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Question regarding franchises

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Aggie118
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7:28a, 4/12/24
AG
Have been putting some thought into franchises again as of late. I have combed through all of the franchise threads on TexAgs from the past and have seen the discouraging stories of franchises gone wrong. I, like many I have seen on here have always been skeptical and have talked myself out of this kind of thing before, but my question is how do places like "Captain D's, Long John silvers, Burger King, Arby's etc" open and remain open for years and appear to have little to no traffic at all? That makes me wonder if they really fail at as high a rate as I, or many others think. One would think that any more recognizable chains than the ones I mentioned above would do that much better just off of name recognition alone (whataburger, wendy's, subway etc).

I almost feel like this thinking of just chalking it up to a disastrous failure/scam that is not worth exploring is just a way to make myself feel better about not taking the risk and doing it. Perhaps its those that just ignore the noise, see an opportunity and go for it that come out on top. I feel like we only ever hear from the people who have seen franchises fail chime in, and those who are successful with it keep quiet for the most part.
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Ghost Mech
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7:54a, 4/12/24
Go to a Franchise Trade show.

Find a Franchise purchasing consultant (it's a free service, they get paid by the franchises to weed through the people interested in buying one). i.e. - https://frannet.com/

Do the research.



I looked at a bunch and found no positive reason to invest in a franchise.....maybe you'll have better success.

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Aggie118
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In reply to Ghost Mech • 7:59a, 4/12/24
AG
Appreciate the reply. If you don't mind me asking, what was it exactly that deterred you ultimately? Did you feel like none of them could be profitable or was it simply a risk/reward issue?
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EclipseAg
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In reply to Aggie118 • 8:18a, 4/12/24
AG
Aggie118 said:
my question is how do places like "Captain D's, Long John silvers, Burger King, Arby's etc" open and remain open for years
Most franchise restaurants today are owned by huge, privately held franchisees that own hundreds of stores across multiple platforms -- like this company in Sugar Land that few people have ever heard about. So they have economies of scale in purchasing, hiring, etc., and lots of power with corporate (no wants to mess with the big franchisee).

But you have to start somewhere.

It seems to me that opening a single storefront is buying a tough job. But if your goal is to own several stores, or many, then it can be a good business.

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Aggie118
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In reply to EclipseAg • 8:24a, 4/12/24
AG
I appreciate your insight. That makes sense, still makes me think that those particular stores that I mentioned that are as unappealing a restaurant as I can think of and minimal traffic are still somewhat profitable otherwise they would not be up and running.

My goal would to get it down and then try and scale it yes.
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I bleed maroon
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In reply to EclipseAg • 8:53a, 4/12/24
AG
EclipseAg said:
Aggie118 said:
my question is how do places like "Captain D's, Long John silvers, Burger King, Arby's etc" open and remain open for years
Most franchise restaurants today are owned by huge, privately held franchisees that own hundreds of stores across multiple platforms -- like this company in Sugar Land that few people have ever heard about. So they have economies of scale in purchasing, hiring, etc., and lots of power with corporate (no wants to mess with the big franchisee).

But you have to start somewhere.

It seems to me that opening a single storefront is buying a tough job. But if your goal is to own several stores, or many, then it can be a good business.

There's a lot of truth in this post. I have done business with a branch of the Dhanani family in the past, and it seems their biggest problem is how to spend all the money they're making.

I think Franchises can work well for 1) people that are willing to put in a lot of hard work and time, and 2) Have a large extended family they can trust to help run the operations. If it's a good established and popular franchise that is formulaic to run, your biggest remaining risk is staffing trustworthy management and dependable workers. Having a large extended family mitigates this risk, which is why so many first and second generation large immigrant families (from, for example: India, the Middle East, Vietnam, Cuba, and Pakistan) have succeeded at the multiple-franchise game (hotels, fast food, convenience stores, etc.).

I am not quite sure why the large numbers of recent Hispanic immigrants, who match most of the above characteristics, have not entered franchising is as big a way. You find mostly one-off mom-and-pop operations run by large Hispanic families - why not franchises?
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Petrino1
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In reply to I bleed maroon • 9:17a, 4/12/24
I bleed maroon said:
EclipseAg said:
Aggie118 said:
my question is how do places like "Captain D's, Long John silvers, Burger King, Arby's etc" open and remain open for years
Most franchise restaurants today are owned by huge, privately held franchisees that own hundreds of stores across multiple platforms -- like this company in Sugar Land that few people have ever heard about. So they have economies of scale in purchasing, hiring, etc., and lots of power with corporate (no wants to mess with the big franchisee).

But you have to start somewhere.

It seems to me that opening a single storefront is buying a tough job. But if your goal is to own several stores, or many, then it can be a good business.

There's a lot of truth in this post. I have done business with a branch of the Dhanani family in the past, and it seems their biggest problem is how to spend all the money they're making.

I think Franchises can work well for 1) people that are willing to put in a lot of hard work and time, and 2) Have a large extended family they can trust to help run the operations. If it's a good established and popular franchise that is formulaic to run, your biggest remaining risk is staffing trustworthy management and dependable workers. Having a large extended family mitigates this risk, which is why so many first and second generation large immigrant families (from, for example: India, the Middle East, Vietnam, Cuba, and Pakistan) have succeeded at the multiple-franchise game (hotels, fast food, convenience stores, etc.).

I am not quite sure why the large numbers of recent Hispanic immigrants, who match most of the above characteristics, have not entered franchising is as big a way. You find mostly one-off mom-and-pop operations run by large Hispanic families - why not franchises?
Because it seems like a lot of work and risk for very little reward. Can make more money doing other things or just investing in the stock market.

The restaurant business seems like the worst possible business to be in: Long hours, lots of work, stress, headaches, staffing issues, unreliable workforce, high probability of failure, all of this for very little pay and return on investment.
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one safe place
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In reply to Aggie118 • 9:49a, 4/12/24
Aggie118 said:
Have been putting some thought into franchises again as of late. I have combed through all of the franchise threads on TexAgs from the past and have seen the discouraging stories of franchises gone wrong. I, like many I have seen on here have always been skeptical and have talked myself out of this kind of thing before, but my question is how do places like "Captain D's, Long John silvers, Burger King, Arby's etc" open and remain open for years and appear to have little to no traffic at all? That makes me wonder if they really fail at as high a rate as I, or many others think. One would think that any more recognizable chains than the ones I mentioned above would do that much better just off of name recognition alone (whataburger, wendy's, subway etc).

I almost feel like this thinking of just chalking it up to a disastrous failure/scam that is not worth exploring is just a way to make myself feel better about not taking the risk and doing it. Perhaps its those that just ignore the noise, see an opportunity and go for it that come out on top. I feel like we only ever hear from the people who have seen franchises fail chime in, and those who are successful with it keep quiet for the most part.
In all my years in business, I did not have many folks who owned a franchise, only a few. None of them failed, at least none that come to mind. Many who went into business (non-franchised) did fail. I think in large part it was because they went from a W-2 job where the employer took care of everything for the employees to a situation where the new business owner had to do these things, all things he or she had no experience with.

It is even more critical if the venture is in food services. A lot of people can cook, but owning a food place means they, or someone, will be cooking 363 days a year (or so) and for up to 12 hours a day. And having to deal with a lot of employees in today's world is more of a mess than ever.

A franchise will help keep the problems at bay, but not fully eliminate them. Probably why the success rate is higher for franchises vs non-franchises. My biggest concern with any franchise would be where it is located and the money needed to get going (haven't looked in many years but I would guess it is $500,000 to $1,500,000 for the name brand food places). I have seen a relocation of a traffic route take businesses off the main drag which hurt them. I passed on a business due to my fear of a change in the traffic pattern which actually did happen about three years later. And of course, demographic trends could leave a franchise owner with a lot of money in real estate in an area occupied by those you would prefer not to be around. If the trends turn against you, not many will want to be where you don't want to be which means having real estate that might be hard to get rid of, at least at the price you want.

I agree with what I Bleed Maroon said about extended families. In fact, the only successful restaurant clients I had were Mexican food places. They all had multiple family members working at them, sometimes well over half of the employees were extended family. None were franchises though. Makes little sense if you can make tamales and enchiladas and tacos to pay a franchise fee and royalties to Taco Bell or the like.

Good luck with whatever you decide!
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I bleed maroon
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In reply to Petrino1 • 9:56a, 4/12/24
AG
Petrino1 said:
I bleed maroon said:
EclipseAg said:
Aggie118 said:
my question is how do places like "Captain D's, Long John silvers, Burger King, Arby's etc" open and remain open for years
Most franchise restaurants today are owned by huge, privately held franchisees that own hundreds of stores across multiple platforms -- like this company in Sugar Land that few people have ever heard about. So they have economies of scale in purchasing, hiring, etc., and lots of power with corporate (no wants to mess with the big franchisee).

But you have to start somewhere.

It seems to me that opening a single storefront is buying a tough job. But if your goal is to own several stores, or many, then it can be a good business.

There's a lot of truth in this post. I have done business with a branch of the Dhanani family in the past, and it seems their biggest problem is how to spend all the money they're making.

I think Franchises can work well for 1) people that are willing to put in a lot of hard work and time, and 2) Have a large extended family they can trust to help run the operations. If it's a good established and popular franchise that is formulaic to run, your biggest remaining risk is staffing trustworthy management and dependable workers. Having a large extended family mitigates this risk, which is why so many first and second generation large immigrant families (from, for example: India, the Middle East, Vietnam, Cuba, and Pakistan) have succeeded at the multiple-franchise game (hotels, fast food, convenience stores, etc.).

I am not quite sure why the large numbers of recent Hispanic immigrants, who match most of the above characteristics, have not entered franchising is as big a way. You find mostly one-off mom-and-pop operations run by large Hispanic families - why not franchises?
Because it seems like a lot of work and risk for very little reward. Can make more money doing other things or just investing in the stock market.

The restaurant business seems like the worst possible business to be in: Long hours, lots of work, stress, headaches, staffing issues, unreliable workforce, high probability of failure, all of this for very little pay and return on investment.
I certainly totally agree with your general assessment on restaurants. It's not for me, for sure. HOWEVER, I was speaking to mom-and-pop one-off restaurants vs. multi-location franchises once one decides to go into this business for whatever reason. Care to comment on this, after re-reading?
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12thMan9
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10:03a, 4/12/24
AG
You should look at other business sectors for franchising, plenty out there to choose from.
Ronnie '88
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carl spacklers hat
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In reply to 12thMan9 • 10:31a, 4/12/24
12thMan9 said:
You should look at other business sectors for franchising, plenty out there to chose from.
This!
Are you wedded to the idea of a franchise restaurant or are you open to other businesses that operate under the franchise model? I know franchised hotels can be VERY lucrative. I have experience in both franchised restaurant operations as well as franchised hotels and I will tell you, hotels are the way to go if you have to choose between the two. Hotel business is much more capital-intensive but the payoff is worth it. In my opinion.
People think I'm an idiot or something, because all I do is cut lawns for a living.
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Aggie118
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In reply to 12thMan9 • 10:35a, 4/12/24
AG
Any ideas come to mind? Appreciate your insight.
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Aggie118
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In reply to carl spacklers hat • 10:36a, 4/12/24
AG
carl spacklers hat said:
12thMan9 said:
You should look at other business sectors for franchising, plenty out there to chose from.
This!
Are you wedded to the idea of a franchise restaurant or are you open to other businesses that operate under the franchise model? I know franchised hotels can be VERY lucrative. I have experience in both franchised restaurant operations as well as franchised hotels and I will tell you, hotels are the way to go if you have to choose between the two. Hotel business is much more capital-intensive but the payoff is worth it. In my opinion.


Definitely not, was only using it as an example as I feel like everyone knows someone who owns like 3-5 fast food joints and makes a killing. Definitely open to ideas. Appreciate it!
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cgh1999
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10:36a, 4/12/24
AG
Those businesses have historically done well, but there has been enough weakness lately that banks are starting to put pressure on the big guys. Lots of banks are exiting the space (big franchise finance) and/or pulling back.

I'm in commercial finance and have seen a handful of deals pop up recently for refinance that don't meet financial covenants and require significant cash paydowns.

What you can't easily see is how much business are they doing via door dash? With online ordering - staffing is way down which helps profitability b
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12thMan9
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In reply to Aggie118 • 11:13a, 4/12/24
AG
Aggie118 said:
Any ideas come to mind? Appreciate your insight.


As someone mentioned, there are people who do this for a living but I would be researching needs in new areas under development. Where is the nearest, mail center/PKG shipping location, cleaners, liquor store, auto parts just off top of my head.

Some of the above may not be franchised, don't know. Some other restaurants/eateries that you didn't mention where franchising may be better could be Subway, Firehouse Subs, Jersey Mike's, Jimmy John's,....?
Ronnie '88
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one safe place
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In reply to Petrino1 • 11:14a, 4/12/24
Petrino1 said:


The restaurant business seems like the worst possible business to be in: Long hours, lots of work, stress, headaches, staffing issues, unreliable workforce, high probability of failure, all of this for very little pay and return on investment.
I agree with this 100% It would be at the very bottom of my list for a business to own, franchise or not. For the Mexican restaurants I mentioned that were a success, I meant they remained open (as far as I know they are all still open, two for over 20 years now. But during my time doing their tax work, the actual owners of the places took very little salary, less than a starting teacher makes for the entire time I was involved with them.
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agmom95
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In reply to Aggie118 • 4:00p, 4/12/24
AG
I'll give you my perspective..

We recently were in the middle of doing a franchise. We had family doing the same franchise in another location and we decided to look into it. We were on board to do something different and shake things up. My husband was going to stay in his corporate job and I was going to be a multi-store manager.

We were approved, bought in and spent almost two years looking for the perfect locations in our area, going through training, running the numbers, re-running the number and going so far as being pre-approved for loans. We were even in the contract negotiation stage for our first location. We were very excited for our 1st location and were looking to the next.

All along the way, we kept running numbers and over those two years, the cost of land and the cost of construction continued to creep up. The construction costs and land costs of other franchises in the FDD were not jiving with what we were seeing. Then the next thing we know, the price of goods started going up. Then the interest rates went up. The more we looked at it and the more we worked on our financial model, the less and less we would be making. Then the competition in our area took off and it was looking more and more like a bad deal.

Then from really talking to our family members, we realized they were having major issues with managers and employees. They would put employees through expensive training and they'd quit after a week. Some would steal from them at the end of the night. It kept getting worse and worse. There were constant issues with the building/plumbing etc. It just seemed to never end. They were all having to go into the locations to cover shifts.

So, in the end, we backed out. And, I am so glad we did! We do know of a few people we met through the franchise that are doing decent, but they have many locations and can weather a few bad locations or situations.

If you do ever go through with it - know this - no one is looking out for you. Not your banker, not your realtor, not the franchisor, nobody. Due Diligence is a real thing that has to be done and it has to be done deeply. Also, you have to be very hands on with everything. That was our plan anyway, but the more we dug into it, the more we realized you have to not look at it like an investment, but you have to me an active owner.


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n_touch
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In reply to agmom95 • 4:45p, 4/12/24
There are not enough stars to give you for your post. I have been working with restaurants for 10 years and I only work with mom and pops. Owning a restaurant is already hard enough, but then having it not really be yours and the decisions out of your hand, you are nothing more than a store manager that pays to be there.

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OldArmyCT
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5:05a, 4/13/24
AG
My nephew in Granbury was the very 1st Chicken Express franchisee, at one time owned about 20, he was always buying and selling, worked every day at one of the stores, is now down to 3 or so but is financially set for life. Not bad for a kid with a high school education. But neither of them have good health and I have no idea how much of that is attributed to them both working way too many hours a day.
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Proposition Joe
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8:05a, 4/13/24
I don't have much insight on the actual industry, but I tend to look at things threw the simple lens of "If it's not very difficult to be profitable doing it, then why aren't they doing it themselves?"

Obviously reduction of risk is the major driving factor, but it seems like with franchises you are having to break through multiple layers of negative EV. If it's super profitable, why don't they just staff/run it themselves? If they are franchising it and have all of the data, how much room for profitability are they really leaving on the table? For the people who specialize in franchises (already know/own multiple fronts or have in the past), why have they not scooped this opportunity up?

That doesn't mean there's not money to be made in them, but if you are having to go through 3 layers of someone either taking excess profit or deciding there's not excess profit there then you really have to believe you are smarter than a whole lot of people -- and IMO if you are, there's better and more profitable opportunities.

Again, I have next to no actual insight aside from a few weeks of research on a taco chain coming available 5-6 years ago.

But I think if you have the motivation and hustle and want to take over an existing business, your time would be better served combing through locally owned businesses in your area and see if anyone is looking to retire and formulating some offers.
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chris1515
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6:06p, 4/13/24
AG
I wonder what happened with the Chicken Salad Chick guy from Midland…he needs to give us an update here!
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