Food and Drink - Spring 2014 - 65

business strategies

T

The franchise model can offer restaurateurs plenty of upside,
which is precisely why franchise restaurants blanket the country. As growth vehicles go, however, franchising works better
for some concepts than for others. Is franchising right for you?
The key is to conduct a careful analysis that takes into account
the potential risks and rewards for your specific business.

The first ingredient of a successful franchise is market acceptance. Whether
the business is a single unit or a smattering of company-owned stores, it
must be successful from the start. How
else will the startup franchisor sell
prospective franchisees on the viability
of the concept?
It must also be replicable. A fine-dining restaurant is not easily cloned. After
all, a chef who enjoys developing creative dishes is not likely to be interested in mass production. If the restaurant's format can not be easily
described in an operating manual and
taught in a training program, why bother to franchise?
The business should also clearly distinguish itself from the competition. A
strong brand identity is more than just a
trademark; it includes the look and feel
of the shop, the culture of the business
and the distinct characteristics of the
products or services offered.
Be honest and look within. If you get
the feeling your concept is a late-to-theparty imitator, think twice about franchising until you can truly carve out a
viable niche in the market.

Designing for Success
Of course, some foodservice operators
know exactly what they are doing. They
have hit upon a simple, quick-service
concept that appears to be tailor-made
for rapid growth. These owners stand a
much better chance of becoming successful franchisors and giving lots of
prospective franchisees the opportunity
to start their own businesses.
The owners who have been able to
figure out franchising quickly also stand
a better chance of raising capital and

growing through company-owned
stores if that's the path they prefer.
Compare Starbucks, which grew
through an initial public offering, and
Dunkin' Donuts, which grew through
franchising. At first glance, they appear
to be quite different.
Starbucks actually began with an
aversion to franchising. In his book,
"Pour Your Heart Into It," CEO Howard
Schultz wrote that the company
steered clear of franchising because he
did not want to risk losing control of
the link to the customer.
Upon closer analysis, these distinctions break down. Starbucks has
entered into franchise-like arrangements to operate its stores, including
shops within chain bookstores and
hotels. These and other arrangements
with third-party owners are done
through exemptions to the franchise
laws, which requires legal monitoring
to ensure that none of the deals cross
the line and trigger legal requirements
for registration or disclosure.
Meanwhile, Starbucks openly franchises in Europe.
Dunkin' Donuts thrives under the
franchise model, while enjoying a
burst of growth thanks to a private
equity investment. The difference is
simply in the method of exercising
quality control.

the entire system. Even with a few
loose cannons on their hands, franchise owners can take steps to maintain their direct connection to the
brand's loyal customers.
Many franchisors maintain some
company-owned locations even as
they track the performance of their
franchised locations by extensively
surveying their customers.
Independent franchise owners have
an incentive to succeed, which can
help the overall brand be successful.
These franchisees also know their
local markets and are quick to let the
franchisor know precisely what will
work best.
Some brand owners avoid franchising because they don't want to face
disputes, such as encroachment
claims. The thinking goes: 'Just look at
all of the Starbucks stores clustered so
close to one another.'
If those locations had been franchises, Starbucks would have had far
fewer options. Although the company
did have greater freedom to ax underperforming shops, the process still
involved plenty of headaches related
to leases and employment issues.
On the other hand, franchisors that
treat franchisees well, communicate
frequently and strive to help their franchisees succeed, can achieve another
end and avoid disputes.
The bottom line is that franchising
has advantages and disadvantages.
Before pursuing this path, it is important to carefully consider your business
model and personal preferences.
If you choose to franchise, there are
many successful people who went
before you. Study their stories and
learn from both their successes and
their missteps.

Ups and Downs
Franchising can create certain challenges. After all, franchisees can be
quite independent. The best of them
may be prone to objecting to certain
franchisor policies and yet these stubborn, hardworking franchisees often
drive innovation in ways that improve

Tom Pitegoff is a veteran
franchise attorney and
counsel with national law
firm LeClairRyan, based in
the firm's New York City
office. He can be reached at tom.pitegoff@leclairryan.com.
food & drink * spring 2014 * www.fooddrink-magazine.com

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Food and Drink - Spring 2014 - Cover1
Food and Drink - Spring 2014 - Cover2
Food and Drink - Spring 2014 - 1
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Food and Drink - Spring 2014 - Contents
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Food and Drink - Spring 2014 - Cover4
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