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We’ve explained below the key concepts for understanding the restaurant franchising model:
Franchise Model:
The franchising model is where a restaurant owner grants a third party the rights to use their branding and business model in exchange for an upfront investment and royalties in the form of profit-sharing on an ongoing basis.
The owners usually provide marketing, staffing, and procurement-related support to the franchisees.
In return, the franchisee has to ensure delivery of the same goods and services for which the business is recognized and maintain the brand image for the owners. While the food menu is usually the same as well, in some cases, it can be tailored for regions and local demographics.
Customer base Acquisition:
Customer base acquisition is the most significant benefit of buying a franchise compared to starting your own restaurant business from scratch. Most franchise restaurants have solid and loyal customer bases, with consumers who already know and trust the brand.
As a result, minimal marketing and outreach are required to build a presence for your brand, and in most cases, new franchise openings can already have customers queuing up on the first day of opening.
High upfront costs
On the other hand, high upfront costs can be a barrier for new entrants, driven by high franchise purchasing costs and real estate, equipment, and local licensing costs that need to be fulfilled before opening.
Financial Support
Financing support can be easier to obtain from both banks and private lenders, given franchise restaurants already have a tried and tested model, with readily available historical and projected financials and performance metrics.
Lack of autonomy
Lack of autonomy can put off potential franchisees, who have little control over the food menu, pricing, restaurant ambiance, and overall brand image. Given you’ve agreed to represent the owner and their brand, complying with the franchisor’s terms and conditions is a natural requirement.