Post: #1

As a student studying EE engineering, I realized that i don`t want to have the typical 9-5 60k/year job that`s waiting for me upon graduation.

I worked as a manager at a Domino`s Pizza a few years back, and if I recall correctly, here are some approximate figures for the particular store I worked at.

Location: Residential area with a few schools and big business nearby.
Cost to open a Domino`s Pizza: 300k + rent

Breakdown of the cost/year:
Total sales (after sales tax): 1 million
Labour cost: 35% or 350k
Food cost: 35% or 350k
Franchise fees: 8% or 80k
Rent,heating,electricity,internet,etc.: about 60k

Total cost: 1 million - 350k - 350k - 80k - 60k = 160k

So, my boss was making around 160k per year before tax, which is not bad at all considering it only takes 300-400k to open up a store.

However, keep in mind that these figures are for a very well managed store, as it`s very hard to keep your food and labour cost at below 75%

So, all of this got me thinking I should probably start planning on opening my own.

What do you guys think about starting franchises?

Post: #2

The spot is everything, I won't drive half an hour for a fastfood joint, yeah there are people who do that for MD or whatever. Only for a good restaurant I would.

Post: #3

Franchise restaurant is better than a startup standalone restaurant, but day to day, I'd prefer office work to managing minimum wage employees and disagreeable customers.

In most of those franchise opportunities you're buying yourself a job. Maybe a job that pays better (and usually not on a per hour basis) but it's a job in most cases. And you can't really get over like a fat rat until you own multiple restaurants and hire competent management.

In my calculations, the average 9 dollar meal came to 3 in.materials, but that 6 "profit" is eaten up by labor, waste, taxes, and overhead.

In your 300k example, I'd look to open a 50k franchise like subway or quiznos, and then use the other 250 to open others once I'd learned the business.

There are a couple magazines out there that talk about the general industry as well as specifics.

A little aside, Professionals typically hang.a shingle or become consultants in their industry. But the technical side is usually overwhelmed by the "get clients and keep the lights on" side.

Back to food, in.my opinion, not being an industry expert, there isn't enough markup in food to adequately cover all of the risk and costs. Especially if you're not an expert.

To me, this means you've actually got a lot of inefficiencies to address, setting you up to be a great success.

I wish you much success.

WIA

Post: #4

Franchises are for suburbs and small towns/cities.

Urban centers are steering away from fast food chains, and it is only going to get harder for companies.

People are wising up to the fact that processed foods are toxic. Sure there will always be sales, but for the sales numbers to hit something worth while the location would have to be perfect.

Maybe look at someone who has the location and is looking to retire. There will be lots of opportunity in the coming years to buy successful businesses off of retiring folk.

Post: #5

(03-12-2014 04:32 PM)Laner Wrote:  Franchises are for suburbs and small towns/cities.

Urban centers are steering away from fast food chains, and it is only going to get harder for companies.

People are wising up to the fact that processed foods are toxic. Sure there will always be sales, but for the sales numbers to hit something worth while the location would have to be perfect.

Maybe look at someone who has the location and is looking to retire. There will be lots of opportunity in the coming years to buy successful businesses off of retiring folk.

Thats true. A fast food franchise was a sure bet 15 years ago, but its crazy competitive in big cities. I have a family friend who owns a few burgerkings around London, and he said its become so tough. Theyve got competition from all the new 'fast healthy' chains and fewer people are keen for a classic greasy Whooper.

Post: #6

(03-12-2014 05:54 PM)Cyr Wrote:  

(03-12-2014 04:32 PM)Laner Wrote:  Franchises are for suburbs and small towns/cities.

Urban centers are steering away from fast food chains, and it is only going to get harder for companies.

People are wising up to the fact that processed foods are toxic. Sure there will always be sales, but for the sales numbers to hit something worth while the location would have to be perfect.

Maybe look at someone who has the location and is looking to retire. There will be lots of opportunity in the coming years to buy successful businesses off of retiring folk.

Thats true. A fast food franchise was a sure bet 15 years ago, but its crazy competitive in big cities. I have a family friend who owns a few burgerkings around London, and he said its become so tough. Theyve got competition from all the new 'fast healthy' chains and fewer people are keen for a classic greasy Whooper.

not to mention that many franchises end up getting crushed by their own "parent" corporation for a number of reasons.

A franchise owner rarely gets to choose their suppliers. They have to buy from franchise's corporate supplier and at the price corporate decides. And if the franchisee goes out of business, corporate doesn't care, because someone else will pay them again for that franchise, or corporate will buy it since you already went ahead and paid for all the start up costs for them.

Some corporate franchises will also allow anyone else to put another franchise right next door to you as long as they pay the fee. If I remember correctly, the most common places doing this are places like Subway which have low franchise start up costs and fees.

If you try it good luck and I would recommend touching base with as many people as you can who currently run a franchise. Everyone I know who has been in the franchise business for the last few decades is running for the hills now.

Post: #7

(03-12-2014 12:19 PM)hervens Wrote:  Cost to open a Domino`s Pizza: 300k + rent

If one had instead invested that 300K into Domino's stock (DPZ) during the worst of the financial crisis in 2008, it would now be worth $7.9 million.

Similar returns could also have been had with other publicly traded fast food outfits like Chipotle (CMG) and Buffalo Wild Wings (BWLD).

Hindsight...

Post: #8

In regards to Quiznos and Subway...

Hundreds of Quiznos have closed because they hardly make any money.

My accounting professor in college managed the books for a Subway franchisee and he said that on average they only make $15,000 to $20,000 each and you would need to own multiple to make it worth your while.

The sick thing I've seen about Subway franchises is that many franchisees have had great locations and then Subway goes and allows a new franchise to setup right around the corner eating into your profits.

Post: #9

(03-12-2014 04:32 PM)Laner Wrote:  Franchises are for suburbs and small towns/cities.

Urban centers are steering away from fast food chains, and it is only going to get harder for companies.

Do you have any facts to support these claims? When I was a manager at domino's pizza, I went to this conference where they were giving prizes to the owners of the most successful stores. The top one happened to gross over 8 million/year in sales and is located downtown of a major metropolitan. Stores in the bigger cities made more money than stores in the smaller towns...

(03-12-2014 06:44 PM)Seaver Wrote:  A franchise owner rarely gets to choose their suppliers. They have to buy from franchise's corporate supplier and at the price corporate decides.

Subway for instance has thousands of locations worldwide, which means a huge buying power, and are able to provide food at fairly competitive prices.

I noticed that a lot of the opinions on this thread are based on assumptions and a small sample size, and not on actual figures/facts.

But either way, owning any of the most successful franchise (Subway, domino's pizza, burger king) is a lot safer, and a much wiser financial decision as opposed to starting your own store. Not to mention it's a lot easier to get bank financing for a franchise, than for a new business.

Post: #10

(03-12-2014 11:56 PM)hervens Wrote:  

(03-12-2014 04:32 PM)Laner Wrote:  Franchises are for suburbs and small towns/cities.

Urban centers are steering away from fast food chains, and it is only going to get harder for companies.

Do you have any facts to support these claims? When I was a manager at domino's pizza, I went to this conference where they were giving prizes to the owners of the most successful stores. The top one happened to gross over 8 million/year in sales and is located downtown of a major metropolitan. Stores in the bigger cities made more money than stores in the smaller towns...

(03-12-2014 06:44 PM)Seaver Wrote:  A franchise owner rarely gets to choose their suppliers. They have to buy from franchise's corporate supplier and at the price corporate decides.

Subway for instance has thousands of locations worldwide, which means a huge buying power, and are able to provide food at fairly competitive prices.

I noticed that a lot of the opinions on this thread are based on assumptions and a small sample size, and not on actual figures/facts.


But either way, owning any of the most successful franchise (Subway, domino's pizza, burger king) is a lot safer, and a much wiser financial decision as opposed to starting your own store. Not to mention it's a lot easier to get bank financing for a franchise, than for a new business.

What are those prices for a store? How much do they charge for tomatoes for example?

Post: #11

(03-12-2014 04:32 PM)Laner Wrote:  Franchises are for suburbs and small towns/cities.

Urban centers are steering away from fast food chains, and it is only going to get harder for companies.

People are wising up to the fact that processed foods are toxic. Sure there will always be sales, but for the sales numbers to hit something worth while the location would have to be perfect.

Maybe look at someone who has the location and is looking to retire. There will be lots of opportunity in the coming years to buy successful businesses off of retiring folk.

I agree with the urban move away from chains to something that appears more independent...on the surface. What I have seen in the last two places I've lived is that a good handful of the 'cool' downtown places are actually owned by restaurant groups. They hire or partner with the proprietor or visionary and they do the back end. Its very similar to a franchise model but each store just has a different name and personality.

Post: #12

Quote:Do you have any facts to support these claims? When I was a manager at domino's pizza, I went to this conference where they were giving prizes to the owners of the most successful stores. The top one happened to gross over 8 million/year in sales and is located downtown of a major metropolitan. Stores in the bigger cities made more money than stores in the smaller towns...

Dont get me wrong, I am not against franchises. All I am saying is that the core of dense urban centers I have lived in will likely not support more low nutrition fast food chains. Again, this is for cities I have lived in. I am sure there are cities out there that are still in the dark ages about nutrition and processed foods that might be able to handle another dominoes.

Quote:I agree with the urban move away from chains to something that appears more independent...on the surface. What I have seen in the last two places I've lived is that a good handful of the 'cool' downtown places are actually owned by restaurant groups. They hire or partner with the proprietor or visionary and they do the back end. Its very similar to a franchise model but each store just has a different name and personality.

This is a model that I am more familiar with. Restaurant Barons owning a bunch of different named places around the city but are still able to buy consumables in bulk.

Post: #13

As a lawyer who deals regularly and specifically with franchises, I suggest you not buy a franchised business. I'd extrapolate, but I'm on my way to court to fight over the enormous mess caused by a major North American chain's fight with one of its best-performing franchisees.

Post: #14

I've never been a fan of franchises. First off for someone who actually enjoys business and marketing and business strategizing it takes all the fun and creativity out of the business. You have to take their coupons, run their speicals, sell their food.

There's a big movement now with not chain stuff but smaller independent stuff. Look at Diners Drive Ins and Dives, and food truck wars and all that. It's all about unique foods, scratch made, fun concepts, not another jersey mikes.

I have a buddy who owns a culvers franchise. He has corporate dropping in on him all the time, always getting yelled at, has to go to their training semanars. Pay a shitload of money to take on a corporate boss, no thanks for me. Plus watch a CNBC show about franchises, ColdStone and many other rip off their franchisees making them go through suppliers who charge more than the going rate for things and really high royalty fees, too many stores in regions.

If you have no experience at all then maybe a franchise is good as you get some best practices and stuff like that but most of the name recognition you get from a franchise isn't worth the money your paying.

Post: #15

(03-13-2014 04:49 PM)lurker Wrote:  As a lawyer who deals regularly and specifically with franchises, I suggest you not buy a franchised business. I'd extrapolate, but I'm on my way to court to fight over the enormous mess caused by a major North American chain's fight with one of its best-performing franchisees.

Beyond game, this is the #2 best value I get out of RVF. It is inevitable on threads that someone appears and says "well this just happens to be my area of expertise".

Post: #16

I'd never do a franchise...especially in California.

The CEO of Carl's Jr. said in the WSJ that it's easier to open a restaurant on Karl Marx Boulevard in the former Soviet Union than it is on Carl Karcher Boulevard in California.

Simon Black says that Latin America is good place to franchise.

http://www.sovereignman.com/expat/an-unl...rica-4475/

The WSJ had an article about Smashburger and how they're looking for managers to expand overseas. They want to train their employees to have US customer service skills.

A friend of a friend started his own small chain of sushi restaurants in Central America and he's doing quite well...a couple mil in the bank and a Peruvian runway model wife half his age.

I do not agree with that Americans are getting more health conscious. Here in SoCal which is supposed to be health conscious, fast food places are always packed.

If I was forced to start a franchise in Murca, I'd suppose I'd do it in Texas.

Post: #17

If anyone is considering to start a franchise in Brazil i warn it is said to be a huge pain in the neck,some of my Brazilian friends complain about how unfair the contracts are and how difficult it would be to challenge them legally

Post: #18

(03-13-2014 11:21 PM)buja Wrote:  I'd never do a franchise...especially in California.

The CEO of Carl's Jr. said in the WSJ that it's easier to open a restaurant on Karl Marx Boulevard in the former Soviet Union than it is on Carl Karcher Boulevard in California.

Simon Black says that Latin America is good place to franchise.

http://www.sovereignman.com/expat/an-unl...rica-4475/

The WSJ had an article about Smashburger and how they're looking for managers to expand overseas. They want to train their employees to have US customer service skills.

A friend of a friend started his own small chain of sushi restaurants in Central America and he's doing quite well...a couple mil in the bank and a Peruvian runway model wife half his age.

I do not agree with that Americans are getting more health conscious. Here in SoCal which is supposed to be health conscious, fast food places are always packed.

If I was forced to start a franchise in Murca, I'd suppose I'd do it in Texas.

The CEO of a franchisor is bitching about California because it has some of the most stringent franchisee protection laws in the world. So does Washington state. Illinois, for reasons that should be obvious to anyone who spends five minutes thinking carefully about it, is the exact opposite.

If I were to buy a franchise, I would want it to be California-based, or at minimum contain CA jurisdiction and choice of law requirements.

Post: #19

Ironically timed news as we were just talking Quiznos yesterday http://online.wsj.com/article/BT-CO-2014...09888.html

Post: #20

(03-14-2014 02:57 PM)Dr. Howard Wrote:  Ironically timed news as we were just talking Quiznos yesterday http://online.wsj.com/article/BT-CO-2014...09888.html

I think you guys need to put a put a bit less focus on the big picture, and scale down a little

The real question we should be asking is: Can you buy a domino's, or a Quiznos, or a Subway for 80-400k and realistically expect to make 100k+ in revenue.

For instance, in a high foot traffic street in the heart of downtown of my metropolitan, they have a restaurant space up for rent at 5k/month. How realistic is it to say that if you spend 150k to open up a subway in that space, you can get enough customers to turn in 90k+/year.

We should focus a bit more on the smaller picture, and a bit less on how well the stocks of Quiznos are doing.

Post: #21

The concept of a franchise is that you are buying a proven strategy. That said, it is best to remember that the franchiser is interested in promoting new franchises and not necessarily helping out your local franchise.
My day job in sales is working for a franchise, so I have some knowledge on the ground level. And I don't give a flying fuck what the national office has to say about finding sales leads because they usually end up being wrong every time. And when you complain about "The Plan" not working they suddenly develop hearing problems. I know longer call the national office for anything because every time I have it turns into a shouting match. I'm only able to get away with it because my employers, who own the local franchise, hate the national office more than I do.
I have noticed that most of the local restaurant franchises around the Philly area are increasingly owned by East Indians and Pakistanis. The Dunkin Donuts are all run by East Indians. As are many of the "Mexican" fast food restaurants. Go figure.

Post: #22

(03-14-2014 08:37 PM)hervens Wrote:  

(03-14-2014 02:57 PM)Dr. Howard Wrote:  Ironically timed news as we were just talking Quiznos yesterday http://online.wsj.com/article/BT-CO-2014...09888.html

I think you guys need to put a put a bit less focus on the big picture, and scale down a little

The real question we should be asking is: Can you buy a domino's, or a Quiznos, or a Subway for 80-400k and realistically expect to make 100k+ in revenue.

For instance, in a high foot traffic street in the heart of downtown of my metropolitan, they have a restaurant space up for rent at 5k/month. How realistic is it to say that if you spend 150k to open up a subway in that space, you can get enough customers to turn in 90k+/year.

We should focus a bit more on the smaller picture, and a bit less on how well the stocks of Quiznos are doing.

Let's play a little hypothetical game. It's called "What Happens When My Franchisor Goes Bankrupt?" How well do you think your franchise will be doing when the franchisor company has difficulties in maintaining its supply chain due to burdensome debts? Or scales back advertising even though a portion of your royalties go to its mandatory ad fund? Or when you can't get out of your franchise agreement without giving up the restaurant completely because the Bankruptcy Court allows the DIP franchisor to reaffirm its contracts, and your lease contains covenants tying the location to the franchise, or the franchisor is your landlord? Or when you can't afford to sell the restaurant because nobody wants to buy a franchise that sits in Chapter 11, and "fair market value" for a store sale as defined in your agreement is a standard multiplier of revenues that have plummeted due to cutbacks?

Bottom line: if you think about this business at all, you need to think about "big picture" issues like the health of your franchisor. These are generally 10-25 year contracts you're entering that are grossly one-sided. Do your homework.