Anyone who knows the franchise industry has probably noticed that there are a large amount of food service concepts in the franchise industry. Some might wonder why the franchise industry is so tightly aligned with the food business.
First, franchising was really brought into the mainstream economy by the food business. McDonald’s was essentially the first franchise program that became known on a national and eventually global basis. Other food and restaurant concepts quickly followed suit with franchising as a viable expansion model following the success of McDonald’s.
At the core of franchising is the need to have consistent, dedicated operators in each location. The restaurant and food service business is an industry segment that requires an intensity and focus unlike most other businesses. Restaurants can literally fail in a matter of days if not managed correctly. Food costs are measured in pennies and the quality of the product can destroy a restaurant operation immediately. It takes extremely skilled and committed management to effectively and efficiently manage a restaurant operation.
Franchising provides growing restaurant chains the benefit of an owner operator. When someone buys into a restaurant franchise, they put their own capital and money into the business. Because the profit in the restaurant franchise is theirs, they will maximize the revenue and minimize costs in the location. McDonald’s has consistently proven this trait in restaurant franchises. Each year, McDonald’s will buy and sell operating restaurants based on revenue and profitability. Under performing restaurants will be sold to franchise operators and over performing locations will be bought back from franchise owners as company owned locations. Over the course of McDonald’s history, stores that franchises take over are 20% more profitable than company owned locations.
The Restaurant business can be a difficult industry. It takes skilled operators who know and understand the business to even stay alive. Franchising provides restaurant owners the opportunity to expand into a leverage business system that has the capacity to expand quickly.