Everyone thinks that food businesses must be successful because there’re so many of them.
I started my career working in food franchising and have over 40 years of experience owning and operating food businesses, including the four that I own right now. I have a love–hate relationship with food businesses because they can be great, but they can also be very hard work. I’ve made it harder on myself because I own multiple businesses, but that’s the power of franchising: you run the systems, and the people run the business. So, you need to get into a food business that has great systems and then recruit, train, motivate and develop the right people as they will determine the success of your food business as much as you, if not more, as they interact with more customers than you will and will make more products than you, too.
100% of the success of a food franchise is on the business owner themselves and how active they are within their business, the experienced franchisor has developed the brand, the products. the marketing and helped find a suitable location at a fair market rent. The role of the franchisee is to be hands-on and work both in, and on the business. For those that have seen the movie the Founder (the story of McDonald’s) The founder (of McDonald’s Corporation) Ray Kroc, initially recruited investors into the McDonald’s restaurant business as franchisees but quickly realised the high operational standards he desired were not being achieved with absentee owners and he quickly changed his business recruitment model to hands-on Owner-Operators/Franchisees. These were people that worked in the business and ensured exceptional service and controls over the business, this is the premise of food franchising, that an owner will do a better job than an employee.
Larger more sophisticated food franchises can suit an investor or multi-store operator but the franchisee needs to be equally sophisticated and have another set of skills in leadership and managing large teams in order to be successful. I estimate that 90% of food franchises suit a hands-on owner-operator/franchisee.
People look at food businesses and think they must be good — you don’t have to wait for the cash to hit your account like some other franchise opportunities, as they are cash businesses, and the purchase price of the products is usually significantly lower than many other business opportunities. Finally, the cash flow is strong as it flows in daily, and most franchisors have negotiated good trading terms with suppliers meaning you don’t have to have huge cash tied up in stock.
The food sector is the largest sector in the world of franchising. If you have worked in food service, it’s a sector worth investigating if you’re looking to buy a franchise. That’s because you kind of know what you’re in for: it’s hard work, you’re on your feet for long periods of time and your transaction dollar amount is often low, so you must get and serve lots of customers.
Some people fall in love with idea of owning a café and having their friends come around. I can assure you it’s nothing like that. When you’re establishing your food business, you work harder than you’ve ever worked in your life before. Because it’s yours, you must and, it may take a while to get customers to change their current preferences to your products.
A food franchise would suit most people because in franchising the development of the brand, business model and operating standards have already been established and it may suit someone that may be a little more passive or potentially introverted as once the location is up and running, the owner can wait for customers to come to them. It’s true that you should be marketing over and above what your franchisor does, but this may not be your expertise, so it tends to be a reactive franchise opportunity compared to a franchise where you have to go out and hunt for business, many food franchises are located on busy strips and in shopping centres, where there are large amounts of foot traffic, so a franchisee can be a little more passive but the best performing food franchises are those where the owner is always marketing and promoting their business through media and through outstanding customer service and by being present in the business.
Things to be aware of In Food franchising
Some of the negative attributes associated with food franchises include:
- Reliance on team members that are often unskilled and potentially unreliable as they see their role as a steppingstone to their ‘real job’.
- Wage costs are wildly variable, and at the whim of sales, it’s a fine balancing act. Not too many rostered hours or labour costs will be too high (ideally 25–30%) and not too few rostered hours to impact the customer experience. But get this wrong and the results can be catastrophic.
- Cost of Goods (COGs) are variable and require excellent controls and recipe management to maintain optimum per Most food businesses need to be under 30% COGs to be profitable.
- Cost of Goods (COGs) and labour costs are variable and require excellent controls to maintain optimum percentages
- It’s bloody hard work. Standing on your feet for excessive periods of time, and today, food service is seven days a week from early to late, so it has the potential to impact your quality of life.
- The success of a food business is heavily reliant on real estate: location is everything, and that comes at a price. Ideally, a food business would like to run at 4–10% for full-service restaurants and 8-14% for takeaway, known as quick-service restaurants (QSRs).
- Consumer behaviour can change, and unless you have a strong loyalty program, ongoing marketing and a great product that is always evolving, customers are prone to try other products.
- If you’re situated in a shopping centre and to a lesser degree on a high street, there’s a strong chance of competition and copying of your best products which you have no control over.
The major challenge for businesses in the food and beverage services industry is their exposure to the discretionary spending of consumers, which has dried up as cost-of-living pressures mount. It has been estimated that up to 10% of hospitality businesses may close this year, whilst this sounds alarming, we know that franchise businesses are usually twice as successful as independent businesses, so the risk is lessened in franchising.
What we are seeing with our clients and the general market is the top end and the bottom end of the market are doing well, people are prepared to treat themselves and pay a premium or if their buying regularly there needs to be a value offering, just look at what McDonald’s is doing right now with their $6.95 meal consisting of 2 burgers, fries and a drink – That’s cheap!
If you’re looking at a food franchise you need to be aware of the pros and cons and in this market, make sure you know who your customer is, what they’re prepared to spend and have an offering that suits them. The same can be said of food franchise opportunities, there’s lots of choice, what makes them stand out and do they suit what you’re looking for.
Doug Downer an experienced Franchising expert with an impressive 30+ year senior management history in developing and leading businesses within the Franchising sector. He has been recognised in the Top 30 Franchise Executives in Australia on 4 occasions and in the Top 100 Global Influencers in Franchising on 3 occasions.
Doug owns three franchises as a franchisee and has owned 8 franchises as a franchisee, he has been responsible for the establishment of three of his own start-up franchise systems including all aspects from strategy through to market entry. Doug has operated at CEO and Director level in eight franchise systems. He also started and currently owns and operates five successful SME Businesses of his own, so he is well versed in all aspects of franchising.