Why Do Some Restaurant Entrepreneurs Choose Franchise Ownership?

By January 14, 2021 News
CHI Blog

Why Do Some Restaurant Entrepreneurs Choose Franchise Ownership?

Have you ever wondered why so many restaurant entrepreneurs choose to be part of a franchise rather than starting from scratch? It may seem counterintuitive to take operations into your own hands and yet still adopt the practices of a larger company.

There are countless factors that play into the success of a business. Few entrepreneurs have all the skills necessary to handle the marketing, branding, management, and legal compliance simultaneously.

A franchise is a foundation for launching your business. For some, a franchise can give you a chance to be successful without having to take on the entire job on your own. Let’s talk about how restaurant franchising works and why you might opt for it for your next business venture.

What Are the Benefits of Independent Ownership?

Entrepreneurs are drawn to becoming independent restaurant owners since they get most of the reward as a result. However, you also have to think about taking on the extra initial responsibilities of starting an entire restaurant yourself:

  • A well-developed premise is necessary if you want to figure out every aspect of the business. A thorough concept that’s down to the small details will ensure that you won’t lose track of what you’re trying to achieve.
  • A fully custom brand means you have full creative control over your restaurant. That is, you design your own menu, pick and choose your own decorations, and make your own advertising. Independent restaurant owners work by themselves to grow their businesses.
  • Starting from scratch on your own implies that you can skip the approval process otherwise necessary for franchising.

It’s a challenge to have a well thought-out concept, and the initial monetary investment is a significant hurdle. Some owners do make it work out, but a lot entrepreneurs instead opt for franchising.

Why Choose Franchising?

By running under a franchise name, you are effectively offloading much of the work to the host company. This setup is more efficient since the entrepreneur can spend more time focusing on the individual success of the restaurant.

The franchisee collaborates with the main organization to offset the startup costs so that the new location can hit the ground running:

  • Brand recognition. Instead of starting from scratch, you get to work with an already proven concept and gain all the reputation of the franchise.
  • Group advertising. Any commercials the franchise as a whole runs naturally benefit the individual locations.
  • Location. Landlords are often more likely to give AAA locations to franchises over independent operators as they often have a better covenant
  • Operational guidance. While each location can still make its own decisions, the franchiser typically supplies operational guides, training manuals, and tips to the restaurant. Entrepreneurs will have the groundwork laid out for accounting, advertising, ordering and technology already.
  • Financial assistance. Chances are that the larger business may share its resources and funding with you. It will also help you adapt to changes in market conditions in the future.
  • Sale opportunities. A franchisee may have access to certain products and services that would only be available through a franchise. Franchises buy in bulk and can offer lowers costs on certain items. You will have a competitive advantage over smaller, independent restaurants this way.

The resulting investment involves much lower risk than starting from scratch. That’s why franchising is typically more successful than starting out new.

Why Do Franchise Locations Perform Better Than Independent Ones?

In addition to the points above, both managing and working for a franchise restaurant is a considerably different experience than doing so for a new brand.

  • More motivated management. Instead of hiring a new manager for a location, the franchise itself allows someone else to become an owner of a new location. An owner usually has a significant monetary investment in the restaurant, whereas a manager can choose to work elsewhere. Long-term commitment is far more likely under a franchise location.
  • Financial autonomy. The franchise doesn’t cover all the little details of day-to-day management. The owner of a single location may make personal decisions about how to run the business, how to deal with sick days, and who to hire. These decisions typically have minimal impact on the franchise as a whole, so it’s not uncommon to see a “hands-off” approach to micromanaging franchisees.
  • Selling the business. If you ever plan on selling your restaurant in the future, being part of a franchise may allow you to value your company at a higher rate. The restaurant is already based on a proven model and usually generates more stable profits as a result.

Restaurant owners gain the benefits of franchising while still retaining many of the advantages of independent ownership this way.

Why Do Franchises Offer These Opportunities?

This business setup benefits not only the entrepreneur but also the host organization. In addition to an extra cashflow, the franchise gains access to:

  • Brand awareness. Franchising helps expand the brand name to other regions more quickly.
  • Market research. Serving more customers in different locations means more input for market research and future product testing.
  • Bulk savings. Ordering higher volumes of food from suppliers means better savings.

The more locations they have the more they can put aside for marketing

Government studies have shown that franchise-owned businesses have a higher chance of succeeding than independent initiatives and overall contribute a significant portion of the national economy.

The Mental Aspects of Franchise Success

So you’ve decided to start your own franchise location? There are a few mental preparations you can make to get started on the right foot.

  • Taking matters into your own hands. If it’s your first time getting into entrepreneurship, get used to becoming your own boss. You have liberties regarding how you will run the restaurant, who you will hire, and what you can do to ensure success. A franchise takes some of that control in exchange for financial support and brand recognition.
  • Being part of something bigger. Being a franchise owner means you are part of a larger, successful enterprise. The position of restaurant manager alone is enough to motivate many entrepreneurs, even more so than the money in some cases.
  • Keeping up the motivation. Being happy about what you’re doing is more important than you think. Motivation helps you keep sight of what you’re aiming for and results in higher productivity. It also pushes you through that initial growth phase and ensures smooth sailing later.

Need Help Making the Right Choice? CHI Real Estate Can Help

Choosing between owning an independent restaurant or a franchise is a major decision many restaurateurs must make eventually.

We’ve provided you with a detailed list of the reasons why some people prefer the consistency offered by the franchise model.

Are you thinking of purchasing a new franchise, but don’t know where to start? Get in touch with our team of restaurant specialists and we’ll walk you through the process.

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