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What franchise to buy?

I was thinking of owning a franchise, I was wondering what advice people can give for a newbie? I was thinking of a restaurant or coffee shop. It is different from my usual on-line endeavours but thought I would do something different!

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the average person cannot

the average person cannot afford these franchises. The Franchise Maker

u r missing few franchises on

u r missing few franchises on this list. Jason's Deli, Taco Bell, Popeye's. Just name a few

Granville_Bean's picture

McD "Before Rent" SOI Misleading

What good does it do to exclude Rent from Store Operating Income, when in the McD system (in the US) the stores are rented from the Zor?  (In the US, McDonald's is a real estate company that sells hamburgers, more than a hamburger company that owns real estate.)  It's not like someone can say "Gee, I own a gas station that isn't doing too well, I'll just convert it to a McDonald's and make $600k, there will be no rent since I own the place". 

Another factor is that only Zor-approved "Operators" can obtain licenses from McD Corp for the use of McD rademarks, recipes, systems, etc.  You can't just buy a store and THEN take two weeks of training to be taught how to run it. While the "Hamburger Uinviersity" final course only takes a week, the three other levels of certification you need before you will be admited to HU typically take close to a year to obtain since demonstrated on-the-job expertise is required.

I've said it before, the value of a franchise is inveresely proportional to how easy it is to obtain one.  (So Chik-Fil-As should be pretty valuable!)

Granville_Bean's picture

what?

What is it that causes Newbie to want to own a restaurant or coffee shop?  What business experience does Newbie have in the restaurant or coffee shop business?  What is it about Newbie's set of skills that causes him/her to believe that they are suited to running a restaurant or coffee shop?

Or will this just be one more case of someone thinking that they don't need to know anything, just take 2 weeks training and "follow the proven system"?

Don Sniegowski's picture

What restaurant franchise should I buy?

Since you asked what restaurant franchise to buy, here is an answer. During this recession, market research nudges me towards quick-service restaurants. Here are some of my favorite QSR picks as of today: 

  1. Chick-fil-A 
    Pros: $2.5 million in sales per shop in 2009. Wow! Closed Sundays too. Double wow!!
    Cons: (1) No franchisee association or cooperative? None?!? I changed my mind. Strike it from my list. (2). It's harder to get into than Harvard. Only one franchise applicant in a hundred are selected. (3). A strong southern evangelical white culture that has benefits in that the Sabbath is taken off and franchisees read from the same page, but it goes against my multi-cultural and multi-ethnic background from Hawaii.

  2. McDonald's
    Pro: Gotta love the agility and leadership of this brand giant and the $2.2 million sales per store / $600k average operating income before rent. A collaborative culture that has franchisee cooperatives and associations.
    Con: (1) Expensive. Total investment $1.8 million. (2) A really tough franchise agreement.

  3. Panera Bread
    Pros: Their average restaurant's net profit is 11% of $2.1 million in sales. And 47% of the system performs better in sales. The network has seen a stellar rise.
    Cons: (1) No franchisee association or cooperative. (2) It ain't cheap. $650k total investment.

  4. KFC
    Pros
    : Average $1.4 million* sales per store, of which 61% is for cost of goods and labor. A long history of proactive franchisee associations and coops who make decisions for the chain. They have built KFC into the giant it is today.
    Cons: (1) Current CEO prefers franchisees who sheepishly advise, not boldly decide. (2) Losing market share.

McCafe is about as close as I personally would like to get to a coffee shop. I'm closely watching Dunkin' to see what improvements are made in that troubled system.

Hope that helps.


Note: You probably can tell I didn't just pop those top choices out of my head. The metrics are sorted and filtered from quantitative lists that I'm currently working on, numbers that nowadays any Internet surfer has access to. The qualitative observations, the pros and cons, are my short-hand. That should bring you to the point were you now have a million and one questions. For example, how in the world did I come up with that short-list? And where are the upstarts?

A word of caution: there are salesmen in search of those who can easily be separated from their money. They look for people who stop at easy answers.

*KFC's 2008 FDD says $1.01 million

You are a fool!

No one cares what you think and your analysis is less than weak.

Barbara Jorgensen's picture

Guest, Don is not a fool!!!

His success with BMM is awesome.  He may be the very source that will turn franchising into a win, win deal for the zee and zor. 

I am not anti-franchising.  I am against taking advantage of people in the franchising world.

Don Sniegowski's picture

Top restaurant choices

I think folks know how much of a fool I am. No surprise there.

If you've got a better list of top choices, let's hear it, along with why.

Be careful. The filters automatically stop posts that name call before any of us can read it.

Don Sniegowski's picture

Top 5 QSRs by sales per store in biggest 50 franchise systems

I'm having fun crunching numbers this weekend. After writing so much prose, it's a nice break to switch to numbers. Here's the top five sales per store by quick service restaurant brand.

Top 5 QSRs by sales per store in biggest 50 franchises
Data: FT/Technomic Top 500

Notice how Chick-fil-A (1,197 restaurants), McDonald's (31,967), Panera Bread (1,327) and KFC (12,459 restaurants) float right to the top of the stores with the highest earnings, sales per store.

Methodology: These QSRs are filtered from the top 50 franchise systems by worldwide sales volume—hotels, restaurants, service, all business format franchise sectors except for auto dealerships. That means that these numbers are heavily weighted towards big franchise brands. In other words, there may be a small startup system of two or twenty franchises with $5 million in sales per store. An SPS of $5 million would be phenomenally high. But the insignificant brand would definitely not make this list because it lacks established brand recognition and power as represented by worldwide sales.

Sales per store are calculated as reported worldwide sales divided by the number of total stores. For these numbers, fast casual restaurants are lumped in with quick service restaurants.

Chronic Tacos

Don, what is your intelligence on Chronic Tacos? Avg sales per store, margin, etc. thx for your feedback.

Don Sniegowski's picture

Re: Chronic Tacos

Huntington Beach Chronic Tacos. photo/Wikipedia.
Huntington Beach Chronic Tacos / wikipedia

Chronic Tacos is not producing any major news stories so it is off Blue MauMau's news radar. However, let me use this small franchise brand to experiment with an at-a-glance evaluation template.

Description:Franchising since 2006 with only 34 franchises and 1 company-owned restaurant, Southern California-based Chronic Tacos Enterprises Inc offers franchises for sale. These franchised restaurants offer quick service Mexican food, take out and delivery. It also franchises sit-down Tacos Cantina restaurants with their sports bars that offer a broader range of food. With a $50k upfront franchise fee, total investment is between $319,000 to $534,000, according to its April 2013 Franchise Disclosure Document registered (but unaudited) in California.

Brand Power: Uhm, I've driven past the guys with the HQ up the highway, Taco Bell, but who is Chronic Tacos? There is little or no empirical evidence that this chain has any fire power when it comes to brand recognition and mind share that draws in oodles of customers. Grade? Chronic avoids an "F" because there are clusters of stores trying to create the beginnings of a brand in a few West Coast areas.

Chronic Tacos Grade
Zee Profits F
Zor health D
Abuse  B-
Brand Power D

Pros. Litigation: A. The small franchisor declares no litigation from franchisees against it in its FDD.

Cons. Franchisor health: D. Youthful and small systems have the highest level of business risk. Worse yet, the financially unhealthy franchisor has been bleeding money each year -- 2010: ($70,009), 2011:($23,441) and a whopping ($565,272) in 2012, according to its FDD. One has to wonder how long a small franchising company can continue to lose such sums.

Franchise unit profits: F. There are no franchised restaurant operating profits or financial performance representations declared of any kind provided in Item 19 of the FDD. Without measuring and declaring store profits, the franchisor is severely hampered in understanding the ramifications of the franchisor's  demands to the franchised outlets and the effects on the franchised establishment's bottom line.

Checks & Balances against Franchisor Abuse: Franchise agreement: C (Oppressive). Its contract requires owners above 10 percent and their family to be personally liable, mandates mediation in Orange County, Ca., and much more. It provides few essential license rights to franchisees. Its franchise owners are not members of an independent franchisee association to push for their retail stores' interest and survival, but the system is still too underdeveloped for this.

Recommendation: Walk away. There are just too many other franchise investment choices out there that look better.


Readers, is there anything that can be left out to simplify the franchise at a glance report card even more? Or, is there something that just HAS TO BE added?

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About lhatcher

lhatcher's picture

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Buying a Franchise