7 Things to Consider When Buying into a QSR Concept
September 16, 2022 •First Franchise Capital
Quick Serve Restaurant (QSR) franchise ownership is an exciting opportunity for anyone looking to start or expand their business. But before you buy into a new concept, there are several key factors that you should consider. Here are just seven of those important considerations to keep in mind.
A good place to start is by determining whether there is a market fit for your idea. Carefully evaluate the demographics of the area you are thinking about opening a concept. You want to choose an area with good potential for growth. Is there a gap in the type of franchises in the area? For example, if you are planning to open a Dave’s Hot Chicken® franchise, you probably won’t want to open next to a Chick-fil-a® or Popeye’s®. However, a Del Taco® may be a better option in the area.
Once you have established that your franchise will serve a need in the area, it’s time to consider where you will open the franchise. Curb appeal is often the first impression of your location that customers have. Your evaluation of the market need for your franchise may be correct, but if the store location is in an area with low visibility, your sales will be less than anticipated. Consider store visibility from the highest traffic areas in the area and the availability of signage.
Before you begin your franchise, you should evaluate if you will have the time to dedicate to the training and time commitment a new franchise requires. You should plan to dedicate 6-12 months for the entire purchase process - including commitment, funding development for the store, to open doors. A good franchise opportunity will provide you with an established business model, training, support, and ongoing mentoring. It will also give you access to proven systems and processes that will allow you to build a successful business. Even with these aids, you will be required to dedicate a lot of your time to the business. Until you have built a strong team, you will often need to be in the store filling-in where necessary. Additionally, some franchises do not allow absentee management, so you may be on location regularly.
3. Business Model
Before you invest in a franchise, make sure you understand how the business model works. You should also ask yourself what type of business you would like to run. Do you want to open up a new location? Or do you prefer to work with existing businesses? Many established franchise brands offer four levels of franchise agreements, single-unit, multi-unit, area developer, and master.
- Single-unit – if you’re looking to dip your toes into the new franchise, starting with a single unit may be the right step for you. You can start a new location or acquire an established location.
- Multi-unit – Instead of one location, you can open or acquire multiple units at once.
- Area Developer – This agreement allows you the right to develop a set territory and may include requirements like opening five units over five years in the territory.
- Master – A master agreement is a level above an area developer that give you the right to sell franchises in an area, known as sub-franchises.
According to Grand View Research, the QSR industry was valued at USD 257.19 billion in 2019 and is expected to grow at a compound annual growth rate (CAGR) of 5.1% from 2020 to 2027. Even with the threat of a recession, the outlook for the industry is good. Historically, people who typically dined at full-service restaurants turned to more budget friendly QSR options during economic downturns.
While relatively stable, the industry is not immune to change. The rise of mobile ordering and delivery services brought about by the pandemic has forever changed the industry. Online service and reputation are now almost more important than in-store service. Even menu items are changing as consumers increasingly demand breakfast items and vegan or vegetarian items.
No franchise will be successful without employees. The QSR industry is fraught with hiring difficulties and a shortage of workers. If you choose to open a new location instead of acquiring an existing one, you should develop a plan to staff your store. Partner with local staffing agencies and invest in ads aimed at hiring staff. Additionally, think about how you’ll develop a management team for the new franchise. If you already have a strong team in place for your business, make sure they have the capacity to take on the new franchise. A good management team is essential to running a successful business. They must be able to communicate effectively with employees and customers. In addition, they must be able to manage the day-to-day operations of the business. Finally, they must be able and willing to provide ongoing training and support to help ensure that the business continues to thrive.
You should also evaluate the legal structure of the franchise before making any investment decisions. This includes evaluating the franchisor’s financial stability, how much control the franchisor has over its franchisees, and what type of support the franchisor provides to its franchisees. Will the franchise fit into the structure of your current business model? Does the concept have similar values as your business? The answers to these questions will determine if buying into a franchise is the right decision for you.
When you have an opportunity to grow by acquiring another location or network of restaurants, turn to First Franchise Capital® for an acquisition loan that is tailored to meet your needs. We are niche lender who specializes in lending to franchisees like yours. We understand the differences between a quick serve restaurant franchise and a service-focused franchise and how those differences factor into suitability for a loan. Furthermore, within the restaurant industry, there key differences between concepts which may not be apparent to traditional lenders. Additionally, unlike traditional banks, we have the flexibility to customize lending packages based on your specific needs, all without requiring personal assets as collateral to support the loan. Contact us today. We will talk with you about your current business, discuss your future needs and show you how First Franchise Capital can help you achieve your goals.
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