Restaurant Franchising

Starting a restaurant is a huge step. Then building a recognizable brand name that attracts customers in different parts of the world takes years of focused work. If you are looking to bloom in the restaurant industry, franchising might be a logical option for you to start with. A franchise agreement gives you the right to sell goods or services using the franchisor’s trademark or trade-name for a specified period. Before the brand is able to take on a franchise, the restaurant should refine its concept, see what works and create a proven formula before branching out to multiple locations and investors. Owning a restaurant franchise, although, may seem like a get-rich-quick kind of scheme, however, the truth is it takes a lot of time, hard work, and money to thrive.

Attaching a well-known brand name expedites your growth like any other. Once a restaurant is set up and is running with a steady profit margin, the most logical option for any successful restaurant is its expansion. Franchising is one of the most popular expansion opportunities for restaurant owners as they help provide relief from issues like lack of time and resources from executing the expansion of their restaurant brand. If you are keeping an eye out for an opportunity to expand your restaurant and to cash in on the popularity and its revenue-generating possibilities, we are going to tell you why franchising your restaurant is a very good option:

• Quick fix way to Fast Expansion
  The three most common reasons why restaurant owners decide to franchise are due to lack of money, time, and resources. Franchising your restaurant solves most of these problems by letting the franchise do the heavy lifting. The burden of initial investment is also substantiated here as the franchisee funds the cost of opening a new restaurant and growth occurs at a much lower cost. Since the franchises are responsible for signing leases and committing to the legal service contracts, the growth of the restaurant happens with no contingent liabilities for the restaurant owner, without any risk. In addition, by franchising your restaurant business, you can grow quickly, to become a more recognizable brand with your customers without a hands-on approach you would need to take if you were to do it on your own.
• Achieve Economies of Scale
  Franchising works on OPM principal – Other People’s Money and is all about economies of scale. As a franchisor, you have the power to negotiate significant volume discounts for the raw materials and services you receive from suppliers and vendors to supply to your franchise networks at discounted rates. The supply chain carries a competitive advantage with higher operating margins for each franchise. This power from large-scale operations can also be driven to other areas like marketing, advertising, etc. similarly. Franchises also serve as a perfect station to try out new products and experiment with their customer response before adapting to the whole business units.
• Easier Solution to Raising Capital
  With the ever-fluctuating market trends, businesses find it extremely difficult to find investors for traditional funding schemes. Adding to the hurdles in financial flow, new stricter regulatory restrictions make it even difficult to qualify for funding schemes, thus stalling the growth of a business. However, franchise models make it much easier for restaurant owners to raise capital. Franchisees pay a designated upfront cost prior to opening a branch, after which all the required capital to open and run the franchise is furnished by the franchisor itself. You can also plan to collect the royalty cost regularly from the franchisee which can be then used to fund your own business without seeking traditional funding platforms.
• Establish Consistent Brand Quality
  As more people tend to eat out and order in food, along with plenty of options to search for different variations of food and services, people have come to expect more value from restaurant brands. People also expect to have the same consistent quality across branches of the brands they recognize. The last thing they want is to experience a different taste and quality of service when they step in or order from a restaurant name they are familiar with. Franchising is a sure-fix way of ensuring consistent quality to your customers and gaining their trust and confidence. There is no better marketing than that goes from your original customers.

Different Types of Franchise Models

To survive in a fiercely competitive market, the franchisors must create a business model that suits the specific requirements of the brand and the enterprising franchisees. Many brands have now come forward to build strategic business models that create a win-win situation for both the franchisor themselves and the franchisees. Here we list some of these models that are employed by some successful restaurant chains:

1. FOCO Model – Franchise Owned Company Operated
   The initial setup cost is borne by the franchise while the running cost is borne by the company. The company is bound to give a fixed percentage of profits to the franchise owner in return. Ownership of the franchise business lies with the franchise investor, but the company will be responsible for taking care of all things necessary to run the outlet.
2. FOFO Model – Franchise Owned Franchise Operated
   In this model, the ownership, and the entire responsibility for the operations of the franchise outlet lies with the franchise itself. The company only lends the brand name to the franchise for the fixed period during which the franchise shall operate with the merchandise and prices decided by the brand. The franchise investor in return must give a nonrefundable franchise fee initially and is entitled to share a fixed percentage of the profit with the company.
3. COFO Model – Company Owned Franchise Operated
   Most companies invested in expanding their business would like to run it for their own which is why this model is rare in the industry. In this model, the company invests in the initial setup cost, however, the franchise operates the business for the company under the directions set by the brand. The returns are drawn somewhere between the FOCO and FOFO model variations.
4. Develop Customised Sustainable Business Model
   Be it FOCO, FOFO, or COFO model, every business model comprises its own strengths and weaknesses and is targeted for different segments. In order to bring models that create a win-win situation for all, many industry experts with years of experience and market research now invest in creating niche concepts under franchising allowing the brand’s overall operations under their authority and at the same time expand their brands’ growth across target markets. It is important to consider that your business, business systems, and personal goals align with the franchising model. This is why it becomes essential to have a standard operating procedure in place, so you oversee or control the operations of the franchise as it has the potential to damage your reputation if they do meet business standards. Ensure the franchise model is well defined and communicated clearly and there are minimal variations from the standardized procedures. While choosing a model, companies should prioritize analyzing legal discrepancies between markets, the evolving nature of consumer habits, and tax regulations and be open to constant adjustments at all levels.

Why DFX to develop your Restaurant Franchise Model?

The key ingredient to the success of a franchise is the customer’s ability to trust in a brand. Lack of structure and support to the systems is what makes franchising fail miserably. A solid franchising network takes work, focus, and commitment to the structure. Therefore, an experienced team of franchise consultants and franchise development experts to design, build and customize franchise programs for businesses is crucial, if you are considering a transition into franchising. DFX is dedicated to guide and help emerging brands flourish through franchising. DFX has built its reputation through years of working with clients from various industries and consists of experts from strategic and tactical advisory. We are committed to creating a personalized experience for all of our clients and make an indelible and meaningful experience in the lives of our clients.

Financial Model Development – Franchise

This module is designed, from the perspective of your restaurant franchisees, to impart the knowledge and expertise required to prepare a sound financial model for their business. It will cover the assessment of capital requirements and working expenditure, turnover and revenue projections, pricing decisions, costing, profit and loss statements, ROI and break-even analysis, etc. A later module covers the financial perspective for franchisors.

Financial Model Development – Franchisor

This module is designed, from the perspective of your restaurant franchisees, to impart the knowledge and expertise required to prepare a sound financial model for their business. It will cover the assessment of capital requirements and working expenditure, turnover and revenue projections, pricing decisions, costing, profit and loss statements, ROI and break-even analysis, etc. A later module covers the financial perspective for franchisors. This module is meant for restaurant franchisors (i.e. the company/ brand) to equip them with relevant knowledge, understanding and insights that go into developing a financial model for their business. The content covered is similar to the corresponding module for franchisees but the perspective will be from that of a franchisor. It will also cover the assessment of capital requirements and working expenditure, turnover and revenue projections, pricing decisions, costing, profit and loss statements, ROI and break-even analysis, etc.

Organogram

In this module, you will learn how to build a strong organizational structure or organogram for your franchise restaurant business. Topics that will be covered here are organization design, manpower analysis, teams and departments, succession planning, HR manuals and SOPs, PMS, etc. The module is equally relevant for both franchisors and franchisees.

Franchise Operations Manual

The restaurant franchise operations manual lays down how the business operations must be carried out to keep the franchise business running as planned. It is a book that binds both the franchisor and franchisee in operational obligations. Practically, it is never one manual but a series of them covering various operations. This module will delve into identifying, defining and mapping the franchise operations in strict operational terms with the help of Standard Operating Procedures (SOPs).

IT System Integration

This module will cover identifying the software requirements for running a franchise restaurant business and how the business-IT systems can be integrated as one networked platform supporting various business processes and operations. Every business has unique operational requirements derived from strategies, rules, and policies. The business IT system must not only allow meeting the requirements of each function but also serve as a unified system without the parts coming in conflict with the whole.

Franchise Legal Agreement, Forms & Formats

Restaurant Franchise businesses are made bound by legal contracts and agreements. It outlines the working arrangement, responsibilities and many other important features like division of management, operational control, duration and timelines, exit routes, profit and revenue sharing, reporting, audits, training support, asset-sharing, privacy and confidentiality, dispute management, etc. This module will shed light on this critical aspect of franchising.