Hey, restaurant owners, operators, and managers.
Generally, I'm known for a few things that I say over and over again.
You'll hear me say in just about every video - manage
systems and develop people.
You'll hear me say the restaurant business is not hard.
What makes it hard is doing hundreds of easy things well every day.
I say curing cancer is hard, going to the moon is hard, sending
rockets into space; that is hard.
But the restaurant business is really not that hard.
Just do a hundred easy things well every day and you'll be just fine.
You may have also heard me say, I hate franchising, but you've never
heard me explain why, and I’m going to do that in this video right now.
Hey everybody, Ryan Gromfin here – author, speaker, chef, restaurateur,
founder of TheRestaurantBoss.com, as well as ClickBacon.com,
and ScaleMyRestaurant.com.
Now, first of all, I don't hate franchising.
The idea of franchising is brilliant and it has its place
in many businesses, as well as in the restaurant business.
To say I hate franchising is way too broad of a statement, it is unfair
to a lot of brands that do it well.
Generally, we only hear about the brands doing it well and
generally, it's just not my preferred method for growing.
We hear about brands like McDonald’s and Subway and they do a great job,
but we don't hear about the brands that no one knows about because they
suck at franchising and there's a lot more of them that suck at franchising
than the ones that are doing it well.
So generally, I do not like this method.
There are other methods that you can use to get into the restaurant
business or that you can use to grow your restaurant business,
but in today's video, we're going to talk about just generally
speaking why I hate franchising.
Now like I said, I'm not going to name names but I get phone calls from
people who have bought into regionals, nationals, and even internationals,
and they hire me to coach them because their brand is not supporting
them with the tools that they need, so they need to see coaching
elsewhere, but isn't that the whole reason they got into franchising?
They wanted more of a done-for-you solution, they wanted something that
was simpler and easier for them to execute, and what they ended up with
was kind of a headache, to be honest.
And it's not like they're going to go back to their franchise group and
say, hey, part of the royalty that I’m paying you is for the coaching
and support and you're not giving it to me, so I need other help to
build my system, so I'm going to deduct that from the monthly fee.
No way.
Shouldn't coaching and development come with the franchise?
Absolutely, and I ask myself that all the time.
I ask myself why brands love to franchise and why people love to buy
franchises, but here's a few reasons why generally I hate franchising.
So first, we're going to look at this from the franchisee
perspective, then the franchisor.
Now, remember, the franchisee is someone who buys a franchise.
Generally, I hate franchising and from the franchisee perspective because
you're stuck with their menu, with their purchasing relationships, with
their website, with their logo, with their graphics, with their marketing.
You can't really do anything about it.
If someone doesn't like an item on your menu, you can't change it.
If someone wants something different on your menu, you can't add it.
You can't pivot as quickly.
You're pretty much stuck with what they got.
Now the second reason is, I don't believe that the franchisor has much
incentive to make sure that your sales are as high as they should be.
Here's what I mean by that - let's assume that you're
paying a six percent royalty, which is pretty standard.
Now sometimes there's marketing fees on top of that and sometimes
there's purchasing fees on top of that, but let's just assume
that six percent of your sales are going back to the franchisee.
Now if you do five hundred thousand dollars a year in sales,
that's thirty thousand dollars a year back to the franchisee.
Not terrible, they do a bunch of those and they're making some really
good money, but here's the thing.
At five hundred thousand dollars a year, I mean depending on where
you are in the world, but at five hundred thousand dollars a year,
you're not really making any money.
Maybe you're paying yourself a salary or maybe you're paying
someone else's salary to run it and this is a side hustle for you, but
you're not making any money, and let's just not even talk about why
people think that the restaurant business and even franchising in the
restaurant business is a side hustle to your full-time job, it's not.
The restaurant business is a serious business, it's
not a side hustle business.
If you're in the restaurant business, you should be in the restaurant
business, but besides that…
So let's assume you're either not making any money and you're
paying someone else to operate or you're paying yourself fifty
thousand dollars a year to operate.
Now if we were to increase your sales by a hundred thousand
dollars, that's six thousand dollars more to the franchise group.
Again, money, not a lot of money but it's money.
But for you, you're not going to really have additional fixed expenses.
The only thing that's really going to go up is your royalty fee, plus
your cost of goods sold, maybe a couple dollars here and there, but
let's just say that of the hundred thousand dollars in additional sales,
you get to keep 50,000 of that.
Now maybe you pay yourself a hundred thousand dollars a year now to run
it, instead of fifty, or you still pay your manager fifty, and you as the
owner are keeping fifty for yourself.
That's a ton of money for you, but it's very little for the franchise.
The franchise would rather sell another franchise unit.
They'd rather sell one for 25, 35, 50, 000, plus they're going to make
money on selling specialty equipment, they're going to make money on
training, they're going to make money on marketing, they're going to make
money on product sales, cost of goods sold, food sales, things like that.
So for them, there's very little incentive for them to grow your
sales, there's much more incentive for them to sell more units.
Additionally, eventually most franchise groups are going to
get bought out or they have a plan of getting bought out
by some private equity firm.
That private equity firm is more interested in more units doing
less sales than less units doing more sales because when they buy
you, they're able to squeeze the margins on more units and they can
make more money, that's easier for them than going out and opening
up a whole bunch more units.
So again, there's really no incentive for your franchise
or to help you grow your sales.
The last thing is that generally, these franchisor groups suck at
franchising in the first place.
They suck at operations.
If they were really good at operations, they wouldn't
grow using a franchise model.
If they were good at operations, they would want to keep that
restaurant brand of themselves, they'd want to open up more units,
but a lot of times, they don't want to deal with the operations, right?
Can you blame them?
Operations are the hardest part of a restaurant; they
don't want to deal with it.
So they figure, we came up with an idea, we're going to sell it off
and let you operate it, let the other people operate it so they
don't have to deal with it and then by letting you do the operations,
they just get to make all of their money on the royalties, but if they
suck at operations and they don't love operations and they don't
love building systems and processes and procedures, how are they ever
going to build the operations and build the processes to support you?
Which brings me to, let's look at three reasons why I hate
franchising from the franchise or perspective, from the person
who built the brand who's now selling it off to someone else.
One, you're no longer in the restaurant business.
Now if you don't like the restaurant business, this may work out well for
you, but if you're passionate about the restaurant business and you love
creating food and you love selling it and you love talking to guests and you
love all the cool things that a lot of us love about the restaurant business,
you're going to hate this business.
This is the fastest way for you to hate your new life because
you're now in the rent business.
You're basically a landlord, you're collecting rent.
And the reason I say this is the best way for you to hate your new
life is because now you're a coach.
So number two is, you now become a coach.
Now again, for some of you, you may like that but for others of you,
you don't really want to be a coach.
What I mean by a coach is not dealing with fun helping people grow things,
I'm talking about you're going to get a phone call for everything that your
franchisees hate about your business.
You're going to get a phone call for them blaming you
for all of their problems.
If their sales are low, it's your fault.
Your marketing sucks, that's why.
If they're not making enough per item.
it's your fault.
You're charging them too much for the food, you're not charging the guest
enough, or you're running too many coupons, or you're not running enough
coupons, or you're changing the menu too fast, or you're not changing
the menu fast enough, or you're not giving them access to new technology,
or you're giving them access to too much technology that they don't want
to be paying for, or you're asking them to update a store that's 10 years
old and is ugly and is outdated, and they don't want to spend the money on
updating their store and now they're fighting with you because they're
not making any money and you want them to spend fifty thousand dollars
to update their store, and you know that they're not doing the sales they
should because their store is ugly, but they think that it's some other
reason and the list goes on and on.
And so, if you want to get those phone calls every day, that's awesome.
Go into the franchising business, but if you don't want to deal with
that every day from 5, 10, 20, 50, 100 other franchisees who are
calling to complain to you about their problems and are expecting a
solution from you to all of their problems, maybe you should consider
something other than franchising.
And here's the reality, this is number three, you better be good at writing
instruction manuals, creating systems, developing processes and procedures
because that's the business you're in.
And you have a responsibility to be good at that because here's the thing,
I have witnessed firsthand people who have bought franchises and gone out
of business for no fault of their own.
They've bought franchises from franchise groups that absolutely
suck at franchising, that are not creating good products, that are
not keeping up with technology, that have not developed good systems,
that have no proprietary technology, that don't have good marketing, that
don't know what they're doing and don't care about their franchisees.
And I know people who have spent their life savings, who've quit
their jobs, who've borrowed money from friends and family, who've
used this as a retirement plan.
Just recently I had a friend who quit his job, borrowed some money, sold
a whole bunch of his investments to buy a franchise and they sucked at
supporting him, and a year later, he went out of business and it
wasn't his fault, he did a good job.
He did everything right, the franchise sucked, their recipes
were terrible, their technology was terrible, their product was
terrible, but he thought that they were doing better than they were and
he thought that it would translate to a different market, so he bought
the franchise and unfortunately, he was wrong, but you know what?
I blame the franchise group, I blame the franchisor for not supporting
him or for not putting together good systems and good processes and
good procedures and good technology to make sure that his store was a
success, and he lost half a million dollars and a year of his life
because of it and I just have no respect for people that do that.
So if you're seriously considering franchising, please think about this.
If you're considering it from buying a franchise, again if you've done
your research and you know what you're getting into, this could be a great
model for you, but generally, most franchise groups go out and hire an
attorney to write them some contracts, they go out and hire a consultant to
write some manuals for them, and then they think they're ready to franchise.
Well, they're not.
And if that's your plan.
if you think, oh, I've got some good concept, we're going to go and
franchise it, we're going to sell a whole bunch of these units, we're
going to get rich, we're going to make a whole lot of money, but you're not
willing to put in the work to actually support your franchisees, don't do it.
I hope you guys enjoyed this week's video.
I hope to bring you many more just like it.
I love every single one of you crazy restaurant people and remember.
systems create freedom, freedom creates value and value creates scale.
I'd love to see your comments below.
Let me know what you think.
I know there's going to be some good comments, either pro my
argument or against my argument, but I look forward to reading
every single one of them.
Have an absolutely amazing day, bye-bye!
Ghost kitchens are changing the restaurant industry forever.
They've created the single best opportunity to grow
your brand or create a new one than I have ever seen.
The recent boom in online ordering and third-party delivery
has made this model simpler to take advantage of, but it has
also created more competition.
In order to succeed, you must follow proven strategies for developing your
concept, implementing technology, and nailing your marketing.
That is why I created the ghost kitchen boot camp.
So you can go from developing your concept to opening your own
ghost kitchen that absolutely crushes it in just one week.
I hope you enjoyed this week's training video.
If you haven't subscribed to our channel yet, would you go
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I've also gone ahead and put a couple of videos for you here and here
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Remember, systems create freedom, freedom creates
value and value creates scale.
Manage systems, develop people and be awesome.