mean that all smaller restaurant franchises like Dickey's Barbecue Pit are doomed to be less profitable? No, not at all. You will likely have a smaller market and sales goals, but with a lower entry cost, it is often easier to make your initial investment back with smaller brands. Dickey's is just one of the franchise opportunities available on our site.
What Are the Benefits of Franchising in the Restaurant Industry?
The concept of franchising provides benefits to both the franchisor and the franchisee. While some of the benefits will overlap, our focus will be on the benefits to the franchisee.
- Relatively Low Starting Costs: We use the term relatively, because we understand that tens of thousands or hundreds of thousands of dollars are not typically what one thinks of when they hear “low costs.” However, franchising seems rather tame compared to starting your own business from scratch that could fail within the first year, with unknown expenses. With a franchise, you will know exactly how much you owe upfront and will continue to pay in royalty fees.
- Established Brand: One of the biggest benefits of franchising a restaurant is that you are starting off with an already loyal customer base in most cases. You do not have to worry about getting people to discover your business; instead, you can turn your attention to reaching a wider audience and improving upon areas that may be lacking. If you open the first location of a national chain in a town, people will begin to show up to the restaurant without you having spent a dime on marketing and advertising. That is the power of an established brand. Consistent Support: A major hurdle of running a business on your own is that you will often be your only resource whereas with a franchise format, you have the support of an entire team with years of experience running the business you bought into. Even if you have previous experience in the restaurant industry and franchising business, it is common for the franchisor to teach you everything you need to know in order to be successful. Your success is their success.
- Serving an Established Want: The restaurant industry is highly competitive, and if you are not an already established commodity, it is difficult to stay afloat when bigger brands can drown you with their budget. Franchising eliminates that barrier by allowing you to operate with a brand already providing a needed service or product.
While the benefits of operating a franchised restaurant can seem endless, there are still challenges of franchising that exist in the industry. One such obstacle for smaller operations is consistent growth. Market Insyte conducted a study and found that "between 2016-2019, industry revenue grew by a Compound Annual Growth Rate of 1.50%." Which means there may not be room for even qualified applicants to acquire a spot with an established brand.
Franchise Restaurants for Sale
All of this information is well and good, but where do you go to actually begin the process to franchise a restaurant? While you can Google your favorite chain and see what franchising options they have available, you will likely find better luck using a resource like Franchise.com. You can use our free directory to find the right franchise for your specific ambitions. To help you get started with your search, here are just a few of the available restaurant franchises we have available.
- Bruster's Real Ice Cream: A Bruster's franchisee is more than a financial investment or a means to support your family. This franchise provides ample resources to its franchisees like lending resources and business plan templates, site selection support, real estate broker connections, and construction management.
- Chick-fil-A: Chick-fil-A has more than 2,000 restaurants in 46 states. With an incredibly well-known brand backing your efforts, the $10,000 required to start your franchise is a steal for the revenue a Chick-fil-A location will be able to bring in on a regular basis.
- IHOP: With only $50,000 required to start the franchise process, an IHOP location can be very profitable. IHOP also provides an initial training program, called IHOP Academy, for new franchisees.
We are confident that we will be able to connect you with the right franchise. Whether you are looking to make a sizable investment in a global chain or want to operate at a more local level, Franchise.com has got you covered.
Best Restaurant Franchises to Own
The best restaurant franchise will be different in a person-to-person case. However, we would be remiss not to point out that some franchises will inherently have a better chance at turning a profit than others. NerdWallet put out a list of what they identified as the 14 best restaurant franchises. A quick scroll through the list will show a common thread among all 14 brands; they are all, at the very least, national brands with hundreds of locations. We mentioned it throughout this piece, but these more prominent names will always be easier at the start to begin generating revenue. That is the tradeoff you must consider as a potential investor. While the cheapest restaurant franchises have the lowest barrier to entry, it may be more difficult to make back that investment. On the other hand, operating with the bigger brands does not guarantee success.
A restaurant franchise cost does not determine how valuable it is. The best franchise to own will be the business you are most passionate about running. The franchisor wants you to succeed; therefore, great success awaits you if you are ready and willing to tackle the challenges head-on.
Franchise.com: Your Home for Franchise Options
Since our creation in 1995, we have been the 'go-to' place for people beginning their business opportunity search and the journey of franchise ownership as well as for those already involved in the world of franchising. Franchising in the restaurant industry can be difficult to navigate, but going through us means you will find a meaningful connection with the right business for your aspirations.
To begin your career franchising a restaurant, browse our catalog today.