Top 7 Reasons to NOT Buy a Food Franchise
Everyone thinks food franchises are enormously profitable. Some are! Most aren't. Top reasons you may not want to buy a food franchise, especially some of the big name brands.
According to a Franchise Business Review report, 51.5 percent of food franchises earn profits of less than $50,000 a year; only about 7 percent are over $250,000. The average profit for all restaurants coming in at $82,033. A very small number of food franchises create substantial profits and we see many owners are struggling or have bought themselves a job.
So what are some of the challenges today of owning a food franchise?
Huge investment. McDonalds $1,263,000 to $2,235,000, taco bell $1,179,525 - $2,851,775 burger king $1,877,600 $3,283,600, Tim Hortons $1,009,900 to $2,046,300. This does not include your real estate! People think "Oh I will just lease the building it will be cheaper" these are the costs with leasing, add in a few more million if you buy the building. So if the real estate is not included why are these franchises so expensive?
Just the improvements for a Burger King is between $900k-1m. Landscaping will be $25-$60k. Their Décor package is $45-$90k. Your inventory control and order taking system 35k - $110k, signage and drive through $66k-$166k, equipment is $199k - $294K, and we havent covered costs for your architectural drawings, zoning, insurance, working capital, pre-opening expenses - you get the idea. When you have a brick and mortar location, your expenses go way up. And when you have 2 million dollars invested you have to sell a lot of french fries to make that money back.
Remodeling. There is nothing worse than a dated looking restaurant. But as a franchise owner you pay for those updates. We always ask our clients to check the FDD for remodeling requirements. Most franchises require you to update your restaurant every few years. That cost is not cheap, usually in the $200,000 or higher range and the franchise legally obliges you to do so or be fined or even lose your franchise.
Highly competitive. Thousands of food franchises have entered the market over the past few years. You will be competing against other brands and your own brand. There has been a trend over the past few years in many major food franchises where we are seeing declining revenues year over year due to local competition. That brings us to the next problem, which is
Failure rates. We all know that growth can not continue forever. Franchises have a lifecycle, and we see strong and solid growth followed by a leveling off, and an eventual decline. The problem is most people, same as stocks, real estate, and investments in general, dive in at the height, just before the decline. Subway, arguably the most successful food franchise closed 2000 stores over the past few years. Some of the larger brands are likely in a similar situation where you have major market saturation and very few premium territories remaining.
Expensive rents. This may change in the coming months as we see stores closing. But as of the past few years rents have been at a premium across the country. In certain cities we have problems even finding a location, certain cities have 2-3% commercial vacancy rates. Many Food franchises require special venting and traffic counts and can be even more expensive to lease. With a food franchise, or any brick and mortar store you also may be on the hook for a multi year lease which is an obligation for hundreds of thousands of dollars that you may be asked to personally guarantee.
Years to achieve ROI. We have franchises we work with that have a low investment, around $70,000 and show ROI in 120 days on average. When you drop a million or two into the franchise, pay high rents, have 50 or more employees, your time to ROI is much longer.
It's not guaranteed. Many buyers have the misperception that the longer a franchise has been around the more secure your investment is. The failure statistics actually show only a variance of 2% between start up brands with 5 locations or less, emerging brands with 5-50 locations, and highly established brands. When you consider the upside of an emerging brand such as the ability to own the master franchise, better location availability, and other considerations, it can make sense to align with an emerging brand. Especially if you do go the food route.
#franchisecity #foodfranchises
Пікірлер: 69
I agree. I used to own a pizza franchise. I basically bought myself a crappy job, never saw my family. Sold it now I invest in real estate and have a home cleaning business. Never been happier.
He is absolutely correct! I owned subway franchises for 15 years & that was 11 years too long!!! I now own real estate.
@FranchiseCityOnline
3 жыл бұрын
And back then was not even as bad as today! Thanks for the comment - glad to hear you are now free :-)
@russellseilhamer4552
3 жыл бұрын
I can’t imagine that the margins on subway were all that great especially on the $5 foot long. I personally love lots of meat on the sub so a truly great sub would be somewhere north of $10 When you buy lunch meat at the store, it’s generally expensive and ppl want the highest quality usually it’s too rich for my tastes. I wonder if you got any discounts for buying the meat in bulk
@Zo-hc2fn
3 жыл бұрын
I am thinking about a new type of restaurants : eating-spots, in eating-spots, food keeps changing, chefs also rotate, this is opposed to current restaurants, thanks to this rotation of food and chefs, eating-spots are more powerful than restaurants along with that, there is an app, people vote for the food that will be cooked in the next days menu is influenced by the live input of the people via an app
@truthgearsguilty3466
3 жыл бұрын
So now you're working for a Banker.
I don’t think people realize how valuable the information shared in this video really is. These are literally a large number of the secrets that franchisors and franchisees keep from the general public. The information is spot on!
@Zo-hc2fn
3 жыл бұрын
I am thinking about a new type of restaurants : eating-spots, in eating-spots, food keeps changing, chefs also rotate, this is opposed to current restaurants, thanks to this rotation of food and chefs, eating-spots are more powerful than restaurants along with that, there is an app, people vote for the food that will be cooked in the next days menu is influenced by the live input of the people via an app
@truthgearsguilty3466
3 жыл бұрын
@@Zo-hc2fn It's an IDEA. But how Practical?
I sure wish I saw this before I invested everything into subway and dunkin donuts! Now I'm dunkin subway
@Pernection
3 жыл бұрын
Heard of Daylight Donuts?
@greenmoney4473
3 жыл бұрын
Wow
I’m not even remotely planning to open a franchise or business, but you put this information out so effortlessly that I’m interested. Good video.
A franchise is basically investing in a big company but you do the work and pay for advertising.
Now, I admit there is always an exception.....like the dude in town I know that bought out a taco bell franchise and the property next to it and opened up a recreational weed shop next to it.
Thank you for your brutal honesty.
Shalom, as always great information!
@FranchiseCityOnline
3 жыл бұрын
Thank you for watching!
Fantastic information, and presented in an easily-digestible manner, as always. Thank you!!!
@FranchiseCityOnline
3 жыл бұрын
Thanks for the kinds words!
I am really getting a lot of information from this KZread channel. Thanks Rob for Having the courage to bring people this valuable information to the business owner. Thanks again!
@FranchiseCityOnline
3 жыл бұрын
Thank you for watching!
Great and well thoughtful informative video. Most food franchise are like having a salary yearly pay with the headaches. Thank you for sharing
@FranchiseCityOnline
3 жыл бұрын
Thanks Hassan! Sad but true.
Restaurent Industry is oversaturated. Very well informed video.
@FranchiseCityOnline
3 жыл бұрын
Thank you for visiting!
I've been hooked on these vids recently. I Like how you focus on the negatives people don't think about.. Ever notice how people like Indians seem to own a lot of these food franchises like Subway , Quiznos, and Dunkin. They are able to get their entire family and extended family in on the business to cut margins and costs. They are also willing to work 7 days a week to keep it alive.
@FranchiseCityOnline
3 жыл бұрын
Thanks for watching! Very true, many of the owners are extremely hard and dedicated workers.
I know youre not the Finance Guy but could you Talk about the SBA Loans for buying a existing businesses and the different nuances surrounding the process, based on your's or a clients experiences... thanks...
@FranchiseCityOnline
3 жыл бұрын
Sure, Ill see if we can get one of our finance partners on in a future interview. Thanks for the question.
Two things- where I live in Altoona PA, there’s a main strip with all kinds of stores and restaurants thats in a 2 mile radius off the interstate but I’ve seen restaurants thrive in more rural areas like Tyrone and Coalport where locals love their restaurant and people drive from all over because they love the food. These are underserved communities that don’t have much and ppl don’t always want to go into the city to get a good meal. The rents on the main strip are outrageously high anyway. You could buy the building and the land outright much cheaper in a rural area and build a clientele there especially in the age of the internet where foodies are always looking for a new dining experience
@billkgeorge
3 жыл бұрын
Excellent points. Altoona!! Hearts
Interesting video. I have a fast food franchise in Australia so was surprised how low the sales are in the US, and how high the capital costs are in comparison.
@Zo-hc2fn
3 жыл бұрын
I am thinking about a new type of restaurants : eating-spots, in eating-spots, food keeps changing, chefs also rotate, this is opposed to current restaurants, thanks to this rotation of food and chefs, eating-spots are more powerful than restaurants along with that, there is an app, people vote for the food that will be cooked in the next days menu is influenced by the live input of the people via an app
I am thinking about a new type of restaurants : eating-spots, in eating-spots, food keeps changing, chefs also rotate, this is opposed to current restaurants, thanks to this rotation of food and chefs, eating-spots are more powerful than restaurants along with that, there is an app, people vote for the food that will be cooked in the next days menu is influenced by the live input of the people via an app
First thumbs up and first to comment that never happens to me so cool.
@FranchiseCityOnline
3 жыл бұрын
And a heart :-) Thanks for watching!
@hassanbazzi3545
3 жыл бұрын
Haha 😂. Congratulations 🎉🎈🎊
I had a frienemy in 2003, wanted to open a Quiznos with some less than honorably gotten gains. "I don't care if you've never worked fast food, you can run it! You have to find us a good location. And I don't want to be involved with any of it or hear about problems, just tell us how much money we're making, daily!" This pitch went on for over 6 months.
I’ve built a pretty successful service business, and i might like to franchise it some day. We have high margins, and serve an industry that our competitors haven’t discovered. I’m not sure how challenging it would be to Franchise. my friend who is a commercial developer who also runs a lot of businesses inside his projects told me it can cost over $1m to franchise.
@FranchiseCityOnline
3 жыл бұрын
Thanks for the question. If you hire a development company expect anywhere between $80k-$120K to get started. There are some "sharks" in the industry , basically franchise mills that charge 30K or less. You can also just hire a lawyer (10-20k) to handle your registrations, then develop your own sales team, or outsource to broker groups. Keep in mind 70% of franchise concepts dont grow beyond 5 units. This video might help: kzread.info/dash/bejne/gqSKxJOxptCbprw.html
Franchise City--curious if you have numbers for the new Burger King package? New signs and triple drive thru.
@FranchiseCityOnline
3 жыл бұрын
I have all the numbers :-) Latest FDD (2020) indicates a traditional facility $1,877,600 $3,398,600 . This is the range of actual openings low to high. The cost impact of signage and added drive thru's would need to be determined locally. BK average gross revenues still tracking about half of Mc'd's average units. Thanks for the question!
Love to listen to him. Great info. Are the fast food margins comparable with Europe?
@FranchiseCityOnline
3 жыл бұрын
Thanks! Sorry I don't have access to European franchise unit financials. My guess would be most of Europe has not reached the saturation point of most large US based cities, but I could be wrong.
@hassanamghar3031
3 жыл бұрын
@@FranchiseCityOnline Thnx There are some restaurants which haven't opened in Europe yet. I think that can be an opportunity. But I am a physician and I don't like low margins. I think it will be better for me to set up something in the teleradiology space.
@FranchiseCityOnline
3 жыл бұрын
@@hassanamghar3031 Possibly. If you are receptive to exploring franchise investment via international expansion/master franchising we do have a few options. Bringing a new brand into a country does include risk, but owning the master license can be lucrative as you essentially become the franchisor in that country, receiving royalties from all franchisees in your system. We dont work with individual units outside USA/Canada, however we have done quite a bit of international work via master licenses. Feel free to reach out if you would like to see what is available.
@hassanamghar3031
3 жыл бұрын
@@FranchiseCityOnline I will definitely do that in the future. Thnx for giving us this info and being helpful to us :)
@FranchiseCityOnline
3 жыл бұрын
@@hassanamghar3031 Thanks for watching!
I'm sure during the pandemic it's a great idea to open a subway The sad thing is that there really are people doing that right now
@FranchiseCityOnline
3 жыл бұрын
Lol - sad but true. Thx for the comment.
@truth.speaker
3 жыл бұрын
@@FranchiseCityOnline thank you for your good advice I can honestly say that there is more good advice for a successful life on your channel than most people hear in the first 20 years of their life! Thanks to your work, I now pity the food businesses I contract with. I literally make more money riding a bicycle than the local Subway I deliver for makes after their expenses.
@youwillwindaily
2 жыл бұрын
Sales are great if you have the staff to take care of the customers.
Unless you can get chick fil a
@ohiostatecavs2421
3 жыл бұрын
Only 4% get approved out of all the applicants.
@youwillwindaily
2 жыл бұрын
You’re a glorified manager. You don’t own or can’t sell the franchise.
So who would these franchises be a good fit for? They sound like terrible options
@FranchiseCityOnline
3 жыл бұрын
Some are actually decent - but right now not the best time to open :-)
Did someone try to sue you saying that you gave them bad investment advice?
I make more money from laying in bed then people who go out to work. People. Open your eyes.
@MrTmenzo
3 жыл бұрын
Unemployment? That's temporary
@kissingbanditt
3 жыл бұрын
@@MrTmenzo lol. Alibaba. Never had government assistance.
@samathasmart8281
3 жыл бұрын
😅😅😅
So 0 reason at all to own a franchise lol .
#1 reason: COVID-19
@FranchiseCityOnline
3 жыл бұрын
Yep - and that. :-)