Four Things to Look for When Investing in a Restaurant Franchise
So, you’re thinking about investing in a restaurant franchise. It’s a big step. There are plenty of factors to consider on your search – the restaurant space has thousands of options. Deciding between an established concept or an emerging one, fast casual or fast food or between a crowded segment or something entirely new only scratches the surface of what needs to be assessed.
I’ve been in the franchising business for more than 20 years and even founded my own concept. Below I’ve outlined the four factors I believe to be among some of the most important things to vet out before “you sign on the dotted line.”
1. Differentiators in the segment
Franchises that succeed are those that have notable differentiators allowing it to stand out to consumers. This is especially important if you invest in a crowded space. Is the concept different than anything else out there? What makes it stand out? These are important questions to consider.
One crucial element to look at is menu innovation. If a restaurant’s menu looks comparable to competitors’ menus, it may not be enough to win over consumers. That is, unless there are other factors that differentiate the menu. For example, at Garbanzo Mediterranean Fresh®, our core differentiator in the fast-casual Mediterranean space is our preservative-free ingredients, bold flavors and scratch-cooking, which sets the brand head and shoulders above the rest. Looking for qualities like these will lead you on the right path.
Other differentiators to seek out include unique ways of implementing technology, a one-of-a-kind marketing strategy, the restaurant atmosphere (or look and feel) and anything else that contributes something extra to the customer experience.
Essentially, when you’re there, it should feel like a remarkable experience – it should feel “fresh.”
2. Effective unit-level operations and economics
It is critical to vet the effectiveness of the unit-level operations and economics a restaurant franchise has in place before investing.
When scrutinizing a restaurant franchise opportunity, check out one of the existing restaurants and observe how things are run for your own eyes. From the processes in place in the kitchen to the technology used, seamless operations are a strong indicator of success.
Economics, of course, are equally as important. Take a hard look at the unit-level costs and revenues; financial efficiency is the key to a successful business. Another item to evaluate is the restaurant’s additional revenue streams, like off-premises. For example, Garbanzo restaurants offer catering which generates additional revenue and allows our product to reach new consumers.
3. Strong corporate leadership team fit for franchising
Whether you are a veteran franchisee or just starting out, having a solid team at the top of the franchisor organization is a key factor in franchisee success. To start, the corporate team needs to be well-versed in the segment the concept lies in.
Another trait to seek out in a franchisor team is their dedication to franchising, especially if the concept is new to franchising or has a heavy corporate footprint. If they aren’t committed to growing through franchising and supporting their franchisees, your journey will be rockier.
That being said, some concepts that are committed to franchising yet have a strong corporate footprint in place can benefit franchisees. A corporate presence, means the franchisor has “skin in the game” and operational credibility. They can test new initiatives at corporate units before rolling them out to franchise locations, bringing franchisees only proven processes.
Also, make sure you look at what the franchisor does to support new and existing franchisees. You will want to work with a team that will help you get your restaurants off the ground and be successful on an ongoing basis.
By looking into the leadership teams’ ability to grow, maintain and evolve a franchise, you can get a firm idea of how they’ll support you in your next endeavor.
4. Available, smart territories
Having available territories is among the most important things to look into when considering a restaurant franchise. If a concept has oversaturated every possible market, it will likely experience difficulty growing.
In addition to available territories, make sure you go into a market that is compatible with the concept. Understand market dynamics and how it ties to restaurant concepts you are considering. For example, a restaurant concept that is very old school may not be well received in metropolitan, trendy markets, and vice versa.
In addition to these tips, one critical and often overlooked place to start is with yourself. You have to recognize that in franchising, you’re signing up to be an implementer, not a creator. If you’re ready for franchising, then a ready-made business model along with training, guidance and support await.
With so many factors that go into deciding on a restaurant franchise, it’s easy to get overwhelmed. If you want your restaurant to succeed, you need differentiators, a proven model, effective leadership and the right markets available for development. By focusing in on these four factors, you will have an easier time assessing concepts and investing in the right one.
Larry Sidoti is the Chief Development Officer at Garbanzo Mediterranean Fresh. Larry is a veteran in the food and beverage industry with over 20 years of restaurant and franchise experience. Larry began his career in the mid 1990’s when he founded the raw juice and smoothie concept, Juice it Up, which he grew to more than 180 units. Since departing in 2008, Larry has served in key operational and development leadership roles with several highly-recognized and respected concepts.