6 minute read
The time to franchise?
With much of hospitality having been put into unwanted turmoil as a result of the response to the pandemic, some of the most successful high street franchised pizza brands understandably off er renewed appeal, but what do would-be franchisees need to consider fi rst? Maurice Abboudi shares his thoughts…
Does franchising currently off er a more secure business model for operators in pizza delivery and takeaway right now, and if so, why?
Pizza delivery is one of the most competitive sectors in our industry. The barriers to entry are very low – you can pick up a second-hand dough mixer, a pizza prep table and oven for a modest sum of money and start a business very quickly. So why invest in a franchise? A reputable franchise will do their best to ensure your success.
If you succeed, they succeed. They will do their utmost to get site selection, capital expenditure and training right so you have all the foundations for success. They will give you ongoing support. They will audit you to ensure standards are high. The established franchisors have a proven system. They have the experience of multiple sites; experience in diff erent locations with diff erent demographics so are able to tweak pricing, menu, off ers and marketing to suit your location. They have economies of scale to help you achieve your food cost margins. They know the number of people you need during the busy and quiet times so you can hit your labour cost targets. That is the benefi t you will get from an established franchisor. On the other hand, there are franchisors who are just after selling as many franchises as possible. They don’t have the corporate infrastructure to support franchisees. They will take their royalties and marketing fees and off er very little in return. It is very much a question of buyer beware. If you have a really superb, diff erentiated product, know your market and have some experience in the sector, then starting your own business could be a great investment. Make sure you really do have something special as it is super-competitive, especially in the pizza delivery sector with all the aggregators (Deliveroo, Just Eat, Uber Eats) allowing sit down restaurants to deliver their pizza as well.
If an operator is thinking of moving into franchising, what should they do? How can they assess the best franchised opportunity?
So how do you identify good franchisors from bad ones? Look through all the slick marketing. Go and visit a few sites. Speak to the staff . Look at review sites. Speak to existing franchisees and ex-franchisees if possible. Reputable franchisors will encourage this. Be wary if after one interview you are off ered a franchise – they clearly do not have a robust franchisee recruitment process. Once you are comfortable with the company, go through a checklist. Read as many of the franchise magazines and material on the BFA (British Franchise Association) website – they have great checklists and articles of what to look out for. At the very least, look at the following areas. • the strength of the brand • the quality and consistency of systems, implementation and execution at store level • training and on-going support • product and supply chain • marketing and advertising • property and site selection • fi nancial viability • franchise agreement – term of agreement, territory, termination clauses etc • franchisee selection • experienced personnel
The cons include the following.
you really do have something special as it is • franchise fees super-competitive, especially in the • royalties pizza delivery sector with all the • loss of control – you must follow franchisor guidelines aggregators (Deliveroo, Just Eat, • required purchases – can’t buy a cheaper product elsewhere • exit – can only sell to another franchisee restaurants to deliver their pizza • termination – franchisor can terminate your franchise if you don’t operate to standards required
• franchise fees • royalties • loss of control – you must follow franchisor guidelines • required purchases – can’t buy a cheaper product elsewhere • exit – can only sell to another franchisee • termination – franchisor can terminate your franchise if you
Maurice Abboudi of Lanbury Associates Ltd is an experienced board member, operator, investor and advisor to the hospitality and leisure sector, recipient of PAPA’s Lifetime Achievement Award 2020 for Award 2020 for contributions to the sector and judge on BBC2’s series two of Million Pound Menu.
Is it worth an operator getting a loan to start a franchised business?
Most established franchisors have excellent relationships with banks. The rate you pay will depend on the strength of the brand. You will still be required to have some cash – around 20/25% of the total cost of the franchise. A loan could be a great way to help you fund a franchise but you really MUST ensure you are able to pay back the loan, especially in times of rising interest rates.
Is franchising currently the preserve of multi-unit operators, or are there still opportunities for single unit/new entrants?
It is much easier for the franchisor to manage a few franchisees who have multiple sites, but they are also always looking for new franchisees. This helps keep the brand fresh, allows older franchisees to exit and encourages a new generation to invest and keep the brand relevant.
Are there any new, up and coming franchises offering new opportunity in the pizza sector?
There are several. The fastest growing brand is Fireaway. I know of several others who are franchising and looking to franchise. Every time I think the market is saturated, I see a Papa Johns or a Fireaway disrupting the market and growing very fast.
Pizza Hut delivery in the UK have refranchised their corporate delivery stores. The franchisees are hungry and motivated. Franchisees who have their whole life and financial future wrapped up in a franchise tend to be more successful than corporate stores who are run by a manager. This is a generalisation, but this does tend to be the case.
Franchising has become a trend in the sector, and not just pizza. Pret and Itsu are both franchising their sites rather than opening corporate stores. Costa Coffee and Starbucks are other examples. These along with Domino’s Pizza, Papa Johns, Pizza Hut, McDonald’s and KFC are the gold standard. These are professionally run companies. It is not easy to become a franchisee. They select who they want from applicants.
Franchising is definitely a great option for someone considering starting a business but it is ‘buyer beware’. You have to be very careful about the franchisor and what they will do for you because if you get a franchise that is not stable and strong, and they go bankrupt, how are you going to trade?
If it all goes wrong, you need to have a plan and know what you are going to do. The franchisor may hold the head lease to your property. What happens in that situation? Look it into it in a little more detail than “this looks like a lovely business”, and take proper advice - legal advice - especially when dealing with a small franchisor. It may be a fantastic business and a huge success but ensure you have done your homework. It is worth spending time on the boring stuff just to understand where you might be.
We are going through very difficult economic times so look at the downside as well as the upside. The same thing applies if you are starting your own business rather than a franchise. It may be old fashioned, but cash is king. Make sure you have enough cash available to survive a slow start to your franchise/business. Cash, the right attitude, a bone fide franchisor, and hard work will give you the best chance of success. Good luck!
Pizza Boxes
Authentic 12-inch Italian pizza boxes. Imported from Naples, Italy. Box suitable for vegetarians.
