If you’re considering investing in a food or beverage franchise, this report is an ideal place to start your research. All the franchises featured are ranked highly by their franchisees. You’ll also hear from franchisees about their experiences and learn how to find the best food or beverage franchise for you. While most of the content of the report is pasted below, in order to to see the list of 2016’s Top Food Franchises, you must click on the full report above or download the PDF of the full report and go to page 10. The full report contains a lot of helpful information that is not featured below such as how satisfied food and beverage franchisees are on page 9 and the average pre-tax income franchisees earn on page 12.
Food Franchises Serve Up a Variety of Opportunities
A Look at the Top Brands and What it Takes to Be Successful
Food franchises have come a long way since Ray Kroc opened his first McDonald’s in 1955. They are everywhere! At highway rest stops, off of most major roads, in mall food courts, in strip malls, in airports, in office complexes, on college campuses, in large cities, and in small towns. Food franchise concepts will always be in demand since eating is a necessity and Americans are increasingly not cooking at home. In March 2015, sales at restaurants and bars surpassed those at grocery stories for the first time since the Commerce Department started collecting data in 1992. Between the mid-1960s and late 2000s, low-income households went from eating at home 95 percent of the time to only 72 percent of the time, middle-income households went from eating at home 92 percent of the time to 69 percent of the time, and high-income households went from eating at home 88 percent of the time to only 65 percent of the time.1
This explains why in 2016, the 261,923 food-related franchises (quick service restaurants, full service restaurants and retail food) account for an estimated $336 billion of economic output in the United States. In addition, food franchises employ 8,581,300 people.2
If the variety of food franchises seems overwhelming when it comes to choosing the best option for you, don’t worry. This report sheds light on the different kinds of food franchises and how to go about selecting one that best meets your criteria. In addition, it provides insight into what it’s like to be a food franchisee as well as the only industry list of top brands broken out by segment (please download or click on the report above to see the list on page 10) based solely on franchisee satisfaction and performance.
SHOULD YOU INVEST IN A FRANCHISE VS. STARTING A FOOD CONCEPT FROM SCRATCH
Why do so many entrepreneurs who want to build a business around food enter franchising?
“I am a huge fan of the franchise business model,” says Roland Spongberg whose company, WKS Restaurant Group, owns and operates 25 Denny’s in California, Nebraska, Missouri, and Illinois. “It allows us to focus on doing a few basic things very, very well, while leveraging the franchisor’s expertise to achieve sustained successful growth of our business. For example, we know a lot about managing teams of people to deliver excellent guest experiences every day, but do not need to be experts on menu or product development, advertising, public relations, or franchising law, etc. since Denny’s corporate team is.” Spongberg says his business is a family one. Several of his sons and other family members are equity members and have significant management responsibilities.
The following is a break down of some of the advantages entering into the food business via franchising instead of implementing an idea from scratch offers.
Get out of the startup phase faster. A franchise comes with a proven system. You’ll immediately receive training, checklists, forms, procedures, marketing and more. This helps you get out of the unprofitable startup phase and on the path to profitability faster than if you started a concept on your own. Keep in mind that you’ll still have costs such as loans, franchise fees, business expenses, payroll and other overhead, so just like with any small business you should thing long-term success.
You’ll receive valuable guidance. Members of the franchisor’s corporate team are responsible for helping you be successful so will assist you with any challenges you may have. In addition, you’ll be able to tap into the experience of your fellow franchisees. Many franchisors also communicate best practices to franchisees on a regular basis as well as at annual meetings.
Deliver on consistency. The franchisor’s proven and clear concept will make it possible for your team to consistently meet customers’ expectations. Consistency is essential when it comes to building a good reputation as well as repeat business.
Increase the likelihood of attracting and keeping good employees. High caliber employees tend to seek out companies that are professional, well run, and have a good culture. Since franchisors have already worked out the business’s kinks, when you open your doors you should be able to deliver on all of these fronts.
Be able to focus on growth vs. day-to-day operations faster. Depending on the food concept you choose, the system the franchisor provides should facilitate your removing yourself from the day-to-day operations faster than if you started a business from scratch. For example, the comprehensive training your franchisor delivers makes it possible for others to be quickly and effectively trained to fill your shoes. The franchisor will also help you with strategic marketing campaigns and material, sales support, software that helps you run your business, and more. The fact that the franchisor takes on so many of the roles an independent restaurateur would have to assume himself or hire many people to handle, frees you up to focus on strategically growing your business.
Group Purchasing. Independent owners do not have the buying power to qualify for the discounted rates on purchases that franchisors negotiate and pass on to their franchisees.
Improve the resale value of your investment. When you buy a franchise, you buy a brand name as well as a proven business model. These two factors combined, typically make franchises more valuable than an independent establishment.
In case you are weighing investing in a franchise vs. starting a concept from scratch, consider the thoughts of Mateusz Dabrowski, who owns PJ’s Coffee of New Orleans in Gonzales, Louisiana with two silent partners.
“Business ownership is wonderful, however oftentimes it is plagued with tons of barriers to entry. There are always things you don’t know, growing pains, consistency issues, sourcing problems etc.,” says Dabrowski. “A lot of these issues are completely avoided by being part of a tried and true franchise system. The franchisor helps you on all fronts including marketing that reaches new and old customers, corporate sourcing oversight to maintain the product’s long-term perception in the eyes of your consumers, training and more. Most independent businesses can’t accommodate for a specialist in every field to help you stay ahead of the game. This is where franchising truly shines.”
SIZZLING FOOD INDUSTRY TRENDS
Multi-Unit. Some food franchisors require multi-unit ownership because it is easier from a development standpoint to work with an owner who operates several locations. Even though the majority of brands do not have a multi-unit ownership requirement, many entrepreneurs are choosing to take this route due to the potential higher financial return. Multi-unit owners don’t typically prepare food or handle the day-to-day operations at their locations, instead they manage a company with the help of a team including field and unit managers. This enables them to focus on strategically running and growing their business. “If you want to buy a job, one unit is great. If you want to build wealth, go for eight to ten units,” says David Newman, whose company, B.P. Newman Investments, owns 34 Church’s Chicken franchises located across Texas, New Mexico, Louisiana, and Arkansas.
Millennials Are Overtaking Baby Boomers. Millennials now stand at 75.4 million vs. 74.9 million Baby Boomers.3 The National Restaurant Association describes them as tending to favor fast food, deli food and pizza restaurants over coffee shops, high-end dining and casual dining. It also says they are drawn to more ethnic restaurants as a result of their diversity and interest in new things.
“We are seeing a trend toward a more focused menu with fewer items. Customization remains a big focus, especially in the Millennial generation. Also, new flavors and more global flavors are a big trend,” says Nader Masadeh, CEO of Buffalo Wings & Rings.
Non-Traditional Formats. Traditional food franchises are within stand-alone locations or part of a strip mall. Many brands have branched out into non-traditional unit locations, such as hospitals, hotels, large office buildings, airports, college campuses, sports stadiums, or convenience stores at gas stations. The physical structure of franchise locations is also changing. While many remain brick and mortar, the number of food trucks, carts, and mobile kitchen options available is increasing. Each of the formats have greatly varying costs in terms of construction, equipment, and staffing needs as well as rent requirements.
Health Awareness Continues. 83% of consumers want quick service eateries with healthier eating options.4 This has led to an explosion of new healthy concepts and healthy menu changes at mature brands.
“There is a higher demand for not only variety and value in our menu offerings, but also for more healthy choices and options to tailor their experience,” says Jack Crawford, President & CEO of Ground Round.
“Consumer attitudes about health and wellness continue to change at an accelerated pace. People no longer just “talk” healthy; they are altering their purchasing habits. But the view of what is “healthy” varies significantly, and it isn’t easy for brands to nail the right balance of attributes,” says Don Fox, CEO of Firehouse Subs.
Minimum Wage Increases. Smart operators have identified ways to accommodate minimum wage increases with the least amount of impact to their business models.
“We are working with our operators on technological advancements such as mobile pay and kitchen equipment that can take some pressure off labor and ease execution,” says Crawford. “We are also, like all brands, taking some price increases to help offset the higher labor costs where we can and still remain competitive.”
“We are helping our franchisees in the face of rising costs by profitably driving top line sales,” says Fox. “This takes innovation in marketing, technology, and consumer insights as well as optimizing the operations systems.” Fox is also actively engaged in advocacy efforts to help moderate the impact government has on the business of the franchise community.
CHOOSING THE RIGHT FOOD FRANCHISE
Choosing the right food franchise investment opportunity for you entails determining the lifestyle you want as well as extensive research on a strong model with financial opportunity.
Are You a Good Fit?
Before you even start analyzing franchise options, it’s important to take an honest look at yourself as well as what franchisors look for in franchisees to determine if franchising is right for you.
“Franchisees need to be well rounded— a Jack or Jane of all trades,” says Paul McCulloch, who owns 11 Smoothie King locations with his wife, Paula, throughout Tennessee. “Although one might be a sensible business professional, it doesn’t necessarily mean that he or she is a people person. Franchisees need to make sure they can communicate clearly and manage a team as well as be a good listener. An array of problems will always arise, so they must be able to conquer those issues while dealing with day-to-day operations.” McCulloch suggests that prospective franchisees take a personality test to uncover their strengths and weaknesses.
Food franchisors today tend to look for franchisees with strong financials and prior restaurant operating/ownership experience.
“When we are vetting candidates, first and foremost they need to be someone who believes in our values and goals,” says Masadeh of Buffalo Wings & Rings. “We look for candidates who are financially sound, business-savvy and can follow a system. It’s also good if they have restaurant experience or the ability to hire someone with restaurant experience to cut down on the learning curve.” Many franchisors also seek less tangible traits in candidates.
“First and foremost, we look for a dedicated owner-operator who enjoys the day-to-day restaurant environment and working with people on both sides of the counter,” says Fox of Firehouse Subs.
“Our most successful franchisees are the ones who have strong people skills,” says Masadeh. “In this business, serving people comes first.”
What to Look For
When it comes to evaluating your options, look for food franchises that provide the following:
• A unique customer experience. The most successful food franchises understand that good quality food is just the minimum threshold required to attract loyal customers today. Look for brands that not only deliver a consistent quality product, but also a unique and personal experience that is going to keep customers coming back.
• Efficient operations. Operations include all functions that are necessary to prepare and serve your products to your customers such as activities that take place every day in the kitchen, dining area and bar if you have one. Seek out opportunities with a proven and cost effective system that addresses all aspects of operations. It will enable you to produce consistent results when it comes to food and customer experience without your constant, direct daily involvement over time. Simplicity is key. Brands that try to be all things to all people commonly fail.
“I appreciate the overall simplicity of the operation, the low inventory and low food waste,” says Smoothie King franchisee McCulloch.
• Effective marketing. The majority of franchises handle marketing for you. Marketing gets the word out about your brand via public relations, community involvement, advertising, and promotions. Be sure to find out what the marketing fees are and what they include—just national or local marketing too? If local marketing is not included, ask the franchisor as well as franchisees who are in similar markets to yours how much they think you will spend so you can build it into your budget.
• Innovative menu items. Menu options need to change often enough to keep customers coming back and attract new ones. The core menu, however, must have strong, lasting appeal in and of itself for those customers who enjoy consistency.
“We evolve our menu offerings through the use of seasonal, limited time offer menus that constantly add new and fresh choices for our guests in addition to our core menu offerings, and these limited time menus provide constant change and freshness to our overall menu variety,” says Crawford of Ground Round.
• Effective use of technology. Good technology can help restaurants run more efficiently and attract and retain customers. For example, automated table ordering helps reduce costs, financial dashboards help operators spot trends, and customer relationship management (CRM) applications can make running local marketing campaigns almost effortless. Be sure to find out how a brand leverages technology to benefit its franchisees and confirm with franchisees that the technology is actually effective.
• A supportive culture. Being a part of a franchise is like being part of an extended family. You want to be sure you like the family before you join it. Find out how much support you will receive from the corporate office and if the leadership is strong. Ideally you’ll want the leadership to take an inclusive approach by involving franchisees in major decision so be sure to ask how the franchise you are considering involves franchisees. Also find out how interaction among franchisees is encouraged since input from your fellow franchisees will likely be an integral part of your success.
“I think what brand you join as a franchisee is absolutely critical to your long term success and the quality, integrity and track record of the brand’s management team is a key element of that,” says Spongberg of Denny’s. When it comes to the importance of your fellow franchisees, he adds “As members of the franchisor’s management team change over time, franchisees tend to remain a constant. So in franchising, in a very real sense it is the franchisees, not the franchisor, who are the enduring heart and soul of the brand.”
Determine the Type of Franchise That Interests You Most
There are many types of food franchises. It’s important to decide which appeals most to you.
• Quick Service. Most people associate quick service restaurants (QSR) with concepts like McDonalds, KFC and Chick-fil-A. Immediate consumption is the focus of QSRs. Meals are more often than not taken out, although people can dine on-site or delivery service may be provided.
• Fast Casual. The concept unites the quality of casual dining with the speed of fast food. Chipotle Mexican Grill, Boston Market and Fazoli’s are fast casual concepts you’ve likely seen. Typically the food is more customized, freshly prepared, and higher quality and the environment more upscale and inviting than QSRs. Just like QSRs, customers typically order and pay at a counter, and then take food out or grab a tray to sit and eat, although sometimes minimal table service is provided.
• Full Service. Full service restaurants serve food and drinks directly to the customers at their tables. They may sell alcoholic beverages; provide takeout, delivery or live entertainment. The term full service entails a wide array of concepts from family-style to upscale dining such as Applebees, I.H.O.P., and TGI Fridays.
• Retail. Retail food concepts include convenience stores and vending machines as well as specialty dessert concepts such as 7-11, Edible Arrangements, and Happy and Healthy Products.
Is It a Good Choice For Your Market? It’s essential to ensure that the franchise concept will be a good fit for the market where you are thinking of opening it. Questions to ask yourself include:
• Will the people in the community embrace the concept?
• What does the area need/want in terms of food options?
• Will I be able to find the staff I’ll need?
Do the Financials Work?
“Do I have enough money to purchase a food franchise?,” is probably a question that keeps running through your mind. The following provides an idea of typical costs you’ll incur.
• Initial Investment. The amount necessary to open a franchise varies based on each concept. Initial costs include the franchise fee, land and build-out costs if a brick and mortar concept (sometimes franchisees lease, buy, or the franchisor owns the real estate), equipment, training related expenses (such as travel and living expenses while attending training sessions included in your purchase), grand opening marketing costs, and more. The average initial start-up range for the franchises we surveyed starts at $117,000 (see page 8). You can, however, invest in a food concept for far less. For example on page 10 of this report, you’ll see that you can open a Happy and Healthy Products franchise for $45,000.
• Ongoing Costs. In addition to common ongoing costs including payroll, utilities, marketing, software and technology, franchises come with royalty fees. They allow you to use the franchisor’s trademarks and patented processes on an ongoing basis.
• A Financial Cushion. Just like all small businesses, franchises take time to become profitable. It is crucial you have enough money to get your business going while enabling you and your family to live in a manner to which you are accustomed until your franchise is profitable.
“Financially speaking every situation is different,” says Dabrowski of PJ’s Coffee. “There is a large range of potential profit margins and it’s important to understand the numbers. Know where your return on investment is and understand the potential profit margins for each business. Odds are the biggest variables you will come across will be rent and potential gross sales. It’s important to weigh them against the time to ROI.”
You’ll have to ensure to the best of your ability that the return on investment (ROI) will meet your financial goals. How much you will make will depend on many factors including your investment level, your business acumen, the marketplace, and your location. To help you make realistic, personalized financial projections, we created a three-hour How Much Money Can You Make? online course, which is available via our Franchise Buyer’s Toolkit at www.FranchiseBusinessReview.com. Just from the brands we interviewed for this report alone, you can see how much revenue varies. The average current unit volume for Firehouse Subs according to Fox is $725,000 and $1,950,000 for Ground Round according to Crawford. Buffalo Wings & Rings reports that according to its most recent Franchise Disclosure Document (FDD), a legal document that provides prospective franchisees with information about the franchisor, that the average gross sales for its franchised locations in 2015 was $1,842,000. Paul McCulloch’s 2015 gross sales revenue was $3.4 million, at which time he owned nine Smoothie King locations. Spongberg reports that the gross sales of his Denny’s restaurants was $35,959,750 in 2015. The chart featuring the average pre-tax income by concept type on page 12 (please download or click on the report above to see it) shows it ranges from $54,000 for frozen yogurt/ice cream to $148,000 for Mexican/Southwestern. Don’t forget that “average” means some franchisees within a system make far less, while some make much more. Also, keep in mind that the gross revenue of corporate run franchises, when applicable, is factored into the “average” figure as well.
ADVICE FOR NEW FRANCHISEES
Crawford of Ground Round, who has been a franchisee, and observed many franchisees, offers the following advice, “Franchise operators should pay the most attention to starting off with hiring the right team, particularly at the management level, and supporting them in every way they can. Initial focus should be to invest in proper staffing levels and fine tuning of quality execution and adherence to systems and follow through. Only this will lead to the sustained growth and profitability.”
Smoothie King franchisee, McCulloch, echoes Crawford’s advice, “Focus on hiring trustworthy, inspiring and motivated general managers to run your stores. Also, set goals for your business, make your team aware of these goals, and have checkpoints throughout the year to hold yourself and your team accountable.”
“Remember that you are building a business, and recognize at the outset that this may be a long-term proposition. If you don’t enjoy the business, be honest with yourself, and don’t pursue it. Remember that the strongest brand, in and of itself, is not a guarantee for success. It must be coupled with great execution, which is the domain of the franchisee,” says Fox of Firehouse Subs.
“Have fun! That’s the first thing we want franchisees to focus on when they join our system. It should be an enjoyable business to work in and grow with,” says Masadeh of Buffalo Wings & Rings. “You have to make sure to take care of your guests, execute brand standards, and hire the right talent to be successful.”
Dabrowski of PJ’s Coffee advises the following: 1. Make calculated risk choices when choosing a franchise and location. If you aren’t afraid then you probably shouldn’t be opening a business. Fear is essential in decision-making as your gut speaks volumes about intangible variables. 2. Work from within the franchise to reach your goals. 3. Be prepared to work. 4. Know your customers! 5. LOVE the product. 6. Take care of your employees! 7. Never get complacent. Nothing is forever, so be prepared to grow and shrink as needed. 8. Create an exit strategy should things not pan out.
“The worst thing you can be is an oblivious owner. You must be really involved,” says Newman of Church’s Chicken. “Also, pay yourself last. Too many people see all this money coming in and think they can start spending it on stuff they do not need instead of investing it back into the business.” Newman also recommends buying the real estate where your franchise is located. This allows you to either sell a franchise along with its real estate or to sell a franchise, but keep the real estate and receive rental revenue.
THE IDEAL OPPORTUNITY EXISTS
Whether you choose to serve up burgers, coffee, sandwiches, pizza, smoothies, gourmet meals, or something else, the growing trend of Americans not cooking for themselves means your food franchise business has a good chance of being successful as long as you conduct thorough research into the best opportunity for your marketplace and for you. It’s clear that entrepreneurs who invest in the right food franchise are happy they did. 87% of the franchisees we surveyed said they enjoy operating their business.
“I really love what I do, so these days I never have to ‘work’,” says Spongberg of Denny’s. “Franchising has provided me the opportunity to help people on my team achieve their own hopes and dreams over the years, starting from very little, often as a minimum wage employee. It is hard to describe the satisfaction helping someone else develop and achieve their full potential brings.”
Perusing the brands ranked highly by their franchisees on page 10 (please download or click on the report above to see it) is a smart place to start your franchise research. Once you’ve narrowed down your choices, be sure to analyze each franchisor’s FDD. An in-depth breakdown of how to do so is presented as on-demand video segments within our Franchise Buyer’s Toolkit. Also ask franchisors for third party franchisee satisfaction reports like those provided within the Franchise Reviews section of www. FranchiseBusinessReview.com. They will provide you with crucial and honest insight into what their leadership, training, culture, financial performance, and more is like.