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Sector Focus

The Pros & Cons Of Owning A Restaurant Franchise

Do you have what it takes to be a successful restaurateur? Our franchise expert offers some words of wisdom.

Jeff Elgin

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There are many different types of business format franchises, but when most people think of a franchise business, their first thought is of food. The success and growth of the many big brand-name fast-food franchises makes this a logical first stop in the thinking process.

When evaluating restaurant franchises, you must focus on the characteristics of the business from a franchisee’s perspective to determine whether this industry is the right one for you.

There are some wonderful advantages to having a food business, but there are also some challenges you need to be aware of before proceeding in this industry.

The advantages

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In assessing a food business, the main advantages are typically considered to be:

Built-in Demand

Consumers have been trained to look for franchise food outlets, which can represent a big advantage for a start-up. You need to make sure the product offering of the food franchise has “staying power” in the marketplace rather than being a fad or fringe product.

Related: The Only How-To You’ll Need To Start A Restaurant

Ease in Financing

Traditional lending sources are very familiar with the real estate and equipment needs of a prepared food operation, which may ease the challenge of obtaining start-up financing. These sources also like the relatively high revenue production of a typical food franchise.

Track Record of Success

Many food franchises have multiple units and have been operating for a while, making it fairly simple to determine and verify their track record of success. That can help you make an informed decision about the business prior to getting involved.

Prestige

Whether valid or not, many people associate a high degree of glamour with a person who owns a food franchise business. The fairly high degree of status associated with this occupation is important to many prospective franchisees.

The disadvantages

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In assessing a food business, the main disadvantages typically include:

High Initial Investment

Most food franchises require a significant investment to get started. Food preparation stations, sinks, stoves and ovens, grease disposal systems, venting requirements, customer seating and bathroom areas – the list goes on.

Zoning and Code Compliance

The government tries to ensure that any food business meets numerous codes and guidelines so the food product is safe for the public to consume. Complying with these regulations can initially can be time consuming.

Virtually any food franchisor will provide extensive assistance to a new franchisee in terms of dealing with zoning, permits, code compliance and all other site-related issues, because the new franchisee probably doesn’t have a clue how to do this whereas the franchisor has lots of experience on these matters.

If a food franchisor doesn’t offer extensive support on these matters (you can determine this during your conversations with existing franchisees), pick a different one.

Related: 10 Business Ideas Ready To Launch!

Labour Challenges

Most food businesses require the services of a significant number of low paid employees to conduct their business. Turnover of these employee positions is normally very high, and recruiting and retaining a sufficient number of acceptable quality employees is typically listed as the number-one challenge in any food franchise.

Relatively Low Margins

In food operations, the franchisee has both the cost of goods sold and Labour costs to contend with in an environment that is very price sensitive, especially in fast-food outlets. The net margins of most food businesses are not nearly as high as other (particularly service-related) franchises, and you’re also dealing with spoilage, theft and other issues that you don’t find in many other types of franchise businesses.

Quality of Life

As mentioned above, many people associate a high level of status with owning a food business, at least until they understand the facts of a typical food franchisee’s life. The hours can be very long, as you’re often the first to arrive and the last to go home. The Labour challenges can be very frustrating and are the main reason owners cite for wanting to leave this industry. Then there’s also the issue of what a person smells like after spending long hours each day in a food franchise.

In conclusion

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The obvious question, assuming you don’t have previous experience running a food business, is “how do you know whether you have these skills and aptitudes?” The best answer, and one that is actually required by a few of the most successful food franchises, is to go to work in an existing unit and shadow the present owner until you’ve gained enough experience to know for sure.

This isn’t going to be a process involving an hour or two – more likely it’ll take at least a few weeks to know for sure. The time commitment involved may seem high, but it is infinitely better for you to find out early (and without risking your life savings) if this business is not for you.

A final consideration related to food franchises is this: Some food franchises run very simplified operations and can provide a business model that avoids a number of the disadvantages listed above. These are typically businesses that don’t involve cooking a product, at least not on site. They may use a commissary system to deliver ready-to-serve products, or products that only have to be assembled in order to serve, to the franchise outlet. These types of businesses, like a Subway outlet, can avoid many issues but almost always still have to deal with the employee issues discussed above.

Give some serious thought to the franchisee role in terms of the tasks required in a typical day or week, the hours worked, the investment and the possible returns. Make sure you know what it takes to succeed and that you possess those qualities. Then you’ll know whether being a restaurateur is right for you.

Evaluation Tip

The secret to success in evaluating any food franchise (or any franchise for that matter) is to clearly identify the skills necessary to succeed, then make sure you either have them or go do something else. The food business can be very rewarding to a person who has the special blend of skills and aptitude to make the business work, and these operators are among the most respected in all of franchising because of their success.

Jeff Elgin has developed a consulting system that matches pre-screened, high-quality prospective franchisees with the franchise opportunities that best fit their personal profile.

Sector Focus

3 Tech Trends Your Franchise Should To Keep Up With During The 2018 Restaurant Revolution

For the first time in history, the majority of consumers are – arguably – more interested in how they buy instead of what they buy, according to research. Catch up quickly by responding to this in three ways.

Diana Albertyn

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How many ways can you customers choose an item, order it and pay for it in your restaurant? Mike’s Kitchen, Spur, The Baron, and other sit-down restaurant franchises across South Africa have widely started accepting mobile payments using the Zapper app. If you have too, you’re on the right track, because convenience reigns in the restaurant industry, especially where trends are concerned, for your current and future customers.

“In the last two years, there’s been a 50% increase in restaurants using technology. Almost 80% of guests say restaurant tech improves their guest experience, especially when it makes service faster,” according to a recent study focusing on diners and technology.

Here are three of the top trends influenced by consumers’ mounting affinity for experience over your menu items, décor or prices:

1. Self-service via touchscreen kiosks

Who wouldn’t appreciate skipping the queue and enjoying a consistent enhanced ordering experience? Add rich imagery and food customisation capabilities and you can see why self-service is poised to make a huge impact on the QSR industry in 2018.

Related: How Your Fast Food Franchise Can Attract Quality-Conscious Consumers

While kiosk aren’t a new form of technology, combined with loyalty programmes, touchscreens for mobile order pick-up and – in the near future – facial recognition to identify and service customers accordingly, they’re about to become a mainstream addition.

What’s in it for you though? Well, besides happy repeat customers, your order accuracy will improve and staff will be free to attend to more strategic activities within the business.

2. App-enabled ordering and pick-up

Research by QSR Web found that digital restaurant ordering is growing 300% faster than dine-in traffic.

Because “restaurant consumers are aggressively gravitating toward concepts that offer the greatest level of convenience and control across ordering, payment and distribution,” according to analysts from Wells Fargo, mobile ordering technology requires your franchise to go a level higher than its current system.

Consider implementing features such as dedicated drive-thru lanes to for app orders. Or what about outdoor locker systems activated by a mobile phone, enabling a customers to receive their order without interacting with restaurant staff?

3. Analytics aiding personalisation

Even better than mobile ordering though, is using AI to leverage apps including Facebook Messenger or simple SMS to take customers’ orders, for a personal touch. Not only does the chatbot record orders, but based on individual customer data, it’s able to predict what they may choose to eat based on various factors including age, gender and even mood.

Related: The Only How-To You’ll Need To Start A Restaurant

If you’re wondering how the mood is detected, fried chicken giant and search engine firm Baidu have established the answer: Facial recognition technology piloted in Beijing that predicts customer orders based on their face displayed in the kiosk screen.

“Restaurant technologies that capture data, such as customer orders and preference will businesses better understand their target audience. Hence, they will be used extensively in 2018,” according to Indiez, the company that developed Domino’s pizza’s app.

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Sector Focus

How To Start A Funeral Business

Running a funeral business can be lucrative, but you must determine whether it’s the right venture for you.

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In South Africa, burial remains the most popular end-of-life choice.

“Just how many burials take place is difficult to measure because there is a formal and an informal funeral industry in South Africa,” says Rey von Ronge, secretary of the National Funeral Directors’ Association, an industry watchdog organisation specialising in resolving disputes between undertakers and the public.

This following guide explains how you can open your own funeral home in South Africa and covers these topics:

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Sector Focus

Comfort Food

Restaurant franchises are overcoming the challenges presented by the economic downturn, high operating costs and increasing competition.

Entrepreneur

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Although the economic woes are subsiding for some South African consumers, many are still watching their spending. One would expect that this means less eating out and takeaways, yet the restaurant industry says this isn’t the case.

Tyrone Herdman-Grant, MD of of the Spur Group says South Africans are most definitely starting to eat out more as a result of the current economy. He explains: “I believe that our customers are still scared of committing to buying assets like houses and cars and are still fearful of a second recession. This has resulted in more disposable income which they spend on food and entertainment.” Sean Holmes, marketing and operations,

Primi Piatti, believes people find comfort in food and as a result when they have some form of disposable income they choose to spoil themselves by eating out.

Michael Terespolsky, director, Col’Cacchio pizzeria, confirms that there has been a growth in the number of South Africans eating out over the last year. He adds: “That being said, the economic climate is still tough, and people aren’t willing to part with their hard-earned money for an average dining experience.

Customers demand a high standard of food quality and service at an affordable price. Customer perception of value is the most important thing to bear in mind!”

Opt for a franchise

Herdman-Grant believes franchised restaurant brands have a stronger future in the sector than independently-owned outlets. He says: “Independents usually cut their marketing budget when times are tough, while top brands increase their marketing spend.

The strength of a good brand cannot be valued enough – especially if the franchisor provides the franchisee with ongoing support and guidance to improve and streamline their business, but never at the expense of the customer.” Herdman-Grant says good franchises offer a proven business formula – they have learnt most of the lessons that need to be learnt.

Holmes says franchise businesses have proven themselves internationally. He adds: “A franchise offers less risk and stands a greater chance of success and survival than independent start-up businesses. They say a franchise business has 80% more chance of succeeding than an independent start-up.”

However, Terespolsky is of the opinion that a franchise does not necessarily have a stronger future in the restaurant sector than an independent. “It depends on the strength of the franchise and its ability to be responsive and appealing to the market.

Nothing comes without hard work though and the restaurants that are the most successful (franchised or independent) are the ones that are owner run and managed.”

He says that if restaurant franchises can offer consistently high quality and service and the brand name is held high then they’ll be likely to succeed.

The advantages of franchised restaurant brands such as strong brand awareness, cost advantages through economies of scale and constant support means that the likelihood of success with a franchise brand should be greater than with an independent.

Terespolsky says a franchise offers a “tested and proven” method which mitigates the risk of your offerings not being accepted in the market.

“Ease in financing is also a benefit of investing in a restaurant franchise. Traditional lending sources like banks are familiar with restaurant- related costs which may ease the challenge of obtaining start-up financing,” he concludes.

Andries Strydom of Wiesenhoff highlights some of the advantages of choosing to invest in a franchise, including bulk negotiating influence, sharing of information between franchisees and being able to offer the consumer peace of mind with a familiar brand.

He adds: “Many people in the brand focus on different segments necessary for growth. Independent operators have too much to think about and focus on. Franchisees focus on running their stores while franchisors focus on running the brand.”

Staying competitive

Herdman-Grant says that restaurants can remain competitive by improving the value proposition and investing in the people who run their businesses. Other measures include upgrading sites and continually staying ahead of the game in a constantly changing market.

For Holmes, remaining competitive requires the business to evolve continuously and stay closely connected to customers’ wants and needs.

“We remain competitive through the use of well-planned strategies. Being a competitor in the food and hospitality industry requires constant monitoring of your situation and the events that are taking place around you. To remain profitable, you need to have strategies available to stay competitive in the marketplace,” says Terespolsky.

He adds that restaurants need to remain abreast of current trends in the industry and look for ways to innovate and stand out. “If there’s nothing special or unique about your offering, customers are bound to feel the same way.

Making meaningful connections with customers through well-managed and engaging websites and social media pages is also a competitive advantage at this point in time.”

The weather factor

Some franchises are more successful in the summer months when consumers are more active and upbeat, but restaurants aren’t negatively affected by the cold winter period.

“South Africa is a very sport-orientated country and when the weather is good, South Africans prefer being outdoors and braaiing. When the weather is bad, we definitely see an increase in the number of customers who support our restaurants,” says Herdman-Grant.

Holmes advises that during quieter months, restaurants need to look at their overhead structure and trim in line with winter sales trends. “The introduction of specials or ‘value adds’ will also help entice customers out of their homes to wine and dine,” he says.

This is echoed by Terespolsky who says for some restaurants there is a drop off in sales. He says: “Store owners need to work hard to ensure they keep foot traffic through their doors with a great product and service offering. Increased marketing initiatives and special value adds are introduced during the winter months to encourage more customer visits.”

Current trends

According to Herdman-Grant, customers are now voting with their feet and chosing where to spend their hard earned money.

The independents and the brands that offer the best-quality service in a wholesome environment will be the ones that survive. “The trend is definitely leaning towards quality and good service; you are only as good as the last meal you serve,” he adds.

“A ‘value for money’ offering is definitely popular in the current economic climate,” says Terespolsky. He says consumers seek good quality food and great service at an affordable price.

“The SA market is becoming increasingly sensitive to growing health issues and as a result people are looking to make more healthy food choices. Restaurants that cater for all dietary requirements and offer healthy, freshly prepared food at a competitive price will flourish. “

Holmes says a popular dining experience at the moment is where there is transparency between the food being served and consumed and the original source.

Making it work

According to Herdman-Grant, restaurants that offer the best customer experience and continually reinvest in their business by upgrading and improving the quality of their product and service, will survive.

He says that some of the biggest challenges restaurant owners currently face include the increase in labour and energy costs, as well as “unrealistic rentals expected by some landlords.”

To retain customers, Holmes says restaurant owners need to stay connected. “Service and quality is a must and expected, it’s the connectivity and relationship built between the restaurant operator and their customer that will ensure a long-term loyal customer.”

Some of the challenges he highlights include maintaining the dedication and motivation to efficiently operate the business, controlling costs and in turn motivating staff to do the same.

“Keeping a keen focus on customer service is key,” says Terespolsky. He explains that if customers are continually delighted by the dining experience they’ll be more likely to remain loyal to your brand and tell their friends and family about it.

“Invest in training and the up-skilling of staff as they are the closest touch point to your customers. Warm, sincere staff will make customers feel welcome and comfortable. Customer relationship marketing should be well managed to keep up the contact and value offer to returning customers,” he advises.

“There are a number of challenges that affect all restaurant owners such as growing food, electricity and rental costs. Those who are successful will be the store owners who learn to utilise space and manpower the best.”

Strydom says to remain competitive, restaurants need to be unique, offer great service, quality products, great staff, good training and have a suitable location. Some of the challenges, he says, include staff retention, quality of staff, supply chain and food inflation, but he adds that the advantages of a restaurant franchise are ROI that outweighs that of other businesses, and daily cash flow.

What it takes

Michael Terespolsky, director of Col’Cacchio pizzeria says that in the current market the greatest challenges are finding suitable franchisees who have the financial means to buy into the brand.

In order to be a Col’Cacchio pizzeria franchise owner you should possess:

  • An entrepreneurial spirit and a desire to own your own business
  • A great work ethic and the willingness to spend time in your business
  • The ability to deal with pressure
  • A ‘don’t quit’ attitude
  • Leadership and management skills
  • Business acumen
  • Customer service orientation
  • The same kind of passion as the rest of the Col’Cacchio pizzeria team.

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