Franchising: A short cut to restaurant ownership?

Feedback on last week’s feature about one Durango couple’s experience opening a restaurant was useful. All feedback is useful, especially if it points to specific, unanswered questions.

One of the questions that was posed to me on the street this week was why I failed to include food franchises in my feature. Franchises offer an opportunity for newbies to get into a safer environment, one that is “proven,” I was told.

Maybe. Maybe not. Franchises fail, too, but there does appear to be a safety net.

So I went off wondering how much this safety net could cost.

Log onto FranchiseSolutions.com or FranchiseGator.com, and you’ll get an inexpensive education that might be less biased than those offered by chain restaurants. Entrepreneur.com is another site that offers links that will give you a clue of what you’ll likely need to open a Red Lobster, Subway or a Panera. You’ll see how to compare the differences between the three.

Franchise fees can be as low as $10,000, but be prepared to cough up from $250,000 to more than $1 million to get your foot in the door. Know that successful casual dining franchises expect franchisees to have resources to insure stability in bad economic times.

Well-established franchises cost more and have limited growth potential. The best ones to pursue are those that have established a decent foothold but are still growing. When my son graduated from law school and entered a dismal economy, several of his classmates came to him to urge him to open a late-night pizza shop in Boulder.

Nick has the corner on pizza crusts. He has a well-deserved reputation for turning out 20 to 30 pizzas a night at law school parties, where he did the kneading and his best friends bought the toppings.

But don’t expect his mom to put the recipe on the website. Even if he had one, it would depend on the gluten content of the particular flour, the humidity, the ambient temp in the kitchen, etc. In other words, he bakes by feel.

But even a law school graduate with no restaurant experience could see the risk in this venture. Still, they were hot on the late night feeding frenzy that fuels college campuses. Not many months later, Nick came to us with a frozen yogurt franchise packet. Not just any frozen yogurt, but the hottest product in all major metropolitan areas of the country, he said.

It was out of our league. Even if we had the money for the franchise fee, the development costs to put one in Durango or anywhere in Colorado would have been prohibitive. So I sighed with relief when I read in the July 2012 issue of Bottom Line Personal: “Steer clear of trendy restaurant categories. If many different brands with similar menus recently have begun franchising in a previously unheralded restaurant category, it’s a safe bet that the market won’t support them all.” The example given was frozen yogurt.

It’s a good idea to talk to franchisees currently in the system and to look for litigation detailed in the FDD – franchise disclosure document – which should answer questions about the franchisor’s finances, business experience and work history. Obviously these folks need to have successful experience running restaurants and not just selling franchises.

Restaurants require hard work and long weekend hours. There are unforeseen challenges. It’s a leap from being a great cook and hostess to running a restaurant. Whatever joy one has in a hobby often turns to grief when the realization that you are only as good as your last meal turns the restaurant dream into a nightmare.

The NPD Group research firm says that while 7,000 independently owned restaurants failed in the last three years, more than 4,500 franchises opened successfully.

Do the research. Work in a busy restaurant waiting tables, washing dishes, and even doing after-hours clean-up. Look at the people and pay attention to the details that are required to motivate and manage a diverse workforce that gets low wages.

Take a look at inventory costs. You won’t be working the ovens as much as you’ll be haggling with the cash register, the licensing agencies, the health department and others who will make in-laws look desirable.

True, franchises may offer fewer headaches while you learn the ropes, but there’s no telling how much support you’ll need while you get dialed into the reality of running a restaurant 24/7.

The same Bottom Line Personalarticle that I referenced earlierreally nailed it by quoting Rick Bisio, a franchise consultant:

“They imagine that owning a restaurant is like hosting a dinner party every night. But it’s more like running a factory – where perishable raw materials must be converted into appealing finished products very quickly for fickle customers in an extremely competitive industry.”

Add two more words to this accurate description: every night. Be prepared do all the above every night that the doors are open.

The next time I start bitching and moaning about the cost of grilled salmon in a restaurant, I’m going to remember Rick Bisio’s words.