Franchise Business
REVIEW
Ratings & Reviews of Today’s Top Franchises
TOP FOOD FRANCHISES
Franchisee Satisfaction Study Firehouse Subs franchisee Don Davey owns 17 restaurants, 14 in Florida and 3 in Wisconsin—the two states where he once played NFL football. Davey has been a Firehouse franchisee for 11 years.
Burger Bliss: Hwy 55 franchisees Ryan and Carol Tucker
A Look Inside the Top Food Franchises
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Checkers & Rally’s Takes Top Spot in QSR PAGE 10
FALL 2014
SPECIAL REPORT: Top Food Franchises
Food, Glorious Food Perhaps no industry is as exciting and dynamic as the food industry. But it takes a lot more than a love of food and a few great recipes to survive. You need business acumen, restaurant management know-how, a healthy bank account, and passion—lots of passion. Franchisees in this industry put a lot on the line in the hopes of getting a lot in return. And their success depends heavily on the strength of the franchise system they buy into. How well does the corporate office support its franchise owners? Do franchisees support each other and promote the brand in a positive light? Does the concept itself have staying power?
Franchisees in this industry put a lot on the line in the hopes of getting a lot in return.
The best way to answer these questions is by asking existing operators. That’s where we come in. We’ve surveyed thousands of food franchisees from close to 100 brands to come up with our top 40 franchise opportunities in food. This report highlights those companies and digs into what potential franchisees should consider as part of their research. No, the food business isn’t easy, but for the right person in the right brand, it truly can be glorious! Happy franchising!
Molly Rowe, Editorial Director
Franchise Business Review is the leading market research company in the franchise industry, assisting prospective franchise buyers through the examination process of today’s leading franchise systems. Before you invest in any franchise opportunity, get the facts from Franchise Business Review. Our independent franchisee satisfaction reports measure the health of any franchise system, based exclusively on the feedback of today’s franchise owners ... the real franchise experts!
Eric Stites, CEO Michelle Rowan, President Molly Rowe, Editorial Director C.J. Fleck, Senior Web Developer Michael Kupfer, Online Marketing Manager Nicole Kenney, Client Services Manager Jamie Lavigne, Client Consultant Linda Lorrey, Client Consultant Stacey Picott, Office Manager The Secret Agency, Design & Production
OUR RESEARCH To compile the data for this report, Franchise Business Review surveyed 4,482 franchisees, representing nearly 100 leading food franchise brands with a total of 18,478 food outlets across the United States and Canada. We contact all active franchisees within a franchise system and ask them to complete our satisfaction survey. Franchisees answer 33 benchmark questions ranking their franchise system in the areas of financial opportunity, training and support, leadership, operations and product development, core values (e.g., honesty and integrity of franchisor), general satisfaction, and the franchisee community.
An additional 16 questions ask franchisees about their market area, demographics, business lifestyle, overall enjoyment running their franchise, and role in the franchisee community. From this data, we identify our list of top food franchises with above average satisfaction. It is important to note that all Franchise Business Review research studies are open to any North American-based franchise company with at least 10 operating franchisees at absolutely no cost. The franchise companies listed in our reports are based solely on franchisee satisfaction ratings.
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SPECIAL REPORT: Top Food Franchises
Photo courtesy of Checkers.
Food Franchising: A Look At The Top Brands And What it Takes To Be Successful Carol and Ryan Tucker’s journey to Hwy 55 Burgers Shakes & Fries franchise ownership didn’t involve the traditional due diligence that’s often part of the franchise search process. Ryan’s “due diligence” started as a minimum wage cook in the Hwy 55 system while he was in college pursing a marketing degree. He eventually worked his way from cook to assistant manager to manager to owner with his wife, Carol, who started in the Hwy 55 system as a waitress. “After I graduated from college, I went on a cruise. They brought me up on a stage for something and I told them the cruise was my celebration for graduating. They asked what I was going to do for a career, and I said, ‘I am
going to flip burgers the rest of my life.’ The guy jokingly said, ‘You can do that now but you’ll find something else,” and I said, ‘No, I am serious. I am going to flip burgers the rest of my life and own that place.’ Thirteen years later, I own three of them,” Ryan said. MODELS & CONCEPTS
Marketed as a 50s-style American classic, Hwy 55 is a full-service restaurant offering lunch and dinner. Franchise concepts within the food sector typically fall into one of several major categories: full-service restaurants, QSR, fast casual (a higher-end variation of QSR that includes counter service), retail stores, mobile and kiosk outlets, and delivery only.
Some franchisors offer different business models and multiple investment levels, and others combine food types (a coffee shop that serves sandwiches, for example), so the definition of franchise concept can be blurry. We see a little of everything in our food research. Our Top 10 includes pizza, subs, yogurt, burgers, wings, frozen drinks, and full-serve restaurants. In the past few years, America has become obsessed with burgers, which makes this a crowded space if you’re considering a burger brand. Brands like Five Guys, Fatburger, Smash Burger, Elevation Burger, BurgerFi, and Mooyah continue to grow. Newcomer Burger21 offers 21 specific flavors, including
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SPECIAL REPORT: Top Food Franchises
A Look at Food Franchisees
66
%
consider their schedule flexible or very flexible
72% 11% Male-female partnerships
17%
10
%
own 5 or more units; 57% are single-unit owners
64%
have at least a bachelor’s degree
68
% work 40 or more hours per week
35%
work evenings at least a couple times per week
45%
“almost always” work weekends
8%
military veterans
63%
of franchisees of Top 40 Food Franchises would do it all over again, knowing what they know now
unique offerings of chicken, turkey, veggie, ahi tuna, and even shrimp burgers for people who don’t want beef. The gourmet burger trend has spilled into the pizza sector, where many new high-end personal pizza concepts have taken root. Blaze Pizza, Pie Five, Your Pie, and PizzaRev are just a few of the newer gourmet brands that have started franchising in the last few years. Time will tell if these lower volume/premium ingredient concepts can compete with likes of Marco’s, LaRosa’s, and Toppers, who lead the sector in franchisee satisfaction. Yogurt also remains popular, although the “yogurt explosion” of years past has slowed quite a bit at brands like Menchie’s, Orange Leaf, and Red Mango. Yogurtland and Sweet Frog continue adding 50+ locations a year. As you research franchise opportunities in the food space, it’s important to remember “hot and trendy” doesn’t always translate into franchisee satisfaction. Three of the highest scoring food companies for franchisee satisfaction are Hwy 55, Black Bear Diner, and Checkers & Rally’s—three franchise brands that pride themselves on their traditional style and service. “We are not trying to compete for what’s new, what’s catching on right now,” said Black Bear Diner Co-President Bob Manley. “We think there is still a legitimate spot in the market for what is old, what is traditional. We’ve kind of found a niche for ourselves within that group of people to remember what it was like when I was a kid—the environment, the comfort food.”
INVESTMENT
Food is typically one of the more expensive sectors for franchise ownership because of build-out costs, equipment and supplies, and real estate, but our list of top food franchises includes a wide range of investment options. The average investment for the top food franchises on our list ranges from $67,500 to $1.4 million, with a median initial investment of $374,000. (Note that this is the total initial investment, but with financing and lease options, the typical upfront cash requirements tend to be 20 percent to 40 percent of that total investment.) Mobile food concepts, like Repicci’s Italian Ice and Happy and Healthy Products, offer franchisees the opportunity to run a food-related business for less than $100,000 (approximately $82,500 for Repicci’s, $67,500 for Happy and Healthy). A quick-serve brand based in a retail strip center, like Wingstop, can cost less than $500,000 initially, depending on the real estate and overhead requirements. A full-service stand-alone restaurant, like Ground Round Grill & Bar, which requires a large site (and more employees and overhead for day-to-day operation), typically costs between $500,000 and a million dollars to get started. Many franchisors have taken steps to reduce their initial investment costs in order to make franchise ownership more feasible. In 2012, Checkers & Rally’s rolled out a new design for its restaurants that shaved about $200,000 off the initial investment by eliminating the double drive-thru and replacing
What is Multi-unit Ownership? The definition of “multi-unit” can vary greatly depending on the franchise concept. In the food and retail industry, it usually means you own multiple physical locations. For service-related sectors, it can mean you serve multiple territories but maintain one central office. Some brands define bigger territories while others break their territories up to be very small (usually based on population). This can mean that someone who meets the definition of “multi-unit franchisee” actually has a smaller business numbers-wise than a single unit franchisee who owns a big territory. Then, of course, there are other multi-unit franchisees who own so many units (sometimes from multiple brands) they are actually bigger than many franchisors. Area development can be another form of multi-unit ownership and also has multiple definitions. Typically, an area developer is someone who’s agreed to develop a number of units within a territory by selling franchises within that territory to additional investors, training and supporting those franchisees, and getting paid a percentage of the royalty from those units. Many area developers own franchise units themselves, but in some systems, they simply perform a support role for franchisees in their area. Others are simply charged with selling franchises, and support is handled through the corporate office. Clearly, the exact definition and role of an area developer can vary from franchise to franchise, and you will need to research the specifics of the opportunity you are considering should you go down the path of area development.
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SPECIAL REPORT: Top Food Franchises
it with covered seating and a more efficient, single-lane drive-thru. “There were some advantages to that modular concept when we developed it 20+ years ago, but it got to be more and more expensive over time as building codes became more complicated,” said Jennifer Durham, vice president of franchise development at Checkers & Rally’s. Jack Crawford, CEO of Ground Round, told us his brand only charges a 1% royalty the first six months a franchisee is in business in an effort to make franchisees profitable as early as possible. “We want them to staff effectively, have enough people, and not take from their operating budget to pay royalties,” he said. Ground Round’s corporate structure is unique in that it is actually owned by the franchisees themselves. New franchisees have the option of buying a stake in the company for an initial franchise fee of $60,000 (compared with $35,000 for non-shareholders), which gets them a preferred royalty of 2.5% (compared with 3.5% for non-share), a stake in the company, and voting rights for major brand decisions. (Crawford says more than 90% of franchisees take this option.) “We are just like any other brand but owned by franchisees,” Crawford said. “We still have a traditional franchise agreement and standards for franchisees to follow to uphold the brand, but our board of directors is made up of franchisees who are elected by franchisees, and our management team reports to the Board. Our annual convention is more like a shareholders meeting.” Regardless of the corporate structure of a franchise, the importance of a new franchisee being well capitalized cannot be overstated. Prospective franchisees should carefully review a brand’s FDD and ask the franchisor and current operators what efforts have been made to ensure franchisees are well capitalized for start-up and economic ups and downs. The Item 7 in the FDD outlines the expenditures needed to establish a business, but all Item 7s are not equal. Some companies will outline the necessary working capital, but others—who might want to keep the stated investment level as low as possible—don’t. Any investor should understand and plan for the fact that it might take significantly more capital than what is
AWARD-WINNING SOUP, SALAD & SANDWICHES TM
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(800) 940-ZOUP
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SPECIAL REPORT: Top Food Franchises
listed in the Item 7 to get a new franchise business up and running. Having several sources of reserve capital and a solid contingency plan in the event that your new business ramps-up slower than expected will save you many sleepless nights. We also recommend that where possible, all potential franchisees thoroughly review and understand a company’s Item 19, if included, so they have a better idea of what to expect in the way of profitability. Not all franchise companies provide an Item 19 as part of their FDD because it’s not required. And like the Item 7, every Item 19 is different in the way it outlines unit-level financials. A good Item 19 can provide invaluable information related to potential profitability of the business, assuming the franchise company publishes accurate revenue and cost figures. In our interviews for this report, franchisors told us they have become much more frank in their discussions with franchisees about what exactly they’ll need for capital to be successful. If, as a prospective franchisee, a franchisor doesn’t scrutinize your financial strengths and
weaknesses, you should be skeptical. “We generally don’t take anyone who has less than $250,000 liquidity,” Durham said. “If you’re cutting it too close, it makes it dangerous for both of us. You don’t leave yourself any room for the unknown, and every franchisee in their first location has unknown.” Multi-unit ownership is a common requirement by food franchisors because it can be easier to work with an owner who is going to operate several locations. Running multiple locations obviously involves different skills and more money than a single unit, so this is an important consideration for prospective franchisees. It’s critically important that a prospective franchisee understand the terms of their franchise agreement— whether it requires multi-unit ownership and the associated timeline for ramp-up (as well as the penalties if timelines are not met)— before signing. Even if you’re not yet ready to own multiple units but think you may one day, you’ll want to consider this in your initial research.
Hungry Howie’s Pizza and Subs franchisee Bob Leger opened his first location in 1987. He opened a second in 1990, and, by 2000, he had 25 locations. Whether or not you plan to start out as a multi-unit owner, it’s important that you go into your research with that possibility in your head. “You need to be sure that your franchisor has the systems in place to help you to succeed,” Leger said. Of course, there are still brands that prefer single-unit deals because they are looking for a different type of franchise owner—one who wants to be very involved in the day-to-day running of the business. “We offer single or multi-unit ownership options because, although not everybody is suited to be a multi-unit operator, they still might be a great franchisee. We don’t want to lose someone because they don’t want to own several locations,” Crawford said. INCOME AND PROFITABILITY
The average annual income (defined as any income, salary, or profit the owner takes
Average Income of All Food Franchises vs. FBR’s Top 40 Income Range
All Food Franchises
FBR’s Top 40 Food Franchises
14% $150,000+
19%
12% $100,000 – $150,000
14%
23% $50,000 – $100,000
24%
51% $0 – $50,000
43% 0
5
10
15
20
25
30
Percent Response * Income data listed above is based on independent surveys completed with 4,482 food industry franchisees in 2014.
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35
40
45
50
55
60
SPECIAL REPORT: Top Food Franchises
out of the business) for all food franchisees is $82,000—the same as 2013. Not surprisingly, franchisees of our top 40 food franchises report higher annual incomes of $102,000. While aggregate franchisee incomes can be a valuable reference point, it is important to note that average numbers—especially when you are looking at financial information—can be very misleading. Average data includes all franchisees together, both single and multiunit owners, as well as new franchisees, and those that have been operating for many years. In most cases, median data points can be much more helpful than averages. For example: While the “average” food franchisee earned $82,000 last year, 52 percent of the food operators we surveyed earned less than $50,000, while only 25 percent earned over $100,000. When doing your research and business planning, it is important to distinguish between business profit and owner income. Prospective franchisees often confuse a business’s potential profits with their potential annual income/salary, which is a big mistake. As a business owner, before you can “pay yourself,” you often have to pay business taxes, debt repayments on loans, and reinvest in your business (that new piece of equipment you need, or the new signage you’re required to buy, for example). While your business may grow to be quite profitable, your actual income could be substantially lower. Talk with as many other franchisees as possible, and confirm that your business profit and income expectations and projections are realistic. Finally, on the topic of income and profitability, while many food franchises report relatively high unit-level sales, and/or profitability, it is important to look at the whole picture when considering a franchise investment. For example, a food franchise may offer slightly higher profitability compared to other businesses, but if the initial investment is three times higher, your overall return on investment is potentially going to be significantly lower. Work through your long-term financial projections with a good accountant, and compare your potential franchise investment to other businesses, as well as other investment opportunities (i.e. real estate, stocks, etc.) to see how they compare.
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SPECIAL REPORT: Top Food Franchises
Photo courtesy of Kona Ice.
PROS & CONS OF THE FOOD BUSINESS Pros
Ask a franchisor or a franchisee to talk about the pros of the food sector and you’ll undoubtedly hear the words “excitement,” “passion,” and “people.” It’s an industry that offers franchisees and their customers immediate gratification. At the same time, it’s ever-changing, never boring, and impossible to outsource. “If you look at economic development and new businesses being opened, you’re always going to see new restaurants in there,” said Ground Round CEO Crawford. There are countless investment options, business models, and food types for franchise operators to choose from. A prospective franchisee can choose to run anything from a van-based delivery business to a full-service restaurant—with dozens of other business types in between. The wide range of franchise models available to someone looking to enter the food services sector make the food business a feasible endeavor at almost any investment level. Operators of food franchises reap significant benefits from being part of a large franchise system rather than operating alone. The food industry is highly competitive and trend-driven, and business owners in this space must constantly be marketing themselves and developing new products. Franchisees benefit from having a recognized brand and the support and resources of a corporate office to help with these tasks.
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“It’s not everybody looking out for themselves. We look out for the other owners around us. We have each other’s back,” said Carol Tucker of Hwy 55. Of course, the franchisee community is only as good as its franchisees, so if you’re considering a food franchise, you may want to pay attention to how carefully a franchise screens its candidates. In the food world, where so much depends on a brand’s public image, one franchisee’s mistakes can affect all of its franchisees. You want a brand where all of the franchisees are engaged, in tune with each other, and as focused on providing consistent service and product as you are. Cons
The food sector is not for the faint of heart in terms of what it takes to run and operate a successful business. Rising food costs, soaring competition, high employee turnover, and long hours are just a handful of the drawbacks. Getting started in the food sector typically requires a large investment, and early profit margins can be much lower than some other service industries—especially for operators of high cost, single-unit operations. It can take a long time for a new operator to recoup start-up costs. Many franchisees choose to operate multiple locations so they can gain operational efficiencies and turn a higher profit (i.e. sharing employees across locations reduces training costs, buying products in
SPECIAL REPORT: Top Food Franchises
Photos courtesy of Zoup! and Black Bear Diner.
larger quantities reduces per unit costs, etc.). Still, operating multiple units significantly increases your overall investment and is only recommended for experienced, extremely well-financed candidates. Ongoing expenses also are much higher than in other sectors and can fluctuate greatly based on what’s going on in the world. Climate-related price increases have become more common in the past few years, and rising fuel prices have also had a big impact on commodities. Prospective franchisees should ask franchisors what safeguards (supply contracts, cost-cutting efforts, increased menu prices) they’ve put in place on an ongoing basis to help franchisees deal with high costs. Many brands have attempted to add revenue by expanding their day-parts. While breakfast at Subway and dinner at Dunkin Donuts seems to work, profitability remains a primary concern for franchise operators who may find themselves working twice as many hours for little additional revenue as their brand ventures outside its traditional operating hours.
The amount of staff management required to run the day-to-day business of a food franchise may be a drawback for some operators, depending on the size and structure of the concept. Many concepts require large numbers of low-wage, low-skilled employees. Even at the general manager level, it can be hard to find suitable workers. “Our concept for a general manager is not an easy concept,” said Black Bear’s Manley. “If you do not have strong restaurant experience and passion to work a whole bunch of hours a week, it’s probably not the concept for you. We expect general managers to not only be good operationally, but to truly be able to form relationships with employees and guests and create an environment with us.” To keep up with competition, franchise companies must constantly be researching and developing new products to keep up with the latest food trends. At the same time, they must be careful not to act too quickly. Every menu addition or concept change requires an
Typical Investment Ranges for Food Franchise Locations
$30,000 – $250,000+ Kiosk/Mobile/Non-Traditional Locations
$100,000 – $400,000+
Conversions of Existing Locations
$175,000 – $500,000+
Retail/In-Line Strip Center Locations
$750,000 – $2,000,000+
Stand-alone/New Construction Locations
*These are broad estimates of initial capital investments, and each franchise brand will have specific liquid capital and net worth requirements.
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SPECIAL REPORT: Top Food Franchises
THE LIST
Best of the Best: Today’s Top 40 Food Franchises
Kona Ice — more on p. 12 Mobile, shaved ice
*G round Round Grill & Bar — more on p. 5 Full service restaurant
*H wy 55 Burgers Shakes & Fries — more
on inside front cover
Full service restaurant
* View this company’s full satisfaction report at: www.FranchiseBusinessReview.com
*C heckers & Rally’s Quick-service
* F irehouse Subs — more on back cover Fast casual
LaRosa’s Pizzeria
“ LaRosa’s Training and Support have played a significant role in shaping my company.” – LaRosa’s Pizzeria Franchisee
Full service restaurant
* East Coast Wings & Grill — more on inside Full service restaurant
back cover
Auntie Anne’s Quick-service, bakery
Wingstop Quick-service
*M arco’s Pizza — more on p. 7 Quick-service
Tropical Smoothie Cafe
“ I think our technology is better than franchises ten times bigger.” – Taziki’s Café Franchisee
Quick-service
Biggby Coffee Quick-service
Charley’s Philly Steaks Quick-service
* T aziki’s Mediterranean Cafe Full service restaurant
Toppers Pizza Quick-service
Fazoli’s Restaurants Quick-service
“ The company’s culture is amazing and is one of the main factors this franchise is a success.” – Black Bear Diner Franchisee
Zinga! Frozen Yogurt Quick-service
*H appy and Healthy Products Distributer, healthy snacks
Black Bear Diner — more on p. 16 Full service restaurant Jamba Juice Quick-service
10 | For more information on the companies in this report, visit www.FBR50.com
Survey Date
Startup Investment
Cash Requirement
Total Units
April 2013
$99,800 – $124,575
$20,000 – $25,000
786
March 2014
$600,000 – $2,000,000
$500,000
28
July 2014
$184,255 – $331,955
$125,000
112
May 2014
$165,000 – $1,235,400
$250,000
787
April 2014
$169,414 – $989,553
$80,000 – $100,000
807
June 2014
$500,000 – $850,000
$150,000 – $255,000
65
April 2014
$648,425 – $993,870
$250,000 – $575,000
31
July 2013
$194,875 – $367,600
$40,000 – $80,000
1,154
April 2014
$211,628 – $650,540
$200,000
625
September 2013
$218,000 – $418,500
$110,000 – $120,000
300
October 2013
$165,940 – $414,685
$100,000
387
July 2013
$159,850 – $316,100
$70,000
172
June 2013
$152,193 – $451,236
$75,000 – $100,000
444
September 2013
$410,000 – $737,000
$250,000
36
October 2013
$362,100 – $548,585
$150,000+
64
July 2014
$558,000 – $1,339,000
$165,500 – $250,000
217
September 2013
$267,000 – $497,500
$200,000 – $400,000
25
February 2014
$45,000 – $90,000
$24,508 – $89,045
63
May 2014
$534,000 – $1,452,000
$125,000 – $750,000
63
September 2013
$221,000 – $640,000
$221,000 – $640,000
747
SPECIAL REPORT: Top Food Franchises
Zoup! — more on p. 5 Fast casual
McAlister’s Deli Fast casual
Planet Sub Quick-service
Hungry Howie’s Pizza & Subs — more on p. 1 Quick-service
Captain D’s Quick-service
Bruegger’s Bagels Quick-service, bakery
Barberitos Quick-service
The HoneyBaked Ham Co. — more on p. 7 Retail concept
Billy Sims Barbecue Quick-service
Fuzzy’s Taco Shop Quick-service
Bahama Buck’s Quick-service, shaved ice
Chopped Leaf Quick-service
Nothing Bundt Cakes Retail bakery
Donatos Pizza Full service restaurant
Johnny Rockets — more on p. 8 Quick-service
Deli Delicious Fast casual
Corner Bakery Cafe — more on p. 16 Fast casual
Hurricane Grill Wings Full service restaurant
Repicci’s Italian Ice Quick-service, italian ice
Great Wraps Fast casual
Survey Date
Startup Investment
Cash Requirement
Total Units
June 2013
$365,900 – $558,900
$150,000
68
October 2013
$538,000 – $887,000
$75,000+
328
July 2014
$182,500 – $402,000
$150,000
36
December 2013
$228,000 – $432,500
$100,000
551
May 2014
$206,000 – $1,281,400
$350,000
520
March 2013
$389,600 – $591,600
$150,000
103
December 2013
$114,800 – $521,025
$300,000 – $500,000
38
January 2014
$278,300 – 409,900
$150,000
188
June 2013
$169,200 – $433,000
$150,000
48
June 2014
$330,260 – $704,210
$330,260 – $704,210
78
January 2013
$205,000 – $623,000
$90,000+
40
July 2014
$175,000 – $315,000
$70,000 – $100,000
19
May 2014
$364,345 – $487,745
$150,000
98
July 2014
$385,000 – $546,900
$385,000 – $546,900
152
February 2014
$539,525 – $975,575
$539,525 – $975,575
210
July 2014
$150,000 – $350,000
$75,000
22
May 2014
$843,000 – $2,378,000
$125,000 – $400,000
174
April 2013
$320,000 – $895,000
$250,000
60
March 2014
$49,500 – $99,900
$15,000 – $40,000
50
March 2014
$125,000 – $335,000
$125,000 – $335,000
68
“ Hungry Howie’s has a very good training system, very good support, and is always open-minded for new innovation.” – Hungry Howie’s Pizza & Subs Franchisee
“ Great product. Excellent food. High quality. Airtight system to produce the product consistently from restaurant to restaurant. Honorable and honest corporate people at all levels on board.” – Donatos Pizza Franchisee
“ We were originally drawn to the concept and its potential, but the leadership team solidified the deal.” – Corner Bakery Cafe Franchisee
For more information on the companies in this report, visit www.FBR50.com
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SPECIAL REPORT: Top Food Franchises
Continued from page 9.
“In an ideal world, you hope everybody has equal access to our government, but that’s not additional investment from franchisees to re- always the case. If we’re able to leverage our vamp equipment and train staff, so if a seemingly position in the industry to help make that haphot trend is actually a short-lived fad, franchisees pen, then that’s what we want to do,” Fox said. lose out. Even technology advancements like tabletop ordering systems, which should make a WHAT IT TAKES TO BE SUCCESSFUL franchisee’s life easier can disrupt business. Good Although somewhat unique to the business franchisors watch trends carefully and know world, Carol and Ryan Tucker’s journey to franchise ownership (from cook to owner) when to act and when not to. isn’t unique in franchising. Most franchise MARKET ANALYSIS brands have stories of franchisees who started The National Restaurant Association’s 2014 out performing entry-level jobs and moved Restaurant Industry Forecast predicted that their way up to owners. total restaurant industry sales would reach “The food industry is one of the few a record high of $683.4 billion in 2014 (up industries in America where you can start as 3.6 percent from 2013) and that the industry entry-level and end up as owner,” said Ground would add jobs at a 2.8 percent rate—leading Round CEO Crawford. the nation in job creation. Most franchise brands and lenders require All of the franchisors we spoke with for vast operational experience in the food industhis report said they’ve seen improvements at try to buy a franchise (or they require you to both the unit level and in new franchise sales have an experienced partner). This helps on in recent years. Brands that may have scaled two levels—franchisees know what they’re back their franchise development efforts are getting into and they are more likely to be being more aggressive, and many of our top successful in the day-to-day operations of their brands are experiencing double-digit growth. business because they’ve done or seen it before. Acquiring adequate capital to buy a food “We’re not a self-taught brand. We’re only franchise has become easier in recent years, looking for people with prior restaurant especially at the investment level required to experience and who will be actively involved. open a full-service restaurant or QSR. None They don’t need to actually run the restaurant, of the franchisors we spoke with for this but they need to be active day-to-day in their report mentioned financing as a challenge business,” Crawford said. for prospective franchisees. Public policy The time investment for a food service and government decisions, however, con- franchisee can vary as much as the monetary tinue to significantly impact businesses within investment, depending on the size and capacity the food industry. For example, when the of the franchise concept, the number of locaAffordable Health Care Act was introduced tions, and how long the franchisee has been in in 2012, franchisors spent thousands of dol- business. Franchisors of location-based conlars researching the new law and educating cepts (those that aren’t kiosk or truck-based) franchisees on how to comply with healthcare tell us the early months and sometimes years requirements. Similarly, the national debate require long hours and a more than full-time over increasing minimum wage could have commitment to running the business. far-reaching implications for owners of food “An owner-operator can be expected to establishments. work 10- to 14-hour days, and they’re grueling For this reason, if you’re considering a the first year,” said Sam Ballas, CEO of East franchise in the food sector (which can be Coast Wings & Grill. “Eventually, you have heavily impacted by tax and regulatory chang- the opportunity to roll those hours back as you es), you may want to consider how involved learn the business, pay your dues, and hire the the franchisor is in government relations. right management team.” For example, Firehouse Subs CEO Don Tommy Keet became one of the first Fox spends a significant amount of his time franchisees for Taziki’s Mediterranean Café focused on Washington, D.C., working with (a brand his father now leads as CEO) in the National Restaurant Association to lobby 2008 and he still remembers that demanding on his franchisees’ behalf. first year.
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SPECIAL REPORT: Top Food Franchises
“About two weeks after we opened our first restaurant, I was pretty exhausted,” Keet said. “I was getting to the store around 6:30 a.m. and leaving around 11:00 every night. My father said to me, ‘I told you that this business was tough. When you own your own business, there is no time-clock.’ I agree that it was harder than I expected, but I wouldn’t change a thing. Being there with him, working with my family, long hours or not, I was happier than I had been in a long time.” The food industry can be a tough business in which to make money, and franchise operators need the right skills and background to be successful. Franchisees must be experienced business people, with knowledge of sales, marketing, and management. And it almost goes without saying that they must love food and be laser-focused on the total guest experience. Ballas of East Coast Wings & Grill says he looks for passion, discipline, and financials in a franchise candidate. Before any prospective franchisee is accepted into the East Coast system, they go through a grueling application process that involves both candidates and their spouses (for individual investors). Prospective franchisees must work in an East Coast restaurant for up to three days before they qualify to be a “candidate.” “We make it as tough as we can for franchisees, and the ones who get through do very, very well. We don’t have any underperformers in our system,” Ballas said. A franchisee’s ability to reach out and network within the community can be a huge factor in the success or failure of a franchise in any sector, but this is especially true in food where the competition is great. Franchisees must be willing to spend countless hours selling themselves and their businesses in the community. If you’re considering a franchise opportunity, you may want to consider brands that have community involvement programs or a philanthropic slant to their mission, as these programs are a great way to become involved in the community and build brand loyalty. “Being involved with the local community and local charities is imperative to establishing a good reputation as a community-conscious restaurant,” said Taziki’s Mediterranean Cafe franchisee Tommy Keet. “Sometimes people hear the word ‘franchise’ and think it is not
Top 40 Food Brands By Category
Full Service
8
QSR/Fast Casual
25
Retail/Snack
6 1
locally owned. Getting involved and helping people is a great way to show that you are involved in the community and it is not a nameless corporate giant that is opening a business.” If you’re considering a food franchise, it’s important to know what your role will likely be in Year 1 and what it will be in Year 10. The first year may require a lot of hands-on attention—even being involved in the actual food preparation and delivery—but in later years, you might serve more of an operational management role. For the Tuckers of Hwy 55, they are still an integral part of the dayto-day operations of their restaurants. Ryan still serves as manager of one of their three restaurants, and Carol describes herself as a district manager, overseeing stock, training and coaching managers, and handling local marketing and paperwork. She also still works shifts, cooking or waiting tables as needed. “I don’t think I’ll ever be completely hands off,” Carol said. “To me, that’s abandoning my team. I grew up in an area where you had to drive 30 minutes to a grocery store, so I did not have the opportunity to do anything until
Other
Hwy 55 came to my area. That’s what I want to do for someone else. I want to help the girl that doesn’t know what to do with her life. Even if she doesn’t go into the restaurant business, I want to give her direction. I want to teach her about work ethic, team work, and servant leadership.” Taziki’s Mediterranean Restaurant franchisee Keet says his role has become more high-level now that he owns five restaurants (with a sixth to open soon)—but he’s never too far from the front line. “This week, I spent Monday in Little Rock working from the office and helping with paperwork and construction details. I drove that night to Fayetteville, AR, where I helped with caterings Tuesday morning in Bentonville, dinner service at Fayetteville, and then had a meeting with my catering manager and operating partner. Wednesday, I opened the Fayetteville store because we were short a manager, worked until 4, drove to our Conway store, and worked there from 7 - 8:30 p.m. I was home in Little Rock at 9 p.m. This was not a typical week, but I have had many like it.”
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SPECIAL REPORT: Top Food Franchises
FRANCHISEE SATISFACTION
SUMMARY
One of the best ways to know if a franchise opportunity is really as good as it appears is to look at its third-party franchisee satisfaction data. Franchise systems that don’t provide third-party data may have deeper issues, and those that do provide data offer a wealth of information on the system’s leadership, culture, training and support, financial outlook, and franchisee community. Satisfaction in the food sector lags behind satisfaction in other industries. The biggest variance (12.6 percent) between franchisee satisfaction in the food industry and satisfaction in all industries combined was in the area of Training and Support, which is driven by four key areas: Training and Support Programs, Marketing and Promotional Programs, Effective Use of Technology, and System-wide Communication. Another category where satisfaction among
food franchisees lags behind our benchmark (by nearly 7 percent) is Leadership. The leadership questions focus on the corporate office’s ability to promote a strong vision for the brand, a team culture, and drive the business forward. It’s important to note that while satisfaction among all food franchisees lags behind other sectors, satisfaction among franchisees at our Top 40 companies actually exceeds the benchmark for every single category of the survey. Most food franchisors are beginning to understand that satisfied franchisees are more successful, more engaged, and only improve their corporate bottom line. All of the franchisors we spoke with (all from companies with high franchisee satisfaction) said they spend a considerable amount of time focusing on unit-level economics and working with their franchisees.
Food franchises offer an exciting, ever-changing, never-boring environment to franchisees who don’t mind making a bigger financial investment, working long hours, and managing a large and diverse workforce. Food operators remain some of the most passionate in all of franchising, and while the investment is higher than in other sectors, so is the potential for return. Potential business owners may be initially attracted to the hype around a particular brand or the overall idea of running a restaurant, but this should come second behind thorough due diligence. Every food franchise has its own culture, and franchisees should carefully consider how that culture fits with their own business goals before committing to a brand. For more detailed research on specific food service franchises, please visit us online at www.FranchiseBusinessReview.com.
Franchisee Satisfaction: Franchise Business Review’s Top 40 Food Franchises vs. All Food Franchises All Food Franchises
FBR’s Top 40 Food Franchises
Training & Support Franchise System Leadership Core Values Franchisee Community Self-Evaluation Financial Opportunity General Satisfaction Overall 0%
10%
20%
30%
40%
50%
60%
70%
80%
Percent of Satisfaction * Satisfaction comparison data above is based on independent surveys of franchisees completed within the previous 12 months. FBR’s Food Sector Benchmark is based on data from 3,359 food industry franchisees. The FBR Benchmark is based on data from 16,995 franchisees across all industries.
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SPECIAL REPORT: Top Food Franchises
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