- Franchise Business Review

Transcription

Franchise Business
REVIEW
Ratings & Reviews of
Today’s Top Franchises
FALL 2013
SPECIAL REPORT:
TOP FOOD
FRANCHISES
Franchisee Satisfaction Study
Long-time Detroit resident Nicole Wilski owns
6 Checkers restaurants in the Motor City
and is in the process of opening 3 more
Bernardo Abend Finds
Success with a Sweet Niche
THE LIST:
Best of the Best
Food Franchises
F rom Friends to Franchisees:
Black Bear Diner’s
Tim Augustine & Burt Benepal
PAGE 17
PAGE 8
PAGE 15
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2 | For more information on this report, visit: www.FranchiseBusinessReview.com
Food For Thought
When people think franchise, “fast food” is often what comes to mind—and understandably so
as the quick-service (QSR) space is one of the biggest and most competitive in all of franchising.
But the food sector is loaded with franchise opportunities ranging from QSR and full-service
restaurants to coffee shops and frozen treats.
So, how do you know which concept and brand is right for you?
That’s where we come in. Every year, Franchise Business Review surveys thousands of franchisees
from hundreds of leading franchise brands to gauge franchisee satisfaction and performance. Not
all brands willingly open their doors to an independent research firm like Franchise Business
Review, but those who do can offer investors a wealth of information on the system’s leadership, culture, training and support, financial outlook, and franchisee community—all from the
perspective of franchisees.
This report highlights
the top food franchises
based solely on the
satisfaction and
performance of current
franchise owners across
the industry . . .
Having a detailed understanding of franchisee satisfaction and unit-level financial performance
is critically important in the food industry—where competition is fierce, profit margins are
slim, and consumer preferences are ever-changing. You need to know exactly what you’re
getting into before you get into it.
This report highlights the top food franchises based solely on the satisfaction and performance
of current franchise owners across the industry, and we dig into what potential franchisees
should consider as they research opportunities.
No, the food business isn’t easy. But for the right person who finds the right franchise brand, the
food business can offer an exciting, rewarding, and profitable opportunity.
Happy franchising!
Molly Rowe, Editorial Director
Franchise Business Review is the leading market research company in
the franchise industry, assisting prospective franchise buyers through the
examination process of today’s leading franchise systems. Before you invest
in any franchise opportunity, get the facts from Franchise Business Review.
Our independent franchisee satisfaction reports measure the health of
any franchise system, based exclusively on the feedback of today’s
franchise owners ... the real franchise experts!
Eric Stites, CEO
Michelle Rowan, President
Molly Rowe, Editorial Director
Michael Kupfer, Online Marketing Manager
Nicole Kenney, Client Services Manager
Jamie Lavigne, Client Consultant
Linda Lorrey, Client Consultant
Jay Metzenroth, Research Assistant
The Secret Agency, Layout & Production
For more information on this report, visit: www.FranchiseBusinessReview.com | 3
Photo courtesy of Bahama Buck’s.
The Bright Future of Food Franchising
Top Franchisors Focus on Smart Growth,
Long-Term Health, and Franchisee Profitability
WHO WE ARE
Franchise Business Review is a national market research firm that focuses on franchisee
satisfaction and performance. Our products
include franchisee satisfaction reports, custom
research, industry sector studies, and other
projects and services focused on driving franchise performance.
WHAT WE DO
To compile the data for this report, we surveyed
4,328 franchisees, representing nearly 100
leading food franchise brands with a total
of 21,200 food outlets across the United
States and Canada. We contact all active
franchisees within a franchise system and
ask them to complete our satisfaction survey.
Franchisees answer 33 benchmark questions
ranking their franchise system in the areas of
financial opportunity, training and support,
leadership, operations and product development, core values (e.g., honesty and integrity
of franchisor), general satisfaction, and the
franchisee community. An additional 16
questions ask franchisees about their market
area, demographics, business lifestyle, overall
enjoyment running their franchise, and role
in the franchisee community. From this data,
we identify our list of top food franchises
with above average satisfaction.
It is important to note that all Franchise
Business Review research studies are open
to any North American-based franchise
company with at least 10 operating franchisees
at absolutely no cost. The franchise companies
listed in our reports are based solely on franchisee satisfaction ratings.
WHY SATISFACTION MATTERS
By all accounts, this is a great time to buy a
food franchise. Franchise brands are outperforming non-franchised businesses, franchise
units are experiencing healthy returns,
and many people who’ve been considering
franchise opportunities for several years are
finally committing to their dream business.
But, no matter how rosy things look for
franchising as a whole, nothing guarantees
a franchisee or a franchise concept will be
successful. Prospective franchisees must
thoroughly research every opportunity they
Top 40 Food Brands By Category
Full Service
12
QSR/Fast Casual
21
Retail/Snack
6
1
are considering to determine if the concept is
viable and the right fit for them.
One of the best ways to know if a franchise
opportunity is really as good as it appears is to
look at its third-party franchisee satisfaction
data. Franchise systems that don’t provide
third-party data may have deeper issues, and
those that do provide data offer a wealth
of information on the system’s leadership,
culture, training and support, financial outlook,
and franchisee community.
MODELS & CONCEPTS
Franchise concepts within the food sector
typically fall into one of several major categories: QSR, fast casual [a variation of QSR that
includes higher end, counter-service establishments], retail stores, mobile and kiosk outlets,
delivery only, and full-service restaurants.
These models may be further broken down
by food type, such as burgers, wings, pizza,
Mexican, ice cream/yogurt, coffee, and sushi,
to name just a few. Because many of the models
fit into a number of categories (a coffee shop
that serves breakfast sandwiches, for example),
the concept lines are often blurred.
Some franchisors offer multiple business
models. East Coast Wings & Grill recently
Other
expanded its offerings to include QSR opportunities for franchisees who already own a
flagship restaurant. Existing East Coast franchisees can open a QSR location for $325,000
(compared to around $650,000 for full-service
restaurant). CEO Sam Ballas told us they
began researching and prototyping this model
a few years ago in an effort to offer less expensive multi-unit opportunities for franchisees
and to offset a projected real estate shortage.
“We’ve been closely studying real estate in
the past years and see a real crunch coming
in 2014 and 2015,” Ballas said. “We’re just not
going to be able to find the 4,000 foot space
that the food sector is going to need.”
As in past years, franchise concepts offering quick, inexpensive foods dominate our
list. Pizza, subs, wings, frozen yogurt, and
burgers remain the hottest foods in franchising. Of course, “hot and trendy” segments
don’t always translate into satisfied, profitable
franchise owners. For example, there has
been an explosion of brands in the frozen
yogurt segment, and yet only one brand
(Yogurtland) made our list this year.
While Five Guys may have been the
prominent player in the “better burger”
market several years ago, smaller brands like
MOOYAH have also made a name for themselves in recent years—especially in terms of
franchisee satisfaction.
Healthier foods continue to be popular,
although we see fewer wrap, salad, and Asian
grill concepts on our list this year. Most
brands—even those traditionally known as
“burger, shake, and fry” concepts—have adapted their menus to include healthy options.
“We’re really known for wings and they’re
not that healthy, so we’ve added other things
to sway the veto vote,” said Steven Falciani,
Senior Vice President of franchise operations
for Quaker Steak and Lube. “We want to
make it so if someone in the family doesn’t
like wings but everyone else does, there’s
something for everyone.”
MOOYAH President and CEO Bill Spae
echoes the “silence the no vote” sentiment.
He says that while MOOYAH’s menu has
remained simple and focused on burgers,
they offer diversity within that menu for
different diet preferences (a bun-free, lettucewrapped burger for the gluten-conscience,
for example).
“We offer five combos for under 600 calories,
but we didn’t add any products to our menu
to do that. It’s just a combination of different
products we already offered,” Spae said.
While fads may significantly influence
what’s hot in food franchising, not every
company on our list is interested in jumping
on a bandwagon. In fact, Black Bear Diner
Co-President Bob Manley takes pride in his
brand for not changing.
“We are not trying to compete for what’s
new, what’s catching on right now,” Manley
said. “We think there is still a legitimate
spot in the market for what is old, what is
traditional. We’ve kind of found a niche for
ourselves within that group of people to
remember what it was like when I was a kid—
the environment, the comfort food.”
HWY 55 Burgers similarly holds onto
tradition—marketing itself as a 50s-style
American classic “from crispy onion rings to
old-time rock n’ roll.”
Typical Investment Ranges
for Food Franchise Locations
$30,000 – $250,000+
Kiosk/Mobile/Non-Traditional Locations
$100,000 – $400,000+
Conversions of Existing Locations
$175,000 – $500,000+
Retail/In-Line Strip Center Locations
$750,000 – $2,000,000+
Stand-alone/New Construction Locations
*These are broad estimates of initial capital
investments, and each franchise brand will have
specific liquid capital and net worth requirements.
Photo courtesy of Black Bear Diner.
INVESTMENT
Food is typically one of the more expensive
sectors for franchise ownership because of
build-out costs, equipment, and supplies
required to run a restaurant, as well as prime
real estate/lease rates. Our list of top food
franchises includes a wide range of investment options.
Mobile food concepts, like Kona Ice,
Repicci’s Italian Ice, and Happy and Healthy
Products, offer franchisees the opportunity
to run a food-related business for less than
$100,000 (approximately $99,000 for Kona,
$74,000 for Repicci’s, $61,000 for Happy
and Healthy). A quick-serve brand based in
a retail strip center, like Wingstop, can cost
less than $500,000 initially, depending on
the real estate and overhead requirements.
A full-service stand-alone restaurant, like
UNO Chicago Grill, which requires a large
site (and more employees and overhead for
day-to-day operation), typically costs more
than a million dollars to get started.
The investment range of the top food
franchises on our list is $34,500 to $4 million,
with a median initial investment of $445,000.
(Note that this is the total initial investment,
but with financing and lease options, the typical upfront cash requirements tend to be 20
percent to 40 percent of that total investment.)
In the past few years, many franchisors have
taken steps to reduce the cost of investing in
a food franchise. MOOYAH, for example, has
reduced its average investment from around
$450,000 to under $400,000 by reducing the
square footage and mechanical requirements.
They are also looking to open restaurants in
non-traditional spaces—airports, colleges,
and stadiums—to reduce real estate costs.
The time investment for a food service
franchisee can vary as much as the monetary
investment, depending on the size and capacity
of the franchise concept, the number of locations, and how long the franchisee has been
in business. Franchisors of location-based
concepts (those that aren’t kiosk or truckbased) tell us the early months and sometimes
years require long hours and a more than
full-time commitment to running the business.
“An owner-operator can be expected to
work 10- to 14-hour days, and they’re grueling the first year,” said Ballas of East Coast
Wings & Grill. “Eventually, you have the
opportunity to roll those hours back as you
learn the business, pay your dues, and hire the
right management team.”
The importance of a new franchisee being
well-capitalized cannot be overstated. Prospective franchisees should carefully review a brand’s
FDD and ask the franchisor and current operators what efforts have been made to ensure
franchisees are well-capitalized for start-up
and economic ups and downs. The Item 7 in
the FDD outlines the expenditures needed to
establish a business, but all Item 7s are not
equal. Some companies will outline the necessary working capital, but others—who might
want to keep the stated investment level as
low as possible—don’t. Any investor should
understand and plan for the fact that it might
take significantly more capital than what is
listed in the Item 7 to get a new franchise business up and running. Having several sources of
reserve capital and a solid contingency plan in
the event that your new business ramps-up
slower than expected will save you many sleepless nights.
We also recommend that where possible,
all potential franchisees thoroughly review
and understand a company’s Item 19, if
included, so they have a better idea of what
to expect in the way of profitability. Not all
franchise companies provide an Item 19 as
part of their FDD because it’s not required.
And like the Item 7, every Item 19 is different
in the way it outlines unit-level financials. A
good Item 19 can provide invaluable information related to potential profitability of the
business, assuming the franchise company
publishes accurate revenue and cost figures.
In our interviews for this report, franchisors told us they have become much more
frank in their discussions with franchisees
about what exactly they’ll need for capital to
be successful.
“I think sometimes just the nature of the
regulations surrounding franchising make
people hesitant to have some of those conversations with prospective franchisees,” said
Culver’s President and COO Phil Keiser. “But
we just feel that you have to say, ‘Hey, you’re
thin. You don’t have enough money. You’re
going to have to find the perfect circumstance
to build a restaurant so if you can find the
right set of circumstances, we’re with you.’”
If, as a prospective franchisee, a franchisor
doesn’t scrutinize your financial strengths and
weaknesses, you should be skeptical.
“We never take someone in who is undercapitalized,” said Ballas of East Coast Wings &
Grill. “Franchisees can have an off weekend,
but the bills still keep coming. You have to
give them the big picture—maybe they have
to bring in partnerships to strengthen it.
We make it as tough as we can for franchisees,
and the ones who get through do very, very
well. We don’t have underperforming stores
in our system.”
INCOME AND PROFITABILITY
Average annual income (defined as any
income, salary, or profit the owner takes out
of the business) for all food franchisees is
Franchisors told us they have become much more
frank in their discussions with franchisees about
what exactly they’ll need for capital to be successful.
$82,000—the same as 2012. Not surprisingly,
franchisees of our top 40 food franchises
report higher annual incomes of $98,500—20
percent higher compared to other food
brands, and 38 percent higher compared to
non-food franchisees.
While aggregate franchisee incomes can be
a valuable reference point, it is important to
note that average numbers—especially when
you are looking at financial information—can
be very misleading. Average data includes all
franchisees together, both single and multiunit owners, as well as new franchisees, and
those that have been operating for many
years. In most cases, median data points can
be much more helpful than averages. For
example: While the “average” food franchisee
earned $82,000 last year, 50 percent of the
food operators we surveyed earned less than
$50,000, while only 25 percent earned over
$100,000.
When doing your research and business planning, it is important to distinguish
Multi-unit vs. Single-unit Ownership
Multi-unit ownership is a common requirement by food franchisors because it is easier from a
development standpoint to work with an owner who is going to operate several locations. Running
multiple locations obviously involves different skills and more money than a single unit, so this is an
important consideration for prospective franchisees. Even if you’re not yet ready to own multiple units
but think you may one day, you’ll want to consider this in your initial research.
“You need to evaluate the programs a franchisor has in place to see if there is a specific program that
fits your needs,” said Jennifer Durham, Vice President of Franchise Development for Checkers and
Rally’s. “Good franchisors have an understanding of the variety of franchisees that come into their
system and they adopt their support structures to fit the needs of those candidates. I’d look for that
if I were on the buying side of this decision.”
Of course, there are still brands that prefer single-unit deals because they are looking for a different
type of franchise owner—one who wants to be very involved in the day-to-day running of the business.
“We actually get franchisees coming to us because we will do a single unit,” said Culver’s Keiser.
“They don’t need the same kind of balance sheet that they would to do a 10-restaurant agreement.”
It’s obviously critically important that a prospective franchisee understand the terms of their franchise
agreement—whether it requires multi-unit ownership and the associated timeline for ramp-up
(as well as the penalties if timelines are not met)—before jumping all in with multiple stores.
between business profit and owner income.
Prospective franchisees often confuse a business’s potential profits with their potential
annual income/salary, which is a big mistake.
As a business owner, before you can “pay
yourself,” you often have to pay business
taxes, debt repayments on loans, and reinvest
in your business (that new piece of equipment
you need, or the new signage you’re required
to buy, for example). While your business
may grow to be quite profitable, your actual
income could be substantially lower. Talk with
as many other franchisees as possible, and
confirm that your business profit and income
expectations and projections are realistic.
Many of the franchisors we interviewed for
this report said they are taking a close look at
how to reduce costs and improve profitability
and income for franchisees.
“Several years ago, we began working
pretty diligently on how we can reduce the
costs, get a more efficient business design and
building design, and how we can fit on more
affordable real estate,” said Keiser of Culvers.
Finally, on the topic of income and
profitability, while many food franchises
report relatively high unit-level sales and/
or profitability, it is important to look at the
whole picture when considering a franchise
investment. For example, a food franchise
may offer slightly higher profitability compared to other businesses, but if the initial
investment is three times higher, your overall
return on investment is potentially going
to be significantly lower. Work through your
long-term financial projections with a good
accountant, and compare your potential
franchise investment to other businesses, as
well as other investment opportunities (i.e. real
estate, stocks, etc.) to see how they compare.
Continued on page 10.
THE LIST
Best of the Best:
Today’s Top
40 Food Franchises
*View this company’s full
satisfaction report at:
www.FranchiseBusinessReview.com
Culver’s — see ad on p. 14
Full-service restaurant specializing in
handcrafted American food & ice cream
Kona Ice
Mobile shaved ice
* F irehouse Subs — see ad on Back Cover
Fast casual restaurant
specializing in subs & sandwiches
LaRosa’s Pizzeria
Full-service restaurant specializing
in pizza & other Italian favorites
*C
heckers & Rally’s
Quick-service restaurant & drive-thru
specializing in burgers & fries
* HWY 55 Burgers
“Everyone helps each
other—from ideas to
building sales, it’s a family
here that I am proud to
be a part of.”
– HWY 55 franchisee
50s-style family restaurant
Auntie Anne’s
Quick-service pretzel bakery
Penn Station
Quick-service restaurant
Hardee’s
specializing in burgers & fries
Simple Simon’s Pizza — see ad on p. 16
Full-service restaurant specializing in pizza
Bahama Buck’s
Smoothies & shaved ice
* East Coast Wings & Grill
— Inside Back Cover
Full-service restaurant specializing in chicken wings
Happy and Healthy Products
Home-based store specializing in frozen novelties
Bruegger’s Bagels
Bakery café specializing in bagels
“The franchisee community
is getting better every year
with the addition of new
passionate franchisees.”
– Zoup! franchisee
Charley’s Philly Steaks
Biggby Coffee
Café concept specializing in gourmet coffee
Zoup!
Fast casual soup
Captain D’s
Quick-service restaurant specializing in seafood
Village Inn
Full-service restaurant
specializing in American comfort food
Chopped Leaf
Quick-service and take out specializing in salads
8 | For more information on the companies in this report, visit www.FBR50.com
Startup
Investment
Cash
Requirement
Domestic
Franchises
$1,439,000 –
$3,087,000
$350,000
485
$99,800 –
$120,000
$20,000 –
$25,000
408
$178,376 –
$625,801
$80,000 –
$100,000
612
$500,000 –
$850,000
$150,000 –
$255,000
49
$111,000 –
$825,000
$250,000
456
$191,280 –
$342,130
$125,000
109
$194,875 –
$367,600
$40,000 –
$80,000
1,015
$320,798 –
$460,813
$175,000
254
$1,147,900 –
$1,542,000
$300,000
1,705
$89,500 –
$593,500
$25,000
230
$184,000 –
$558,000
$90,000 +
30
$245,050 –
$873,374
$250,000 –
$575,000
25
$34,508 –
$89,045
$34,508 –
$89,045
56
$389,600 –
$591,600
$150,000
102
$101,572 –
$465,282
$75,000 –
$100,000
412
$161,100 –
$340,100
$70,000
151
$365,900 –
$558,900
$120,000
49
$206,000 –
$1,281,400
$300,000
240
$695,000 –
$2,178,000
$695,000 –
$2,178,000
89
$215,000 –
$370,000
$70,000 –
$90,000
13
Startup
Investment
Cash
Requirement
Domestic
Franchises
$544,300 –
$1,353,700
$750,000 –
$1,000,000
45
$278,300 –
$409,900
$150,000
188
$650,000
$30,000 –
$35,000
266
$100,000 –
$450,000
$30,000 –
$50,000
31
$252,621 –
$554,898
$200,000
599
$256,500 –
$866,500
$125,000
220
$636,750 –
$4,239,750
$636,750 –
$4,239,750
133
$1,500,000 –
$2,500,000
$500,000 –
$1,000,000
49
$169,200 –
$433,100
$250,000
36
$100,500 –
$157,550
$100,500 –
$157,550
283
$1,150,000 –
$4,300,000
$1,150,000 –
$4,300,000
41
$323,159 –
$725,451
$400,000
251
$330,260 –
$704,210
$330,260 –
$704,210
61
$49,500 –
$99,900
$50,000
48
$339,800 –
$440,700
$150,000
67
* CHURROMANIA
$145,000 –
$335,000
$145,000 –
$335,000
15
Kilwin’s
$307,897 –
$496,293
$125,000 –
$130,000
83
$334,950 –
$529,700
$250,000
50
$297,000 –
$847,000
$250,000
50
$215,250 –
$577,500
$150,000 –
$200,000
69
Black Bear Diner — see profile on p. 16
specializing in homestyle diner food
The HoneyBaked Ham Co. — see ad on p. 16
Retail concept specializing in meat products
McAlister’s Deli
Fast casual deli specializing in sandwiches
Barberitos
Southwestern grill quick-service restaurant
WingStop
specializing in chicken wings
Beef O’Brady’s
Full-service sports bar themed restaurant
* F amous Dave’s
Full-service restaurant specializing in barbeque
Uno Chicago Grill
specializing in deep dish pizzas
Billy Sims Barbecue
Quick service restaurant specializing in barbeque
Fox’s Pizza Den
Fast casual restaurant specializing in pizza
Quaker Steak & Lube
Full-service motorsports themed restaurant
Yogurtland
Quick-service frozen yogurt
Fuzzy’s Taco Shop
Quick-service restaurant specializing in tacos
Repicci’s Italian Ice
Quick-service shaved italian ice
Nothing Bundt Cakes
Retail bakery specializing in customized cakes
— see ad on p. 2; profile on p. 17
Quick-service restaurant specializing in churros
Retail store specializing in chocolate
* MOOYAH
specializing in burgers, fries & shakes
Hurricane Grill & Wings
Full-service restaurant specializing in chicken wings
Cheeburger Cheeburger
Fast casual restaurant speciailizing in burgers
Question from 2013 survey:
What advice would you give to
your franchisor?
“What really helped me getting started was
spending a whole day with a local franchisee
near me — nothing better than on the job
training.”
“Don’t always rely on the same franchisees
for advice and guidance … There are
many others out here that have different
experiences to share.”
“Listen to the franchise body; they are
in the trenches.”
“Remember the ‘little guy’ when making
decisions that require increased costs”
“We really need to have marketing materials
long before a promotion starts so we can
get material ordered before the promotion
hits instead of half way through it.”
“Do more to help franchisees maintain
larger accounts by helping them find ways
to logistically service them. It would help
not only the franchisees be more profitable,
but would also help build the brand, which in
turn helps the company grow.”
“I am very pleased with
the product the brand
produces. The franchise
system gives me a good
edge to compete in the
market and do well.”
– MOOYAH franchisee
For more information on the companies in this report, visit www.FBR50.com
|9
Continued from page 7.
PROS & CONS OF THE FOOD BUSINESS
Pros
Ask a franchisor or a franchisee to talk
about the pros of the food sector and you’ll
undoubtedly hear “exciting, people-filled,
and food-loving.” It’s an industry that offers
franchisees and their customers immediate
gratification. At the same time, it’s ever-changing, never boring, and impossible to outsource.
“You’ve always got a captive audience—
people always need to eat,” said Firehouse
Subs franchisee Elliott Goldsmith.
Although food is at the heart of every
franchise concept within the food sector,
there are countless investment options, business models, and food types for franchise
operators to choose from. A prospective
franchisee can choose to run anything from
a van-based delivery business to a full-service
restaurant—with dozens of other business
types in between.
A food franchise can be a substantial moneymaker, and multi-unit operators in particular
may see a significant return on investment
once they are established. The wide range of
franchise models available to someone looking to enter the food services sector make the
food business a feasible endeavor at almost
any investment level.
Perhaps more than in any other franchise
sector, operators of food franchises may
reap significant benefits from being part of a
large franchise system rather than operating
alone. The food industry is highly competitive and trend-driven, and business owners
in this space must constantly be marketing
themselves and developing new products.
Franchisees benefit from having a recognized
brand and the support and resources of a
corporate office to help with these tasks.
“One of the things I tell prospective
franchisees is that food is a high-risk business—there is no guarantee you are going
to be successful. But if you come in with
a franchise, you are going to have a better
opportunity,” said MOOYAH’s Spae. “If you
decide to open your own restaurant, which
I’ve done, that is a pretty risky proposal.”
Cons
The food sector is not for the faint of heart
in terms of what it takes to run and operate a
successful business. Rising food costs, soaring
competition, high employee turnover, and
long hours are just a handful of the drawbacks.
“Years ago, I worked for Dave Thomas
at Wendy’s and one of the things that he told
me was that you had to be half crazy to be in
the food business because that’s the only way
Average Income of FBR’s Top 40 Food Franchises vs. All Food Franchises
Income Range
FBR’s Top 40 Food Franchises
All Food Franchises
$250,000+
$225,000 - $250,000
$200,000 - $225,000
$175,000 - $200,000
$150,000 - $175,000
$125,000 - $150,000
$100,000 - $125,000
$75,000 - $100,000
$50,000 - $75,000
$25,000 - $50,000
$0 - $25,000
0%
5%
10%
15%
20%
25%
Percent Response
* Income data listed above is based on independent surveys completed with 3,359 food industry franchisees in 2012. This sample included data from 84 franchise brands,
representing 22,516 operating units. Profitability is defined as any annual pre-tax income the franchisee received including salary and/or business profits.
30%
35%
you would survive,” said MOOYAH’s Spae.
“The competitive nature is probably the
reason he felt that way—and that’s probably
more true today.”
To keep up with that competition, franchise
companies must constantly be researching
and developing new products to keep up with
the latest food trends. At the same time, they
must be careful not to act too quickly. Every
menu addition or concept change requires
an additional investment from franchisees
to re-vamp equipment and train staff, so if a
seemingly hot trend is actually a short-lived
fad, franchisees lose out. Good franchisors
watch trends carefully and know when to act
and when not to.
Getting started in the food sector typically
requires a large investment, and early profit
margins can be much lower than some other
service industries—especially for operators
of high cost, single-unit operations. It can
take a long time for a new operator to recoup
start-up costs. Many franchisees choose to
operate multiple locations so they can gain
operational efficiencies and turn a higher
profit (i.e., sharing employees across locations
reduces training costs, buying products in
larger quantities reduces per unit costs, etc.).
Still, operating multiple units significantly
increases your overall investment and is only
recommended for experienced, extremely
well-financed candidates.
Ongoing expenses also are much higher
than in other sectors and can fluctuate
greatly based on what’s going on in the world.
Climate-related price increases have become
more common in the past few years, and rising
fuel prices have also had a big impact on commodities. Prospective franchisees should ask
franchisors what safeguards (supply contracts,
cost-cutting efforts, increased menu prices)
they’ve put in place on an ongoing basis to
help franchisees deal with high supply costs.
There is significant pressure in the food
space in terms of pricing. Franchisors must
constantly keep an eye on their prices, adjusting them to compete with other concepts.
In recent years, a number of QSR concepts have
introduced value-menu pricing as a means
to out-price competition and keep customers
coming in the door. Many franchisees ended
up losing money with the value menus because
they were forced to offer more food for less
Photo courtesy of Zoup!.
money (while at the same time paying more
for basic food supplies like corn and flour).
In many concepts, even when sales were up,
unit-level profitability suffered considerably,
so to offset this, some brands have created new
value product lines that cost less to produce.
MARKET ANALYSIS
The National Restaurant Association’s 2013
Restaurant Industry Forecast predicted that
total restaurant industry sales would reach a
record high of $660.5 billion in 2013 (a 3.8
percent increase over 2012) and that the
industry would add jobs at a 2.4 percent
rate—close to a percentage point more than
the projected 1.5 percent increase for total
U.S. employment.
All of the franchisors we spoke with for
this report said they’ve seen improvements
at both the unit level and in new franchise
sales over the past year. Brands that may
have scaled back their franchise development efforts in recent years have been more
aggressive in 2013, and many of our top
brands experienced double-digit growth right
through the recession.
The lending landscape has also loosened
in the past year especially at the investment
level required to open a full-service restaurant
or QSR. For the first time in several years,
none of the franchisors we spoke with for
this report mentioned access to capital as a
challenge for prospective franchisees. While
most of the money needed to invest in a food
franchise still comes from traditional bank
loans, some food concepts like Checkers and
Rally’s have had success pairing franchise
operators with financial investors.
“There are not a whole lot of high return
opportunities for dollars these days, and the
restaurant space is full of eager and hardworking individuals that don’t have financing,
so matching the financial investment partner
with the operating partner is something we
are aggressively going after,” said Jennifer
Durham, Vice President of Development at
Checkers and Rally’s.
In 2013, the Affordable Care Act significantly affected the food service industry.
Franchisors spent thousands of dollars
researching the new law and educating
franchisees on how to comply with healthcare requirements.
Firehouse Subs CEO Don Fox told us
he’s spent a significant amount of time in the
last two years focused on Washington, D.C.,
working with the National Restaurant Association to lobby on his franchisees’ behalf.
“In an ideal world, you hope everybody has
equal access to our government, but that’s not
always the case. If we’re able to leverage our
position in the industry to help make that happen, then that’s what we want to do,” Fox said.
For this reason, if you’re considering a
franchise in the food sector (which can be
heavily impacted by tax and regulatory changes),
you may want to consider how involved the
franchisor is in government relations.
WHAT IT TAKES TO BE SUCCESSFUL
A Look at Food Franchisees
67
%
consider their schedule
flexible or very flexible
58%
11
have owned their franchise(s)
for 5 years or less
%
own 5 or more units;
58% are single-unit owners
62%
are between the
ages of 35 and 54
43%
operate in small or very small markets
(compared to 29% of overall benchmark)
62
%
have at least
a bachelor’s degree
68%
59%
%
47
work 40 or more
hours per week
work evenings at least
a couple times per week
“almost always” work weekends
27
%
have an income
over $100K
are veterans
10%
The food industry can be a very tough business in which to make money, and franchise
operators must have the right skills and background to be successful. Franchisees must be
experienced business people, with knowledge
of sales, marketing, and management. And it
almost goes without saying that they must
love food and be laser-focused on the total
guest experience.
Ballas of East Coast Wings & Grill says he
looks for passion, discipline, and financials in
a franchise candidate. Before any prospective
franchisee is accepted into the East Coast
system, they go through a grueling application process that involves both candidates
and their spouses (for individual investors).
Prospective franchisees must work in an East
Coast restaurant for up to three days before
they qualify to be a “candidate,” and spouses
must attend Discovery Day.
“We want to be sure the spouse understands our model, brand culture, franchising,
and liability/accountability,” Ballas said.
The amount of staff management required
to run the day-to-day business of a food franchise may be a drawback for some operators,
depending on the size and structure of the
concept. Many concepts require large numbers
of low-wage, low-skilled employees. Even at
the general manager level, it can be hard to
find suitable workers.
“Our concept for a general manager is not
an easy concept,” said Black Bear’s Manley. “If
you do not have strong restaurant experience
and passion to work a whole bunch of hours
a week, it’s probably not the concept for you.
We expect general managers to not only be
good operationally, but to truly be able to
form relationships with employees and guests
and create an environment with us.”
A franchisee’s ability to reach out and
network within the community can be a huge
factor in the success or failure of a franchise
in any sector, but this is especially true in food
where the competition is great. Franchisees
must be willing to spend countless hours
selling themselves and their businesses in the
community. If you’re considering a franchise
opportunity, you may want to consider brands
that have community involvement programs
or a philanthropic slant to their mission, as
these programs are a great way to become
involved in the community and build brand
loyalty. For example, both MOOYAH and
Firehouse Subs have strong national programs
for giving back and encourage franchisees at
the local level to be community-minded.
Matt Rusconi, who owns a MOOYAH
franchise in Connecticut, says his store is
actively involved in local sports programs.
“Being able to give back is about more than
just business,” Rusconi said. “It’s about having
the opportunity to give back to the families
and institutions that make up the community
in which we operate. It’s the least we can do.
Having a franchise partner that understands
that mentality makes it all the more feasible
and powerful.”
Because of the unique challenges that face
food operators, many franchisors and lenders
require franchisees to have vast operational
experience in the industry. This helps on two
levels—franchisees know what they’re getting
into and they are more likely to be successful
in the day-to-day operations of their business
because they’ve done or seen it before.
If you’re considering a food franchise, it’s
important to know that your role will likely
evolve over time. Firehouse Subs franchisee
Goldsmith says his entire day-to-day routine
has changed since first becoming a franchisee.
“Ten years ago, I was unlocking the door,
slicing the meat, making the sandwiches.
I was just trying to make sure we opened and
closed the doors every day,” Goldsmith said.
“Now, it’s a little different. I spend a lot more
time working on my business and not in it.
I’m more focused on the financials and operational management of all my units and much
less on actually making the sandwiches.”
Goldsmith is about to open his seventh
Firehouse Subs franchise.
FRANCHISEE SATISFACTION
Forty franchise companies make up our list
of the top food franchises for 2013—the same
number as 2012. These are the brands that
received above-average ratings from their
franchisees in our independent satisfaction
survey, which covers financial opportunity,
training and support, leadership, operations
and product development, core values, general satisfaction, and the franchisee community.
The biggest variance (5.9 points) between
the food industry and other industry benchmarks was in the area of Training and
Support, which is driven by four key areas:
Franchisee Satisfaction: Food Sector vs. All Industries
All food
All Industries
Training & Support
Franchise System
Leadership
Core Values
Franchisee Community
Self-Evaluation
Financial Opportunity
General Satisfaction
Overall
0%
10%
20%
30%
40%
50%
60%
70%
80%
Percent of Satisfaction
*Satisfaction comparison data above is based on independent surveys of franchisees completed within the previous 12 months. FBR’s Food Sector Benchmark is based on data from 3,359 food industry franchisees.
The FBR Benchmark is based on data from 16,995 franchisees across all industries.
Training and Support Programs, Marketing
and Promotional Programs, Effective Use of
Technology, and System-wide Communication. Food franchisees rated their franchisors’
Effective Use of Technology 8 points less than
our benchmark across all industries (this is a
big improvement over 2012 when satisfaction
was 14 points less than benchmarks). Marketing and Promotional Programs scored 5 points
less than benchmark (again, an improvement
from 2012 when franchisees rated their
franchisors 12 points less than benchmark).
Another category where satisfaction
among food franchisees lags behind our
benchmarks (by 5 points) is in the area of
Leadership. The leadership questions focus
on corporate’s ability to promote a strong
vision for the brand, a team culture, and drive
the business forward.
It’s important to note that while satisfaction
among all food franchisees lags behind other
sectors, satisfaction among franchisees at our
Top 40 companies actually exceeds the benchmark for every single category of the survey.
Most food franchisors are beginning to
understand that satisfied franchisees are more
successful, more engaged, and only improve
their corporate bottom line. All of the franchisors we spoke with (all from companies
with high franchisee satisfaction) said they
spend a considerable amount of time focusing on unit-level economics and working with
their franchisees.
“When we do our franchise operations
visits, instead of it being an inspection with
a checklist, we are more focused on business
support,” said Falciani of Quaker Steak and
Lube. “We look at profitability first, then
revenue, quality and delivery, standards, and
checklists. Our franchisees appreciate that.
We want our partners to do well. If they don’t
do well, we don’t do well.”
SUMMARY
Food franchises offer an exciting, everchanging, never-boring environment to
franchisees who don’t mind making a
bigger financial investment, working long
hours, and managing a large and diverse
workforce. Food operators remain some of
the most passionate in all of franchising, and
while the investment is higher than in other
sectors, so is the potential for return. In the
past year, we’ve seen improvements in the
lending landscape and in profitability, and
franchisee satisfaction has held steady.
Potential business owners may be initially
attracted to the hype around a particular brand
or the overall idea of running a restaurant, but
this should come second behind thorough
due diligence. Prospective franchisees must
do their homework and compare brands
side-by-side—looking at both well-known
food franchises and some of the smaller,
lesser-known opportunities. Every food
franchise has its own culture, and franchisees
should carefully consider how that culture fits
with their own business goals before committing to a brand.
For more detailed research on specific
food service franchises, please visit us online
at www.FranchiseBusinessReview.com.
Culver’s
Startup Investment: $1,439,000 – $3,087,000
Cash Required: $350,000
Domestic Franchises: 485
Firehouse Subs
Culver’s franchise partners all have one thing
in common, and that’s a commitment to our
founding principles of freshness and quality,
hospitality and service to the community. Our
franchise partners are critical to Culver’s success
because as owner-operators they’re engaged
in their business every day, working side-byside with their team, leading by example. We’re
looking for franchise partners with the leadership
skills to take a team of people and operate a
Culver’s according to our high standards. You
need energy and enthusiasm. You have to be
willing to work hard. You have to love people and
believe, as we do, that having a great heart is also
good business.
As one of the country’s fastest growing
restaurant brands and a leader in the fast casual
industry, the demand for our uniquely prepared
specialty subs is growing by leaps and bounds,
opening up opportunities for expansion in new
and existing markets. With our strong brand
identity, exceptional franchisee relationships,
high average unit volume, well-defined real
estate guidelines, and passionate executive
team, Firehouse Subs is perfectly poised for
development with the right investor.
For more information on Culver’s
opportunities, call (608) 644-2600
or visit www.ownaculvers.com.
Startup Investment: $178,376 – $625,801
Cash Required: $80,000 – $100,000
For more information on Firehouse Subs
opportunities, call (877) 887-8330 or visit
www.firehousesubs.com/franchising.
Checkers & Rally’s
Checkers/Rally’s Drive-In Restaurants is the
largest double drive-thru restaurant chain in the
United States. Today, the Tampa-based company
develops, owns, operates, and franchises nearly
800 Checkers and Rally’s restaurants across the
U.S. In recent years, the brand has received some
of the restaurant industry’s most prestigious
awards including the “Hot! Again” award from
Nation’s Restaurant News.
For more information on Checkers & Rally’s
www.checkersfranchise.com.
F E AT U R E D
Franchisee
Hardee’s
Auntie Anne’s
Cash Required: $40,000 – $80,000
Domestic Franchises: 1,015
Auntie Anne’s is the world’s largest hand-rolled
pretzel franchise. With over 1,100 locations
worldwide, Auntie Anne’s stores hand-roll and
bake their irresistible pretzels in full view of
customers. At Auntie Anne’s, we’re all about
rolling out pretzel perfection. As part of Auntie
Anne’s involvement in the VetFran program,
active and retired military candidates will pay
a reduced franchise fee of $20,000 for any
location they open.
For more information on Auntie Anne’s
www.auntieannesfranchising.com.
Startup Investment: $1,147,900 – $1,542,000
Domestic Franchises: 1,705
At Hardee’s, our next success story is you. We
consistently out-deliver the competition with
a menu strategy that focuses on developing
premium, sit-down restaurant-quality menu items
that offer the convenience and value of fast food.
With our consistent track record of AUV sales
growth and solid unit economics, we run the
business so our franchisees can be successful.
Celebrating over 50 years in the quick-service
industry, Hardee’s is a wholly owned subsidiary
of CKE Restaurants. As of the end 2012, the
company, through its subsidiaries, had a total
of 3,307 franchised or company-operated
restaurants in 42 states and in 28 countries.
For more information on Hardee’s
or visit www.ckefranchise.com.
Tim Augustine & Burt Benepal
Black Bear Diner, Northern California
How long have you been a franchisee?
We have been franchisees of several concepts
spanning a combined 60+ years’ experience in
the full-service, family-style restaurant segment.
We’ve been friends for over 20 years and saw an
opportunity to blend our talents with an exciting
concept.
What is your favorite item off your menu?
There are a lot of great items but our Chicken
Fried Steak is out of this world!
Why did you decide to buy a franchise?
We appreciate the ability to be creative in an
entrepreneurial environment. Menu design and
development is left to the brand that solicits
and values our input. We get the benefit of the
franchisor’s heavy lifting while maintaining a
level of independence.
East Coast Wings & Grill
Cash Required: $250,000- $575,000
Simple Simon’s Pizza
Simple Simon’s Pizza was founded in 1982 based
on a simple philosophy to serve the best quality
pizzas, calzones, and sandwiches at the most
affordable price in a family atmosphere that
people can enjoy.
For more information on Simple Simon’s Pizza
www.simplesimonspizza.com/franchise-info.
East Coast Wings & Grill has strong unit
economics because we’ve created a formula that
works! We offer a wide variety of fresh menu
items and the nation’s #1 wings in 75 flavors
and nine heat indexes in a full-service, casual
dining experience. By focusing on our delicious
food in a friendly environment, we’re taking a
wing concept to new heights! Transparency and
an open FDD show our true value and brand
integrity. We maintain superior satisfaction
ratings with our franchisees and support them at
every level. Fresh food, friendly, fun environment
and a financially sound investment … no wonder
we’re an irresistible opportunity for savvy
investors looking for a proven concept.
Why did you choose your franchise?
Black Bear Diner is an emerging brand that
reflects the values in food and service as well as
their commitment to quality that most closely
mirrors ours. You see this not only in their menu
and food offerings, but most importantly, in the
faces of the staff who have genuine pride being
associated with the brand.
What is the best part of being your own boss?
Being responsible for our own destiny.
Where do you see yourself in five years?
Continuing to grow and develop locations.
For more information on Black Bear Diner
or visit www.blackbeardiner.com.
For more information on East Coast Wings &
Grill opportunities, call (800) 381-3802
or visit www.eastcoastwings.com.
| 15
Zoup!
Founded in 1998, Zoup! is the leading fast-casual
soup concept restaurant that is defining the
category with its premium and proprietary
soups and other recipes. With the same
“Everything Matters” philosophy that ensures
quality, satisfaction, and convenience for
customers, Zoup! has created the infrastructure,
systems, and support programs that give
franchisees the tools they need to build
their own successful businesses. In addition
to the opportunity to own a one-of-a-kind,
exciting business that has a proven record
of success, Zoup! franchisees enjoy a strong
niche positioning consistent with consumer
preferences, and availability of great territories.
For more information on Zoup! opportunities,
call (800) 940-ZOUP(9687) or visit
www.zoupfranchise.com.
Black Bear Diner
Startup Investment: $544,300 – $1,353,700
Cash Required: $750,000 - $1,000,000
Black Bear Diner franchisees are proven
restaurant operators whose passion, energy,
and entrepreneurial spirit reflect that of
our founders who opened the original Mt.
Shasta location in 1995. We are committed
to delivering huge portions of comfort food
classics in a fun, family-friendly atmosphere.
Our franchise partners reflect this commitment
by building successful teams who carry on our
founding principles to serve our guests and
their communities. If you are an experienced,
capitalized restaurateur who has proven success
in the industry and can meet our financial
requirements, we would love to hear from you.
For more information on Black Bear Diner
or visit www.blackbeardiner.com.
F E AT U R E D
Franchisee
The HoneyBaked Ham Co.
Wingstop
HoneyBaked was founded in 1957 and is a
premium food retailer known for the most
flavorful, moist, and tender Honey Baked Hams®
and Turkey Breasts you’ll find anywhere, as well
as a host of other fully cooked entrees, side items,
and desserts. Franchise owners benefit from
HoneyBaked’s strong brand identity, multiple
revenue streams, and ease of operations.
Wingstop Restaurants, the Wing Experts, is
rapidly expanding and will soon have 600
restaurants operating throughout the U.S.
as well as international markets. We attract
franchisees from all walks of life, and it is our
simple operating platform, fresh cooked-to-order
wings, and small footprint that makes Wingstop
a franchisor company of choice. We continue to
look for ways to reduce investment costs for our
franchisees, yielding a stronger ROI. Wingstop
is very proud of our accomplishments within
the industry, and we are currently celebrating
over 9 straight years of same store sales growth.
Franchisees are trained in our top notch 4-week
training program and receive ongoing support as
they open and operate their restaurants.
For more information on The HoneyBaked
Ham Co. opportunities, call (866) 968-7424
or visit www.honeybakedfranchise.com.
For more information on Wingstop
or visit www.wingstopfranchise.com.
Bernardo
Abend
CHURROMANIA
Hialeah, FL
How long have you been a franchisee?
1.5 Years
What is your favorite item off your menu?
Twist Dulce de Leche
Why did you choose your franchise?
It was a great opportunity to buy one of the
busiest stores in the CHURROMANIA franchise
system with perfect Latin demographics and a
high quality product—it was a win-win situation.
What is the best part of being your own boss?
You work hard to earn your own money, have
a flexible schedule, and there are endless
possibilities to grow.
What is the worst part of being your own boss?
You are always on call, and if an emergency
comes up, I’m the problem solver.
Fuzzy’s Taco Shop
Cash Required: $330,260 - $704,210
Fuzzy’s Taco Shop’s corporate-owned and
franchise locations serve fresh, handmade
Baja-style Mexican food in 70 stores across
11 states. All of our restaurants offer patio
seating, and our specialties include fish
tacos, burritos, queso, and ice-cold beer. The
atmosphere is bright, fun, and energetic—perfect
for gathering with friends and family to watch
a game, enjoy a beverage, or hang out. Our
owners value giving back to their communities,
and we recently paired with a national charity to
celebrate Fuzzy’s 10th anniversary. If you get the
FTS vibe and believe in operational excellence,
we may be right for each other!
For more information on Fuzzy’s Taco Shop
or visit www.fuzzystacoshop.com.
Where do you see yourself in five years?
I see myself with 10+ stores
CHURROMANIA
Cash Required: $145,000 – $335,000
CHURROMANIA is the most successful and
largest franchise specializing in churros and hot
chocolate since 1997. A Churro is a powerpacked sweet treat favorite that can be shared
with family and friends! The menu is unique and
offers the consumer a variety of toppings and
fillings including sugar, cinnamon, dulce de leche,
strawberry, chocolate, Nutella, and key lime pie.
CHURROMANIA has more than 120 worldwide
stores. The company provides 360-degree
franchisee support to ensure optimal training,
P&L optimization, management assistance, and
efficient brand marketing.
What keeps you up at night?
Nothing. I sleep like a baby. If you organize your
time and schedule, there is no need to be up at
night.
Who has most influenced your approach to
business?
My father—he was the best mentor I could ever
have.
For more information on CHURROMANIA
www.churromania.com/franchises.
For more information on CHURROMANIA
www.churromania.com/franchises.
| 17
CANADA
2
%
INTERNATIONAL
2
%
15
%
28
%
18
%
NORTHEAST
MIDWEST
WEST
39
%
SOUTH
Long-Term Growth Opportunity
Tenure (in years)
8
24%
<2
19%
2-5
5% Very Weak
12%
34%
6-9
Weak
23%
31%
Moderate
10+
17%
Very Strong
Average Hours Per Week
35%
Strong
14%
< 30
21%
22%
40-50
50-60
25%
17%
30-40
60+
Would you do it all over?
44
Yes
20
%
15
%
9
12%
%
Age
%
Probably
36%
Neutral
25%
21%
1%
13%
18-24
25-34
35-44
45-54
55-64
4%
65+
Probably Not
No

- Franchise Business Review

Transcription

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