After entrepreneurial chefs and restaurateurs launch their dream business and scale it up, the question is what’s next? Enter Franchising. As the CEO of the Next Idea Group, Robert Ancill is regarded as one of America’s leading global restaurant consultants. He is currently the interim CEO of East Coast Foods LLC which oversees 4 of the Roscoe’s Chicken & Waffles locations, an L.A.-based soul food chain restaurant and a TouchBistro customer. Throughout his career, Robert has worked for a range of well-known franchises including Aroma Café Group, Planet Hollywood, and Panera Bread. Here’s his advice based on years of experience on the do’s and don’ts of franchising.
When is the right time to franchise and perhaps things to consider?
From a business standpoint, you need to be in a stable state. Meaning, financially viable – a good EBITDA. If someone was to franchise the business they would be able to generate the same kind of profit as you’re doing as the primary business, maybe net of royalties. 20% or more EBITDA generally speaking to be in the position to franchise. The higher the net cash flow, the better.
You need to have a concept that is something that is easy to duplicate. Not necessarily simple, but needs to be clear and straightforward. It needs to have a lot of components that jive together to make something that is viable and attractive to the consumer in multiple locations. No point in having something that works in a particular demographic but fails in another demographic.
You have to be able to invest in your business. A lot of people look to franchising as free money – it’s far from that. You need to set up all of your manuals [and have] clarity of your brand so when someone comes along; they know how to market (what’s been tried and tested), the modular approach to interior design, how to recruit staff, the operating systems, and POS to use. The whole documentation and clarity piece is essential.
We did come across entrepreneurs who franchise because it’s a nice concept and they don’t support the franchisees which is time-consuming and financially draining. It becomes a fight.
What are some keys to success?
Brand clarity. The clients need to know what the brand is. We sometimes talk to franchisees who are disgruntled because they’ll say “they don’t really know what they’re doing, how do we know what we’re doing?” That clarity piece is really important.
Documentation. The franchisors that we work with who work with us to do documentation or have already in place are much more successful. They are more successful than those franchisees who haven’t taken the time or spent the money to do that.
Training. The franchisors who succeed are betting at training. They pass on the grand message better, and therefore the brand message is being passed on by its franchisees better.
Business model. The more that you work with your franchisees as a partner vs. your employee, the better it is.
A good quality POS. A POS presents the electronic heartbeat of any restaurant. The control point, customer management portal, and business management all rolled into one. Inventory tracking, operational management, employee management and reporting all attribute to having a sound infrastructure. The franchisor can track franchisee performance, and understand the differences in demands at a local and regional level. The franchisee benefits from a robust system that tracks business results and thus aggregate results and their next development phase with their franchise.
What’s the investment look like to get a franchise up and running?
It varies; depends what you already have. Assume you’re starting from scratch – $25-$35K depending on the type of concept, size and so on. Anywhere there’s cooking, it’ll start at $25K for graphic design, operating manual, etc., and it really can go up [quickly].
What are some pitfalls that are common in franchising?
They misrepresent their numbers or do not tell the full story. Insufficient infrastructure and training for their franchisees and then franchisees end up doing their own thing. [It causes] a clash because [franchisees] are not within the guidelines and so on. The biggest mistake we see is not having the support infrastructure in place and seeing franchising as free money. That’s the last thing franchising is. You really have to invest to make it successful.
What’s your advice for those looking to franchise?
Primarily, you really need to take advice. If you don’t have franchising experience, you need to bring on the expertise – be it a consultant or an employee. There’s a lot of legal procedures – licenses from the state. You have to make sure your contract is watertight with your franchisees. Knowing what you’re doing is really important and critical. Taking on advice is important and making sure that you have a very sound strategy and steps forward in how to get there.
There’s the infrastructure piece, and then you have to go and sell it. A lot of new brands get a lot of franchising inquiries because there’s a lot of hype and everybody wants a piece of it, but they might not be the right people you want. Be selective with your franchisees as ultimately they are an extension of your brand. Look for franchisees who are experienced and have had successes, because they’ll bring on some experience into your own brand which will be helpful. Don’t get seduced by the money. That money goes really fast when you have a problem franchisee.
About the Author
Yvonne Tsui lives to eat. She’s known to her friends as the “Ask Alexa” for the best restaurants in cities all over North America. When she’s not doing on-the-ground, scrappy PR for TouchBistro, she’s a freelance food and drink writer and tells the origin stories, struggles, and successes of restaurateurs – veteran and new.
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