After seeing the successes many fast food chains have enjoyed during the pandemic, the prospect of opening a food franchise is more appealing than ever. In the US alone, the fast food industry generates $570 billion annually with the figure predicted to reach $931 billion by 2027, according to Yahoo Finance.
A concept born out of Ray Kroc’s McDonald’s in the 1950s, food franchises enable investors or would-be business owners to buy the rights to trade under a brand name, right through from using the brand’s intellectual property assets – from selling branded menus and providing staff with branded uniforms – to using their business model.
Many fast food restaurants and chains operate as franchises. Besides McDonald’s, other famous examples include Burger King, KFC, Subway, Domino’s Pizza and Papa John’s.
Throughout the 2020 lockdown, fast food franchises have been booming in the UK. Even during the lockdown when most restaurants were unable to open at all, drive-thru and click-and-collect ordering at fast food chains and franchises soared. While some businesses struggled and went into administration, others benefited from the pandemic.
Running your own food franchise can be more challenging than you realise, though. Read on to discover five essential things to know before opening a fast food franchise.
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What you need to know before opening a food franchise
Make sure you have time to focus on the business
While franchises usually employ thousands of staff in various roles, you’ll still need to ensure you’ve got enough time to spend on overseeing the running of the business. Furthermore, some franchises might require some more legwork from you during certain seasonal periods.
While you can employ managers to run the show on a day-to-day basis, running a franchise is still a business. Don’t think that it’s an easy way to make money, as it’s most definitely not.
Be honest with yourself about costs
It goes without saying that running a food franchise is expensive business, but many first-time franchisees seriously underestimate exactly how much money they’ll need to start-up, often leaving themselves under-capitalised as a result.
Budgeting as a start-up can be tricky stuff and guidance on the matter is somewhat limited, so some franchises take several years to generate a profit. According to Eater.com, start-up costs for well-known food franchises range from $10,000 to over $1 million – and that’s before you consider the monthly rates, which can be anything from 5-50% of gross sales.
Make sure you speak to fellow franchisees and do your research before committing to opening a food franchise; no one likes any sudden surprises where money is concerned!
The need for multiple outlets
Related to cost, another important question to ask yourself before opening a food franchise, is whether or not you’ll be required to open multiple outlets in different locations. If you consider opening a franchise in another country, you may be required to move there temporarily and you may need a residence permit and other official papers, such as local licenses and permits.
Many food franchises stipulate that franchisees must open a minimum number of outlets in a given time period in order to stay on-board. In the US, for example, Pizza Hut and Taco Bell ask franchisees to open at least three new restaurants within three years, while Dunkin’ Donuts ask investors to commit to opening at least five restaurants initially.
If you’re expected to open multiple outlets, you’ll not only need to consider how this will impact on your net worth, but also whether you’ll be able to devote enough time to running the different outlets.
The level of support you’ll receive
This is important no matter how experienced at franchising you are, but if you’re a first-time franchisee, this is absolutely vital.
Before committing to open a food franchise, make sure you know exactly how much – or how little – support you’ll get from the franchisor throughout the start-up process.
A great way to establish this is by speaking to other franchisees who have worked with your preferred franchisor. Ask them whether they were supported fully throughout the on-boarding process, or were they simply left to work things out for themselves?
The type of franchise you’ll be opening
There’s more to franchising than simply opening a new restaurant. When it comes to investing in a franchise, there are different kinds of ownership. Take some time thinking about which one would be best for you.
You might choose to become a single-unit franchise, multi-unit franchise, area developer, or master franchise. Ultimately, this will likely depend on your level of income and net worth.
What advice would you give to someone who’s looking to open their own food franchise? Share your thoughts by commenting below.