Independent Restaurant vs. Franchise Restaurant
Are you looking to open a restaurant and trying to decide what would be the best route to take? Should you open a restaurant on your own or buy a franchise? What if I told you each route is best taken when you understand the pros and cons of each? I was the chief operating officer of a franchise before I became a restaurant coach for independent operators in 2003, so stick around and I'll share with you my insight into independent restaurants vs franchise restaurants for ownership.
Before I get into the pros and cons of independent restaurants vs franchise restaurants, I want to share with you two things that will determine your success as a restaurant owner. With well over 30 years of experience under my belt, the most successful restaurant owners I’ve know had two things: passion for hospitality and persistence. I will tell you to a person, of all the restaurant owners I’ve coached over the years, success was based on a strong passion for hospitality and making memories for people, as well as persistence, especially in the face of challenges. In the restaurant industry, there's always a challenge and if you’re going to own a restaurant over the long haul, nothing can be too difficult for you to get through. Now, I'm not saying they don't cry. I'm not saying they don't bleed. I'm not saying they don't lose money from time to time when those challenges come into play. But they have a mindset toward growth and change and nothing can stop them.
If you feel like you have passion for hospitality and you're a go getter, that nothing will stop you, then I think you're ready for the restaurant business.
Pros and cons of franchise restaurant ownership
Franchises are best for mid-level managers from any industry who want to go into the business for themselves with little to no experience in the restaurant industry. Let’s say you’ve retired early and want to keep working and have money to invest in a business. A franchise is great in this case because they have turnkey systems and guidelines that help you operate that specific franchise.
Pros #1: They have proven business systems. Someone long before you made the mistakes that cost money, but they figured out how to make it all run like a well-oiled machine. With a turnkey model like that, you can see how this makes business so much easier for a mid-level manager of any industry who knows how to manage people and how to manage processes.
Pro #2: You’re buying into a known brand that has a known/familiar identity coming out of the gate. When you have a known name, people know what to expect and there is no guessing when they walk through that door
Pro #3: You have group buying power. Often chain restaurants are paying anywhere from 5–14 percent less than an independent operator for the same food. Why? Because there's tonnage. A franchise that has thousands of restaurants all buying the same product is buying tonnage and the benefit is lower prices.
Pro #4: You have a corporate office to help you. You're not alone. The franchise’s corporate office is going to train you on the restaurant industry. They're going to train and support you to get open. They're going to continue to train and support you as you're operating. They're going to come in and make sure you're operating properly. They're going to answer your questions.
Con #1: You can't invent a new way. You must follow the corporate office’s way. You must purchase what they say to buy, even if you can get a better deal on a better product. Their job as a franchisor is to make sure everybody buys the same things so that the guest has the same experience no matter what city, town or location they go into.
Con #2: You must make renovations when they say so. If they say you need to change the whole interior, move walls, change colors, buy all brand-new furniture because the concept is changing what it’s looking like, then you're contractually obligated to get that done.
Con #3: You must pay into a marketing fee, whether it's local or national or both, and you may not have any control how that money is used.
Con #4: You must pay 5–7 percent, on average, as a royalty fee. There are some that are lower and some that are higher, but every dollar you bring in that you worked your ass off for, you're giving them a nickel or 7 cents, even if you comped product, it doesn't matter. They take their royalty off your gross sales
Pros and cons of independent restaurant ownership
Independent restaurants are best suited for people who have hospitality experience. Hospitality pros and/or those who are extremely entrepreneurial that don't want to be told what to do. You could be somebody who's grown up in this business, a chef, a manager, anyone with experience in restaurants. I've also seen entrepreneurs from other fields, such as real estate, go into the restaurant business with zero experience, but they are entrepreneurs. This means nobody is going to tell them what they're going to do in their four walls. If you're one of these kinds of people, then opening a restaurant up on your own is probably the best way to go.
Pro #1: You have the freedom to create the concept of your dreams, whatever you want it to look like. You can set your own operating hours, your own menu, your own atmosphere, your own music. You have freedom to make every decision from flatware to uniforms. It's yours to do whatever you want.
Pro #2: You get to keep 100 percent of what you make. There's nobody to share the money with (except of the government, of course). You're not paying for support from that franchisor that you might never need.
Pro #3: You can create the life you want. No one tells you how to staff the restaurant or how many hours you have to be there.
Con #1: Your food cost is going to be more than anybody else if they're a part of a chain, because there's not group or bulk buying.
Con #2: You might feel like you're flying blind at times with no corporate office. Independents don't have somebody to turn to. You have four walls and not very many people to bounce ideas off or learn from.
Con #3: Every mistake you make is going to cost you your money. Remember one of the pros of owning a franchise is they’ve made all the mistakes and found the processes that make running their brand smooth. When you open up your own place, you've got to step in it. You’re the responsible person.
Con #4: You've got nobody to blame for your mistakes. There is no corporate office to blame.
As a franchisor in my past life, I can tell you that all franchisees are not created equal when it comes to support and the brand. If you decide to go the route of operating a franchise, please listen to me. Hire a franchise attorney to review the contracts and help you to understand exactly what you're getting into. You need to make sure this is what you want to do because it's easier to get a divorce than it is to get out of a franchise agreement.
If you decide to go the independent route, you must learn and use all the right systems to have a life and make the money you deserve. I know this for a fact based on the countless numbers of restaurant owners I've worked with, and I've seen them absolutely change their lives when they go all in with the systems and follow them to a T.
If you would like to learn how to own a restaurant that doesn't depend on you being in it to be successful, watch this free video course that teaches you three key principles to running a successful restaurant. If you're ready right now to make some serious changes in your restaurant, you can also book a 60-minute call with me where we talk about your challenges and figure out exactly what is holding you back from having a restaurant that doesn’t depend on you being in it to be successful.
Be sure to visit my YouTube channel for more helpful restaurant management video tips.