7Shifts’ Blog recently interviewed Culhane Meadows’ Dallas partner Ryan Whitfill to discuss common franchise problems and how to solve them.
Here are some key excerpts from the article:
More than 200,000 quick-serve restaurants in the United States don’t count the company as owners. Instead, these locations are franchises, meaning a company (the franchisor) allows an individual or group of partners (the franchisee or franchisees) to run a location of that restaurant under a franchise agreement.
At a glance, opening and operating a restaurant franchise seems more straightforward than building your own restaurant concept. They’re established brands, and most of the marketing comes from the corporate office. But that doesn’t mean franchisees have an easier path to restaurant success. There’s a unique set of challenges that come with franchising. Here are 7 of them, and what to do about it.
7 Common Franchise Problems
1. Long approval processes
The franchisor and franchisee are a team. For a successful partnership, the brand has to be the right fit for the franchisee, and the franchisee must be a right fit for the brand.
Franchise agreements are also long term relationships–10- to 15-year contracts are the norm. It’s absolutely essential to get right. Which means oftentimes the approvals process can be long and intensive.
2. Higher-than-expected operating costs
Aspiring franchisees must be prepared to front a hefty sum of money to get the business off the ground. Between up-front licensing fees and opening costs, the amount can easily break into the six or even seven-figure range.
3. Less control over the brand
Affiliation with beloved brands gives franchise owners an advantage in recognition and brand affinity. But it can also work against you.
4. Not as much decision-making power
Independent restaurateurs get to define their restaurant’s theme, alter the menu whenever they want, and work to establish a place in their community.
5. Different regulations
Operating your franchise in a major city like New York, San Francisco, or Chicago? If so, you’ll need to adhere to an extra set of rules known as Fair Workweek laws.
6. High employee turnover
Overall, the restaurant industry has around a 75% employee turnover rate. However, franchises tend to see significantly higher turnover rates compared to the industry average, with fast food industry location turnover double that at 150%. For example, Panera’s turnover rate is reportedly nearing 100%, while Domino’s is recovering from a reported 107% turnover rate.
Among the reasons for such high turnover is the constant demand for employees at these restaurants (which allows dissatisfied employees to easily find work elsewhere) and the reliance on younger and less specialized labor pools, which typically have less incentive to stay at a franchise for years on end.
How to solve it
There is a two-pronged approach to managing turnover at your franchise: better hiring and better retention programs.
Working at a franchise seems like a good idea to aspiring restaurant workers due to brand recognition, but this can unfortunately attract some less-than-qualified candidates because of their perception of convenience. Make sure you’ve put the time in to find and hire the right people, such as sourcing candidates proactively and asking the right restaurant interview questions.
“As people continue to come back into the hospitality workforce, restaurant owners need to think about implementing creative incentive plans that can help them get staffed up quickly and then keep successful employees long-term,” says Ryan C. Whitfill, partner at Culhane Meadows.
7. Potential for brand dilution
One last common franchise problem is market saturation of the same restaurant. Believe it or not, Chick-fil-A made more per location than McDonald’s and Starbucks combined in 2020, according to this QSR report. And that’s with 15% fewer operating days a week!
Facing Your Franchise Problems
Although opening and operating a restaurant franchise comes with its own unique challenges, most of them can be solved with a mindset shift, a new process, or a phone call to your corporate office. Your franchisor is counting on you to keep sales strong so everyone can take home a paycheck, so don’t be afraid to reach out for support and a clear ask to ensure everyone ends up better off.
It can also be much easier to succeed when you use integrated tools like restaurant scheduling software and a POS. Understanding how you can solve problems within your own store like controlling labor costs and simplifying scheduling will let you gain a foothold on the daily challenges you’ll face as a franchisee.
Read the entire article HERE to learn more.
About Culhane Meadows – Big Law for the New Economy®
The largest woman-owned national full-service business law firm in the U.S., Culhane Meadows fields over 70 partners in eleven major markets across the country. Uniquely structured, the firm’s Disruptive Law® business model gives attorneys greater work-life flexibility while delivering outstanding, partner-level legal services to major corporations and emerging companies across industry sectors more efficiently and cost-effectively than conventional law firms. Clients enjoy exceptional and highly-efficient legal services provided exclusively by partner-level attorneys with significant experience and training from large law firms or in-house legal departments of respected corporations. U.S. News & World Report has named Culhane Meadows among the country’s “Best Law Firms” in its 2014 through 2022 rankings and many of the firm’s partners are regularly recognized in Chambers, Super Lawyers, Best Lawyers and Martindale-Hubbell Peer Reviews.
The foregoing content is for informational purposes only and should not be relied upon as legal advice. Federal, state, and local laws can change rapidly and, therefore, this content may become obsolete or outdated. Please consult with an attorney of your choice to ensure you obtain the most current and accurate counsel about your particular situation.