One if the biggest misconceptions in business is that a franchise is a safer investment than going it alone. That is definitely true if you purchase, say, a Burger King or a McDonald’s or a Taco Bell that have long track records, well-known brand names and robust product development pipelines and technology strategies and relationships with vendors.
Lesser-known franchises? Not so much. Exhibit A is Burgerim, whose downfall we detailed last year. We spoke with some operators this week that have since converted their concepts into other brands. Most of them opted to go it alone and create their own brand. (You need a subscription to read the piece, but a subscription is totally worth it.)
The key quote came from former Burgerim franchisee Ravi Pradhan, who created a concept called Burgers n Bites.
“I will never do a franchise he said. “I have learned a lot from this fiasco. I would rather do my own. It gives me flexibility to do a lot of things—menu changes, point-of-sale. I can change according to a market need. Not with a franchise.”
Franchises do a lot of the legwork of creating a restaurant. They develop the recipes, the brand name, ink all of the contracts with technology companies and distributors. That brand is then “proven,” and if franchisees simply follow the “playbook” they can succeed in the business.
That has left them with a reputation for safety. When we interviewed dozens of Burgerim franchisees for our initial story, many mentioned that they wanted to open a franchise because they felt it was a safe investment.
The problem is that newer and smaller brands do not necessarily have the brand recognition that could make a brand a safer investment, so they don’t automatically generate customer demand necessary for success.
The business itself is also prone to fly-by-night schemes and fads that can quickly go out of style. Also, smaller franchisors are notorious for aggressively pushing growth so they can generate more royalties, and frequently sign operators far away from their home turf where their brand names are better known. Oh, and then there are also the brands that view their franchise base as a piggy bank, with direct and indirect charges that make it difficult to make a profit.
One big issue, however, is that when the going gets tough, independent operators can make changes to their operation or their menu so they can generate a profit.
Burgerim grew too fast with sites that were too expensive or not very good or both and couldn’t support its operators, most of whom had little idea what they were doing. Pradhan was an IT employee who wanted a side income, for instance. Once they opened operators were largely stuck with the operation they were provided—including a menu with 11 proteins and three sizes that is both complicated and expensive.
Even with the brand largely unable to enforce anything, operators were stuck with what they had because they couldn’t make changes due to the company-controlled point-of-sale system.
When operators went on their own, they were able to throw all of that out the window and start from scratch. So operators eliminated a lot of the protein options available to customers. They eliminated menu offers that didn’t work.
Robert Carrier removed the “Trio” of three-ounce burgers that sold for $12, saying it took away from sales of the larger, single quarter-pound and third-pound burgers. He also removed a 16-burger party pack that was difficult to put together and was unprofitable. “I would have to charge $90 to make any money off of it,” he said.
And they added menu items they developed themselves or with assistance. Abdul Popal’s iniBurger added Nashville Hot Chicken and a Mushroom Swiss Burger. “We went out and started marketing,” Popal said. “The new items we put on the menu have been a runaway success.”
None of this guarantees success, not by a long shot. It’s still the most competitive industry on the planet, after all, and opening an independent restaurant is still a huge risk.
But the flexibility independents have in building and refining their concept—not to mention the fact that they do not have to pay a royalty—can offset some of the startup benefits of owning a franchise.