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Any franchise experience here in the LR?
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Something I'm looking into has
$60,000 franchise fee
5% royalty
Up to 2% marketing fee

Requirements

Minimum $600,000 net worth per location
$150,000 liquid capital
Probably minimum $400,000 to get up and running

"Almost" positive this little lunch spot we went to today would be a good fit in my area. Wife said we should check into it.

Any thoughts or experiences with a franchise?
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Re: Any franchise experience here in the LR? [SkipG] [ In reply to ]
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very limited in looking at them for clients a few times over the years. Those economics seem pretty rich in my experience, which is something that cuts both ways (if the franchisor didn't have a strong track record, they wouldn't be able to charge those fees). Both upfront and the 7% total seem high based on my recollection. But then I recollect when cokes cost a quarter.
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Re: Any franchise experience here in the LR? [SkipG] [ In reply to ]
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Those numbers look a lot like what it takes to open a McD's, though I think they actually have a lower franchise fees and royalty, which I guess could be the little lunch spot you were at.

So I guess I would look at it as wondering whether or not the place has as much chance of making money and staying in business as McD's.

We are so fucked.
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Re: Any franchise experience here in the LR? [SkipG] [ In reply to ]
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I don't have experience with buying and running a franchise, but I looked into a few over the years and got pretty far down the road with the process, but for various reasons decided against it.

One of the issues with one franchise was a disconnect of the royalty and marketing fees and what I as the franchisee/owner received for those fees.

So my advice is to make sure that they are offering solid services and support for that 7%. That means both one-time start up support and ongoing.

Are you really getting 2% marketing support? How locked in and dependable is the training, standardized layout/designs/marketing logos/recipes/menu plans/etc... Are you required to source food from the home office and is it at a premium to what you can source local? If not, add that in as another "cost". Is there certain proprietary ingredients that you have to source from the home office (like pizza sauce or dough/bread, etc...) is that really worth the fees or is it just another way to squeeze you for $$.

You get the idea. They are supposed to be providing solid support for the fees they charge you. Make sure they have the capability to do so and that it is what they should be providing.

.
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Re: Any franchise experience here in the LR? [j p o] [ In reply to ]
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A place called Chicken Salad Chick. Wife has been raving about this place for a while, I tried it today for the first time.
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Re: Any franchise experience here in the LR? [SkipG] [ In reply to ]
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SkipG wrote:
A place called Chicken Salad Chick. Wife has been raving about this place for a while, I tried it today for the first time.

Have eaten there a few times. Call me crazy, but nearly every flavor I have tried, sans the ones with jalapeƱos, tastes exactly the same. Men in my office are "meh", but the women love it. I simply don't see how it can be a sustainable business only selling chicken salad though. I don't care what flavor, you really have to love chicken salad to go there often. That said, they seem to do OK around here in some very competitive markets.
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Re: Any franchise experience here in the LR? [TimeIsUp] [ In reply to ]
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TimeIsUp wrote:
SkipG wrote:
A place called Chicken Salad Chick. Wife has been raving about this place for a while, I tried it today for the first time.

Have eaten there a few times. Call me crazy, but nearly every flavor I have tried, sans the ones with jalapeƱos, tastes exactly the same. Men in my office are "meh", but the women love it. I simply don't see how it can be a sustainable business only selling chicken salad though. I don't care what flavor, you really have to love chicken salad to go there often. That said, they seem to do OK around here in some very competitive markets.
was in Savannah GA today for a dr appointment and stopped in, they had seating for 160, almost every seat was filled. People standing in line waiting for a seat, mostly women. Only noticed 8 of us mens in there. Chicks dig Chicken Salad I guess.
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Re: Any franchise experience here in the LR? [SkipG] [ In reply to ]
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The product doesn't make a bit of difference. Do you think McDonalds had best hamburgers in the country from 1980-2010? Here are the things that matter:

1) does the franchise have a training system to teach you how to run the business?
2) does the franchise possess the management to scale properly? What is their experience? There is a big difference between running 20/200/2000 restaurants.
3) Jimmy Johns food sucks now. They had to (my guess) go to different food vendors when they got so big and were more interested in taking a cut from the food vendors than providing a good sandwich. How much autonomy do you have as a franchise owner in your food vendors? If I were to open a restaurant franchise this would be the first thing I would ask.
4) there is no such thing as passive income. If that is why you want to get in on it, you are fooling yourself.

I lost a multiple of 100,000 in a franchise because they didn't train well, their vendors couldn't handle supplying 800 stores product and I wasn't willing to put in the time because I was hoping for passive income. Don't be me.
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Re: Any franchise experience here in the LR? [SkipG] [ In reply to ]
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Chicks dig Chicken Salad I guess.

Do they or do they dig the persona of the restaurant? Just looking at the franchise it seems very "trendy" rather than "Good". Not saying you can't have a restaurant based on chicken salads and other similar salads, I'm just having a hard time believing that there are that many people going because of the food....as it's chicken salad.

The point I'm attempting to make is that this could be something like Kenny Rodgers Roasters. It really wasn't about the food but the name and idea. Once the idea became non trendy there was nothing to keep the chain afloat.

~Matt



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Re: Any franchise experience here in the LR? [MJuric] [ In reply to ]
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MJuric wrote:
Chicks dig Chicken Salad I guess.

Do they or do they dig the persona of the restaurant? Just looking at the franchise it seems very "trendy" rather than "Good". Not saying you can't have a restaurant based on chicken salads and other similar salads, I'm just having a hard time believing that there are that many people going because of the food....as it's chicken salad.

The point I'm attempting to make is that this could be something like Kenny Rodgers Roasters. It really wasn't about the food but the name and idea. Once the idea became non trendy there was nothing to keep the chain afloat.

~Matt



This was pretty much my thoughts when I viewed the website and read a bit on it. I think it will prove to be a somewhat trendy chain.

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Re: Any franchise experience here in the LR? [SkipG] [ In reply to ]
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A friend of mine had bad experience with a chain sandwich shop.

They launched a national advertising campaign featuring annoying talking rodents that dropped business significantly.

He also had no control over advertising but had to accept coupons and promos. Being in a college town he had a much higher rate of coupon redemption than other stores and that hit his bottom line.

He also found it very hard to hire and keep staff so he was working close to 7 days a week for a long time.

His biggest frustration was the lack of control over things like advertising and promotions that had a big impact on him.

He took a big hit when he closed the doors as he had to sink a lot into company specified upgrades. I think he lasted 4 years.
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Re: Any franchise experience here in the LR? [SkipG] [ In reply to ]
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I've done some work with franchisors, so I have some perspective from the other side.

$60K up front fee seems steep (I'm used to seeing $25K at the top end)
5% royalty seems reasonable (assuming it's based on net sales, and does not include sales tax - yes, this has happened)
2% marketing seems to be in line, I've seen 3%

The $400K to get up and running seems to be a touch high, but not out of line.

The biggest things are:
  • Scrutinize the hell out of the FDD, especially the financials
  • Make sure they can prove out the economics (not just a set of assumptions, but actual examples of the financial performance of other franchises)
  • Spend some time with other franchisees and take their temperature and what is good and not so good
  • Find out the turnover / success rate of other franchisees

Good luck!




There are three kinds of people, those who can count, and those who can't.
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Re: Any franchise experience here in the LR? [SkipG] [ In reply to ]
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Know how to make a small fortune in the restaurant business? Start with a large one. Too scary for me to attempt. Good luck.
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Re: Any franchise experience here in the LR? [SkipG] [ In reply to ]
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I bought a franchise 4 years ago with mixed results and feelings. 40k to buy it, 7% royalties, 2% marketing fees.
My recommendations are to read the FDD carefully. Also, independently seek out other franchise owners and call them. Grill them. I was steered towards mainly the best performing franchises in the country. Specifically seek out poor-performers and find out why. It may be their performance and practice, but it may also be the franchisor's requirements.
What is the renewal duration between contracts. Mine is 5 years, which I think is short. I'm looking at a new contract in a year with new requirements and a take-it-or-leave-it choice.
Keep regional differences in mind. If the franchise is based out of Boston, what they think works may not work so well in Boise. City and state regs may be completely different from where the franchisor is based and where you want to open. All great points in the posts above mine.
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Re: Any franchise experience here in the LR? [SkipG] [ In reply to ]
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I work for a commercial real estate co (family-owned, not a REIT) and our square footage is split 50% retail, 25% office, 25% multifamily. I have a lot of experience working with franchises. AJThomas makes some excellent points. I'd like to add to that though: get the site selection and lease terms right and don't count on a broker to do it for you. If you don't get those two right you'll be swimming up stream against a very strong current.

The smart ones always look for the same things: trade area, visibility, accessibility, and parking. Keep in mind that a broker will be motivated by their comission and will thus be inclined to steer you toward spaces with higher base rents (because that's what they get paid on). One "trick" they'll often use to this end is they'll steer you toward a landlord that offers a buildout allowance in exchange for a higher base rent. That's appealing for the first couple of years but it will bite you in the ass years down the line as the base rents creep up.

When you negotiate your lease make sure you add a clause that you are not responsible for increases in real estate taxes as a result of the property being valued higher due to a sale.

Just to give you an idea of how that might work out, let's say a developer buys a parcel of land for $650,000 and builds 10,000sf for ~$1,350,000. Let's say you rent out 5,000sf at $22psf gross and your NNN is $6psf (real estate taxes will be about $1.60 of this). Let's just say that this developer decides to flip the property and scores a 5 cap (20x multiple of NOI) which would value the property at $4,400,000. You can expect your real estate taxes to increase by $1.92 or nearly $10,000/year under such a scenario. The new landlord might push for and be granted a lower valuation at some point in the future but there's no reason you should be on the hook in the interim.

Depending on the franchisor, they may have dedicated construction crews, personnel that specialize in overseeing buildout, or provide no assistance at all. In the last scenario, you better have an idea of what you're doing otherwise you're going to get screwed. Hard. Guaranteed. Make sure you spell out every last detail in the contract and provide for damages and/or remedies if the contractor doesn't meet certain deadlines/criteria.

Honestly, here's my best tip: if you're trying to determine if a certain strip center or trade area has a strong lunch/dinner business, check out the dumpsters. If the dumpsters are always damn-near full that's a sign of robust business in the area. The other alternative is to sit in your car for an extended period of time in a parking lot but, frankly, it's hard to cover a lot of ground with that approach. Also, MasterCard had a sales "Heat Map" tool last year that allowed you to see relative sales on a block by block basis. I'm not sure if that tool still exists.

WTB: TriRig Omega SV (not x). PM me if you have one :)
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Re: Any franchise experience here in the LR? [GreenPlease] [ In reply to ]
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Some really solid advice in all the post here. Really appreciate the feedback!
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