Owning a franchise food outlet may seem like a lucrative and straightforward way of starting your restaurant business. You get a ready-to-use marketing plan, brand legacy, goodwill, and an existing customer base. But not all is hunky-dory; franchise business owners do face many challenges. From a franchisor's perspective, they must always be prepared for two things:
- The fact that franchise owners will face a few challenges
- Franchisors must support them and help them navigate through those challenges
In this blog, we will look at some of the problems franchise business owners face and their solutions. So let’s get started.
Finding solutions to the common franchise business challenges
1. High operating costs
You sure get the benefit of a brand legacy and a well-established name, but all of this comes at a hefty price. Initial franchise fees, opening expenses, licenses, permits, and many other elements run into thousands and, in many cases, millions of dollars. Besides these initial costs, there is a recurring franchise fee that needs to be paid every quarter, half-yearly, or annually which could be anywhere from 4% to 15% of monthly sales, depending on the brand. Subway, for example, charges a whopping 12.5% of gross weekly sales as franchise royalty.
Solution: As a franchisee, there is nothing much you can do to reduce the recurring franchise royalty charges. However, initial expenses and getting reasonable rates for your supplies from vendors can keep your day-to-day operational costs under control. Investing in technology like a POS system or restaurant management software gives you a granular view of expenses and ROI, which can help you cut down on wasteful expenditure.
2. Time-consuming and lengthy approval processes
A franchise business is a partnership venture between the franchisor and the franchisee. This means a franchisee cannot make decisions regarding his/her particular unit independently. Any change like menu changes/pricing/increasing staff/changing décor, and many such variables need approval from the franchisor. The process of obtaining approval can often be tedious and time-consuming. Not to forget, most franchise agreements are long-term commitments spanning 10-15 years or even more.
Solution: Keep all your documentation, data, and facts ready to expedite the approval process. Invest time in understanding the work style, work culture, and. The legalities involved in a franchisor-franchisee relationship.
3. Lack of adequate support
When investing in a franchise, chances are rife that the franchisor in question may be great at selling his franchise, but the after-sales support may just be average. Lack of adequate support can lead to many minor and, at times, big issues.
Solution: Doing thorough research and taking feedback from existing franchisees will give you a fair idea of how good your franchisor is in providing support to franchisees. This extra step can prevent you from making an investment in a franchise business that lacks adequate support.
4. Too many rules to follow
In your own business, you have complete autonomy and control. If you are harboring dreams of personalizing things, improvising, or bringing in your own personality, think again. This is a franchise business, and you must follow the defined framework, rules and regulations, and policies laid down by the franchisor. For example, if you invest in a KFC franchise today, the store layout, interiors, the way chicken is cooked, a burger is assembled, and beverages are prepared has to be as defined by KFC. A franchisor essentially looks for people willing to follow the rules and not innovators.
Solution: Do the market research of your local area well and keep all facts ready. While you cannot modify the existing menu, you may suggest an add-on to suit the local taste palette. You can suggest special seasonal menus in addition to the regular menu laid out by the franchisor. This will not only give you a window to innovate, but it will also earn additional revenue and profits for your outlet during the holiday and festive season. Present your ideas to improve the operational aspects of the business to your head office. Back it up with a survey report and numbers; for all you know, you may get that approval seal. Many ideas by local franchisees have contributed to the success of biggies like McDonald’s.
5. Different state regulations
Franchises in different cities require a different set of regulations. Apart from the regular rules and regulations, opening a franchise location in the following cities entails adhering to an additional set of rules known as the Fair Workweek Laws. The cities are:
· New York
· San Francisco
· San Jose, CA
· Seattle, WA
· State of Oregon
· Chicago, IL
· Emeryville, CA
· Philadelphia, PA
This added set of rules and regulations significantly impacts the way restaurants manage and schedule employees.
Solution: Educating yourself about the laws and regulations applicable in your area can be a great starting point. Franchisors willing to expand in these cities and states with additional regulations also provide added support, such as a centralized employee scheduling software that helps them schedule with ease and avoid breaking fair workweek laws. Leverage the support and technical expertise of your franchisor.
6. Employee attrition
Most of the quick service restaurant (QSR) workforce comprises college and high-school students. Given the pressure and long working hours, the restaurant industry is notorious for high-employee attrition. While the standard restaurant employee attrition rate is 75%, franchise food outlets have an employee attrition rate of 150%. The primary reason is that most franchise food establishments are QSR’s and the work pressure in these outlets is unusually high. If you plan to foray into the restaurant business, be prepared to deal with unusually high employee attrition rates.
Solution: Retaining employees requires both better hiring and better employee retention strategies. Food franchise outlets seem to be an attractive proposition to undergrads, not just for making some side money. They see it as a good value add to their CVs, given the brand value of these places. In a hurry to fill positions, franchise owners thus often end up hiring under-qualified people for the job. Make sure to have a pool of quality candidates to choose from, be aggressive with your hiring plan, and, most important - ask interview questions that help you assess if the person you are hiring aligns with your values and work culture.
7. Mindset and mental health
The challenges thrown by the pandemic pushed the boundaries too hard, especially for those working in the food and hospitality sector. Many franchise business owners, along with their teams, have been struggling with the shift in consumer expectations. The challenges and changing consumer expectations pushed restaurant owners out of their comfort zone, demanding a change in their mindset towards conducting business. However, all of these have had a direct impact on employees' mental health as well.
Solution: Franchisors need to come forward and take initiatives such as creating a community for their franchisees. The community can be a forum and a sounding board where franchisees can share their challenges and exchange ideas on how they are tackling those. Franchisees can support employees by creating an environment where they can openly discuss their mental health issues and help them get professional counseling.
Like any business, one can taste success and overcome the challenges of running a franchise business with the right attitude, mindset, support, and collaboration.