by Donna Ferrall
last updated 09/12/2019
What to know about buying a food franchise
by Donna Ferrall
last updated 09/12/2019
Donna Ferrall reveals what new franchisees need to know about buying a food business to ensure you bite off only what you can chew
Buying a franchise in the hospitality sector is something that needs thorough investigation and deliberation. While selling food and drink may look like a simple business where you get to spend time doing what you love and making people happy, the reality is that running a restaurant, bar, fast food outlet or coffee shop requires hard work and commitment – especially in the first two years.
I’ve worked in hospitality franchising as a consultant, franchisor and director for many years. Here are some of the things I’ve learned that buyers should be aware of.
The brand does matter
When you’re buying a franchise, the brand is everything. There’s a lot of competition out there, and to be the preferred brand in your chosen market needs a lot of commitment to meet people’s needs and habits every day. You have to be prepared to adapt to a fast-changing world and embrace ongoing innovation from the franchise to stay ahead of the competition.
New Zealand is a small country and New Zealanders travel, a lot. If they get a great experience at your place, they are likely to come back to you regularly – and will seek out your franchise brand in other places, too. That’s why it’s important that franchisees help each other to be as good as they can be and maintain high standards. Having a good reputation builds sales and loyalty.
To be successful you need to focus on what you do well. Don’t try to be everything to everybody. If you sell burgers, make them the best burgers in town; if you sell coffee, make it the best coffee you can make – every cup, every time.
Put in the hours
Often, to be successful in hospitality a business needs to be open long hours – sometimes 24 hours a day, 7 days a week. That means you’ll need to employ staff, but just because you have staff and managers it doesn’t mean you can choose how often or when you work yourself. Other franchises are more focused on particular day parts – mornings and lunchtimes, or evenings – but admin and marketing mean that you’ll still be working at other times.
New franchisees need to work in the business a lot in the beginning – just ask any successful franchisee how many hours they put in at first. Flexible hours and work/life balance tend to come later. Because of this, it is important to have family support and understanding, as well as stamina and good health. Consider how this would work for you before committing to a franchise.
Manage the money
New food and beverage franchises often take about two years to get established, especially in a new area where the brand may be unknown. Experienced franchisors should be able to give you an indication of how long it will take to reach break-even and then draw a fair wage.
It’s important to have enough finance in place to be able to support yourself and the business as it grows. New franchisees who are struggling financially often focus more on cutting corners than building sales, which ultimately does more harm than good. Consider how you are going to set yourself up for the long term and consult a franchise-experienced accountant so you are properly prepared.
In the hospitality sector, margins are often slim and things like regional fuel taxes and minimum wage rises can have a big impact. Although franchisors work hard to get good deals from suppliers, franchisees must provide sound business and financial management in their own outlets. Focusing on increasing sales, promoting higher margin products or combinations, reducing food waste, stopping theft and increasing yields are how the franchisee makes money. A good head for figures and financial skills are a must in this sector, as daily monitoring of costs is essential. Good franchisors will provide monitoring tools and benchmarking figures for franchisees to measure themselves against.
Consistency is key
Deliver what you promise. Quite a few years ago, one food chain promised that their core food item would be $1 forever. The franchise boomed to start with, then the price inevitably went up. The franchise closed within the year as they broke their promise to their customers.
That’s an extreme example, but if your franchise promises fast service, make sure you as the franchisee deliver fast service. If it promises clean restaurants, have clean restaurants. Follow the recipes and deliver the presentation. Having great training programmes, ongoing training on site and good management means you can deliver consistency and keep the brand promise.
Employ the right people
One of the biggest challenges in the hospitality sector is recruiting the right people and retaining them. Franchisees often recruit staff who are already trained in their field, rather than looking for staff that have the right personality traits to be in the front line. You can teach people how to do the physical job, but you can’t teach them to have the right personality. Smiling, talking to the customers and understanding their needs are the key to giving a great customer experience, so recruit for these attributes.
Many young people see hospitality as a stepping stone into a ‘real’ job, so staff turnover can be high. When you consider training, uniforms, recruitment and the time you have to put in, this can be very costly and disruptive to your business.
If you show your staff the path to a great career in hospitality, treat them well and pay them fairly, they will stay with you long term. Demonstrate pathways to management, multi-branch management and even owning their own franchise. Offer them ongoing franchise-specific training, including management training, and further studies that lead to NZQA qualifications. As well as colleges, there are several online courses now being offered at no cost. Some franchises’ own training programmes are NZQA-approved.
When looking at buying a franchise, make sure it has a good food safety plan in place, and that it audits franchisees on their compliance to the plan. The rating system used by MPI and local councils often determines where people eat and affects perceptions of the whole brand. One poor rating or incident of food poisoning can affect every franchisee in the network – the media love bad news about big brands.
The same applies to employment issues. Does the franchise have good standard contracts in place, and is there guidance available on employers’ obligations (including how to apply the Holidays Act)? When a franchisee gets this wrong, it has major repercussions for everyone (see page xx).
Save the planet
Customers are more environmentally aware than ever, and hospitality is one of the most visible contributors to waste and litter – not to mention the amount of plastic in the oceans. This has started to contribute to the choice of where people eat and drink, and is also increasingly a target for legislation.
As a result, franchises need to find ways to increase efficiency and reduce waste, as well as educating customers. Non-plastic options are often more expensive; recycling is an added cost which has to be allowed for. It is therefore important to ensure that any chosen franchise has a plan to address these issues.
Competition is great for business
When you do well, other businesses will try to imitate you and even open outlets close to you so they can do well, too. Don’t panic – it doesn’t mean that they will take your business. It means that more people will come to your part of town and you can attract them in.
Keep an eye on your competition but don’t try to be like them. Don’t take your focus off your business and put it on theirs – just make sure your offer is on trend and the best you can do. Don’t push to copy them. One well-known hamburger franchise decided they needed to sell salads because of all the talk about healthy eating. They spent a lot of money to equip franchisees to make and sell salads, and a lot on promotion – but they didn’t sell many salads. Why? Because people came to them for their burgers, and the salads didn’t bring in extra customers who wouldn’t have gone there otherwise. My advice is ‘stick to your knitting’ and do it well. That way, the competition that just moved in next door doesn’t have a chance.
The good news about hospitality franchises is that more people than ever are eating out and looking for good food, drinks and great service. More people are ordering take-away and delivery too, so the market is growing – and all these people want great brands that they trust.
Buying a franchise gives you access to those brands and the expertise and operating systems that have built their reputations. Remember, though, that it’s up to you to turn those ingredients into a successful business of your own.
If you put in the effort, value your staff and customers, deliver a good and consistent experience every day, and can keep tight control of the business and financial elements, a hospitality business can prove very rewarding and very profitable. Knowing what it takes before you start is vital.
This article was first published in Franchise New Zealand magazine Year 28 Issue 3, September 2019
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