A restaurant franchise is a brand which an investor, or franchisee, has bought the right to use. The franchisee is responsible for the day-to-day running and management of the restaurant. In return, the company granting the license, or franchisor, offers support, marketing and a proven restaurant concept. Franchises have very distinct differences from non-franchises.
A franchise often begins as a successful mom-and-pop restaurant before branching out to multiple locations and investors. The original restaurant is able to refine the concept, see what works and create a proven formula before the brand is able to take on franchisees. As more locations are opened, the brand is able to grow quickly and the franchisor makes more money. At the same time, franchisees are able to take advantage of the franchise formula and take on less risk.
Unlike non-franchises, franchises may have thousands of locations. As of March 2007, McDonald's had more than 31,000 locations around the world. This means that customers are often very familiar and comfortable with a brand. At the same time, smart growth is an important part of managing a franchise brand.
The franchisee pays a fee in order to use the brand. This franchise fee can be minimal for newer, growing franchises with few locations and a less proven concept or can be in the millions for large, established franchises that may require an investor to commit to multiple locations. In addition, the franchisee is responsible for the costs of maintaining the restaurant and may need to sign agreements requiring future renovations or updates.
A franchise restaurant is often a nationally or internationally known brand name. The franchisor is typically responsible for major advertising and marketing campaigns, although the franchisee may have a say in local marketing and often contributes a percentage of her profits to the advertising budget. The corporate owner is also responsible for market research. While this saves the franchisee money and attracts customers, it also means he has very little say or control over the brand.
The food at a franchise is often consistent at every location. The corporate owner decides the menu and recipes and often must approve food vendors to ensure that a dish served at one location tastes the same as it does at all of the other locations. In some cases the franchisor requires the use of proprietary products. The corporate owner may also undertake market research to test new recipes.
A franchise can be attractive to franchisees because it offers a support system that isn’t available when starting a restaurant from scratch. Many franchises offer in-house loans, training programs and support for everything from community engagement to technology and equipment failure.
- Reference for Business: Franchising
- 10 Reasons to Purchase a Franchise
- 8 Franchise Ownership Myths
- Thomas S. Dicke. "Franchising in America: The Development of a Business Method, 1840-1980," Pages 12-13. UNC Press Books, 1992.
- Thomas S. Dicke. "Franchising in America: The Development of a Business Method, 1840-1980," Page 119. UNC Press Books, 1992.
- International Franchise Association. "Franchise Business Economic Outlook." Accessed Sep. 20, 2020.
- Federal Trade Commission. "Franchise Rule Compliance Guide," Pages i, 24-119. Accessed Sep. 20, 2020.
- International Franchise Association. "Royalty Fee Requirement Definitions," Page 1. Accessed Sep. 20, 2020.
- McDonald's. "Franchising FAQs." Accessed Sep. 20, 2020.
- U.S. Bureau of Labor Statistics. "Table 7. Survival of private sector establishments by opening year." Accessed Sep. 20, 2020.
A graduate student in Boston, MA, Michael Kay has been a professional writer for over five years. After working in political communications, he began working as a copywriter for a national advertising agency based in Chicago. His work can be found in college textbooks, corporate marketing materials and across the Web. He has a Bachelor of Arts in magazine feature writing from Ball State University.