As development costs and other expenses rise, franchisees look towards franchisors to help boost profits.
The Changing Face of Franchisor and Franchisee Relationships
The last two years have seen a shift among a large chunk of major restaurant brands. From large to medium chains, the push has shifted from single restaurant franchises to an effort to bring aboard multi-unit franchisees with a proven record of success. It’s a drive that has its roots in several factors that are easy to understand and a trend that seems set to continue.
Industry experts think multi-unit franchisees are best able to face issues like high costs and to be able to deploy the technology that guests increasingly expect.
To be clear, opportunities are still present for those just getting started in the franchise space. But the challenges they face compared to more experienced franchisees who already have momentum are real ones.
“We have seen many opportunities open up that help us expand the number of restaurants we operate,” commented Sonny Singh of The Singh Group. “Our team is very experienced in this area, and this is opening up many doors for us. By 2025 our number of restaurants will have jumped dramatically not just in California, but also in Oregon, Arizona, and South Carolina.”
The current economic climate prefers multi-unit franchise owners like Singh Group, who have proven to operate chain restaurants profitably. A standard industry criticism of new franchise owners is their need for experience in the ins and outs of operations and a tendency to view operating a restaurant as a fun way to make profits quickly. Which is certainly not guaranteed.
Many people see operating a restaurant as a hobby or art more than a business. And with this attitude achieving success with a franchise can be difficult.
“Operating a restaurant is exciting, but it is also important to understand business principles that lead to franchise and brand success,” Singh remarked. “This is a difficult industry that demands hard work.”
The rising price of real estate and required restaurant technology are real challenges in 2023 and beyond. Most think multi-unit franchisees are better prepared to address these concerns.
Growing Restaurant Chains Prefer Multi-Unit Franchisees
Take the example of Noodles & Company, a growing franchise. Noodles & Chains sees it as a wiser investment of time and resources to work with franchisees who are opening ten restaurants than one.
“In the last five years, we have seen franchisees opening up blocks of our restaurants. This means we can train one franchisee for many locations. And we are probably dealing with a more professional effort,” remarked a spokesperson from Noodles & Company.
Noodles & Company also see the value in working with those who are already experienced in operating franchises successfully. According to the franchise’s spokesperson, having past restaurant operating experience will be valuable for their franchisees in the current and coming economic environment. Navigating real estate issues, operating costs, and much more is easier for those who have “been there and done that” previously.
Similar experiences and a kindred focus have been expressed by brands like Subway, Burger King, and many other big names in the franchise world. Jack in the Box is offering a significant discount for franchisees who open three or more restaurants. Other brands are also rumored to adopt this kind of program soon to increase multi-unit franchisee interest.
A Push for Profitability
The impact of inflation on both wages and food costs demands creativity regarding menu design to keep restaurants profitable. Creating new menu items that are popular, have reasonable pricing, and are profitable is a must for all concerned.
Singh observed, “Margins are so important today. We all need to be on the same page regarding new menu items so that we have more high-margin items that allow us to continue to grow at a steady pace even if the economy makes things tougher.”
Noodles & Company is approaching 400 restaurants and is using its size to leverage purchasing power to help its franchisees be able to cut costs. Franchisees can take advantage of this when purchasing HVAC units, kitchen equipment, steel prep tables, and other restaurants must haves.
Franchise Responses to the Rising Price of Real Estate
One direction many franchise restaurants are increasingly taking is going for smaller properties to combat the rising real estate prices. Smaller stores are more cost-effective, and optimizing the space at smaller properties can be mastered more easily by multi-unit franchisees.
Another route to cutting costs is taking over former restaurants and repurposing old equipment for the new brand. Store conversions are a smart way to expand even in tighter economic circumstances.
Some restaurants, like Applebees, are even exploring taking their brands into “to go” only spaces by deleting their dining rooms completely. Only five years ago, this would have been unthinkable. Still, the pandemic experience has shown that restaurants can successfully run on this model beyond what would have been considered “traditional” take-out brands.
The Value of Quality Communication
One thing that both franchisors and franchisees can agree on is robust communication is the key to growth and success in the years to come. Franchisors sharing their experience in Company-owned stores and testing possible changes before their franchisees do can be extremely valuable. In the same sense, franchisees sharing their own experiences in an open, honest way will give brands data to work with when developing strategies to meet challenges best.
Developing multiple ways to make this communication possible and comfortable is an intelligent investment. The value of real-time interactive platforms and electronic communications is certain, and reports show many franchisors are developing or expanding their use of this kind of technology.
Some brands are also developing franchisee development boards to share initiatives, strategies, and tactics more easily.
Knowledge is power, and communication is vital to growth in a highly competitive, demanding environment.
The brands with the best relationships between franchisor and franchisee are positioning themselves for success even under heightened economic challenges in 2023 and beyond.