Franchising Can Win in a Downturn
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Blazin’ Steaks owner Richard Craft, Jr., is
While Blazin Steaks’ Hawaii stores will remain partnerships, additional expansion, especially on the Mainland, will be through franchise agreements.
But long before he can do that, Craft must also apply to every state where he hopes to expand. Since agreements are similar and all can be patterned after the first, the costs should drop, he says.
With more than 20 years of franchising under his belt, Flores has long since finished applications in the other states where he has restaurants. But he still has to renew every year – one of the continuing expenses the franchiser must factor in.
“Franchising is a dream of every business,” says Flores.
“When you run one or two successful businesses you say, ‘Hey, I’m going to franchise and make lots of money.’ It’s not that simple. It involves having the operation. You need a staff to sell your franchise, a corporate staff to understand the paperwork, marketing people, buyers to start negotiating for contracts, so you’ve got to understand a lot of aspects and have a whole corporate staff to run it.
“It’s the fastest way to build your business,” he continues. “But the downside is it can get out of control. I have more than 180 franchises. That means I have 180 people to take care of.”
Bad economy can be ‘good news’
L&L Chief Operating Officer Bryan Andaya points to three strengths behind franchising in a bad economy:
1. “Some of the ‘A’ locations we would never be able to touch are now vacant. And landlords are much more motivated in talking to us and giving us a good deal.
2. “Landlords are much more willing to renegotiate rent. In this business, it’s the fixed costs that end up killing you. So locations with reasonable rent, those are the ones that survive and continue to thrive.
3. “With existing restaurants closing down or willing to sell, instead of ‘building out’ an empty shell, you can pick up an existing establishment at a very reasonable cost. That can cut the initial investment down to one-quarter or one-third of what it might have been – maybe down to around $100,000.”
12 Steps to Finding a Franchise:
• Look at the segment, services or products that a particular franchise offers.
• Look at the health of that industry.
• Try to project where that industry is going: up, down or stable.
• Analyze how the economy and other factors play into its future.
• Look at the general location and whether the economy there is going to rebound in the next three years.
• Do a market analysis of the franchise’s products.
• Add up what it takes to buy in, and what the fixed and continuing costs are.
• Look at the support you will get from the brand or franchiser.
• Consider the strength of the brand.
• Look at competing choices.
• Set up a business plan to see if you have a viable model.
• Once you’ve made a choice, enter formal discussions with the franchiser and look for a specific site.
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