In my experience as a franchise consultant not only working with brands to implement the franchise development process but also to help business leaders make the decision whether to franchise their business, the question arises as to why some really significant brands have not franchised and yet have still been successful in building a large network of locations in different markets.
For example, In-N-Out Burger, Chipotle or Starbucks, why is it that none of these brands has utilized franchising as an expansion vehicle?
Like most strategic questions, there is never one encapsulating answer, but from my time in the industry, it seems that the following elements typically are at the core of why these brands never chose to franchise.
- They didn’t have to. Chipotle took the company public and brought in significant investment capital to expand, In-N-Out just weathered the test of time and grew the business organically over some 75 years with company-owned growth. Starbucks leveraged venture capital and eventually took the business public in order to fund the growth of the system. There was never the need to bring in franchise investments for store openings when the coffee market expanded as quickly as it did and the VCs were knocking. As the business went global, Starbucks did indeed offer a master license model for international growth, but this was driven by the need to have local, vested management teams in the new countries they expanded into.
- There we extremely unique market opportunities in place. Starbucks revolutionized the coffee market and convinced us all that $5 was a reasonable amount for a cup of coffee, without any real competition, the margins were significant enough to create financials which attracted the professional investment community.
Chipotle revolutionized the organic, farm-to-table segment and caught the tidal wave of Americans’ concerns related to GMOs and other processed food issues. Chipotle made it cool to eat healthily and to pay for it as the average ticket sale went through the roof. The in-N-Out burger was able to initially ride the coattails of McDonald’s in the fast food burger crazy of the 60s, 70s and 80s and then had a unique cult following that drove growth into the 2000s.
- Leadership was comfortable with minimizing store-level profitability in order to maximize employee retention and involvement with the success of the business. Each of the brands has deep layers of management, generally offers better employee benefits and pay and has a dedication to company culture. Store level profitability is and always will be important, but empowering the people who work in the business drives the overall success of the brand.
These thoughts do not weigh the negatives of choosing not to franchise a business. The liability of all these employees, risk of being on every lease, operational liabilities and other issues are significantly higher with company-owned growth when compared to franchise expansion.
Chipotle for expanse has recently been working hard to manage a bacterial infection outbreak from several of their stores. Although the damage to the brand is certainly an issue, either way, the stores had been franchised this liability to the franchise would be significantly limited.
For some businesses, there are ample opportunities for expansion outside of franchise growth, and for brands such as Starbucks, In-N-out and Chipotle they paved their way to success without the franchise model.
Franchising isn’t for everyone and certainly shouldn’t be the only expansion option, evaluate your interests and business as to whether the franchise expansion model is the best fit for your brand.