If you’re thinking about buying a franchise, chances are you’ve considered one or any number of food franchises, and for good reason. Fast food franchises have changed the way America eats and are among the oldest and biggest franchises in the United States.
But are you aware that food franchises can also be some of the most challenging businesses to operate? Before you invest too much time looking at which food franchise to buy, take time to weigh the advantages and disadvantages of owning a food franchise to determine if this space is worth exploring,
There are some definite advantages to the food franchise business. Generally, these advantages are:
- Status. Owning a food business can give a person a certain prestige. If status is important to you, having others consider you to be an up-and-coming food tycoon could be a considered 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 big advantage to a new franchisee – no need to convince people to try your product or to 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 important disadvantages to owning a food business. It is essential that you take these items into account when evaluating whether a food franchise is a good fit for you:
- 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. Outside you will need to consider parking arrangements and/or drive-up window accommodations, traffic flow around the business and signage. Take note that the initial investments listed in the Franchise Disclosure Document for many restaurants do NOT include real estate or build out / construction costs.
- 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 and this usually means they require extensive training and supervision; and 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 a sufficient number of people to keep the business going. Typically, labor challenges are listed as the number one frustration by franchisees in the food business. This issue was only exacerbated by the pandemic.
- Health Codes and Building Restrictions. Fortunately for the consumer, there are numerous codes and guidelines provided by the government to assure food safety. Unfortunately for the franchisee, complying with all these regulations is time consuming and expensive. A good franchisor, however, should be able to provide extensive assistance to a new franchisee with issues such zoning, permits, and code compliance. If the food franchise company 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, when you consider the cost of the goods, the labor costs, food spoilage, and the competitive nature of fast-food pricing, your markup per unit of food is small and you must do a large volume to make a profit. Make know assumptions about profitability. Do the homework.
- 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 so they will have some control over 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 important to clearly identify the skills you’ll need to be successful. Are you willing to work long hours, 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 very rewarding to a person who has the special set of skills necessary to be a successful restaurateur but it’s not a business for everyone.
How do you know if you have the necessary skills and temperament to be successful 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 and the experience can be invaluable to help you understand the business and to 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 which receives all food pre-cut, pre-sliced and pre-cooked. These types of businesses avoid some of the hassles and expenses mentioned above but still must 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 a 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.
