Restaurants/Businesses which have scope for more rapid domestic or international expansion than their capital and HR resources permit, often turn to franchising as the means to exploit that scope to the full. Although it is not a panacea for all commercial difficulties, if done properly it does allow businesses to re-engineer themselves so that they can create new channels to market and the consequential income streams on both a domestic and international stage.
However using franchising to access new markets is not without its challenges and it requires more than just a franchise agreement. It requires the development of a clear format that can be licensed to third parties and an infrastructure that supports it.
What is a Business Format?
A restaurant franchise is not a guarantee of success for franchisees but it is a "blue print" for a business which will greatly increase the franchisees' chances of success. It is a distillation of the key elements of the franchisor's business and comprises a matrix of operational and marketing know-how together with access to the franchisors' brand.
The restaurant format needs to be easily replicable by the franchisees and so it needs to be kept simple and straight forward. The more complex the format is, the more difficult it will be to recruit, train and support Franchisees. It is important to remove as many barriers to the franchisee's success as possible.
The simpler the design and layout of the kitchen and preparation areas, the more standardised the décor, design and layout of the take-out and/or restaurant area, the easier it will be to adapt premises to the design and the more quickly and more cost effectively a Franchisee can establish a new restaurant. The menu must also be kept simple. This reduces the inventory requirements and makes it possible to keep the preparation and serving of the food simple, quick and efficient. Also, one is more likely, with a simple restricted menu, to limit the amount of equipment to be employed and thus reduce the requirements of the business in terms of space, initial cash and maintenance.
The overall aim when developing a restaurant format should be to simplify control, reduce paperwork and make the system as foolproof as possible. It requires meticulous planning and anticipation of logistical, managerial, administrative, marketing and other needs. The value proposition and target market must be carefully defined. The knowhow of the restaurant concept needs to be collated and incorporated into a tangible and easily accessible form – the so called manual. The brand also needs to be properly protected.
Franchisee Training and Support
Franchisors must provide Franchisees with initial and ongoing training together with a back-up and support which no independent restauranteur, fighting for market share against highly aggressive, low margin competitors, could ever hope or expect to match. The Franchisor therefore needs to establish a systemised initial and ongoing training and support programme.
Financial Modelling
The financial model needs to be adequately developed so that the Franchisee can generate sufficient profits to enable produce both an acceptable return on capital and a reasonable income whilst enabling the Franchisee to pay the Franchisor a fee for the provision of all the continuing services which it provides. Unless the restaurant can generate sufficient income, it is not capable of being established as a franchise.
The pilot operation
The Franchisor is selling the right to use a package of proven know-how under a brand. It follows that the Franchisor must have operated the restaurant business, developed the know-how and established the viability of the restaurant format in practice.
The restaurant format must be more than just an idea. It must be more than a menu and front of house designs. It must include details of logistics and supplies, detailed job descriptions outlining the specific duties of each member of staff and the manner in which they are to be performed. The specifications of the restaurants and their branding must also have been developed.
Once a restaurant concept has been developed, the Franchisor has to remain ahead of the game. It must continually experiment with and further develop the concept. The systems and all changes to it must be proved and tested. It is just as important that the continuing developments are proved and tested.
Developing the manual
The manual is these days usually on line rather than in hard copy form and will contain the complete method for conducting the retail business. It forms an essential part of the way in which the Franchisor's restaurant concept, know-how and trade secrets are protected. It will, therefore, be appreciated that the manual should be extremely comprehensive and cover in detail all aspects of the day-to-day running of the restaurant.
The manual should contain some introductory remarks explaining the basic nature of the operation and the business philosophy of personal service which underlies it. It should spell out what the Franchisee can expect from the Franchisor, and what the Franchisor will expect from the Franchisee.
There should then follow a detailed description of the restaurant system which explains how the operation is set up, and how and why the various constituent elements fit in with each other.
In a restaurant business one would expect to find details of business critical issues, such as recipes, methods of preparation of food, kitchen procedures, include kitchen layout, time for preparation, cooking, holding and serving of each menu item, portion quantities, including how many portions one might expect from a given quantity of ingredients, stock requirements, display and merchandising techniques, local advertising, promotion and PR, menu content and variations according to time of day, customer complaints procedure, legal/neighbourhood requirements, planning, bye laws, statutory requirements, hygiene, litter, night operations, noise, parking, VAT, work permits for foreign staff and cleaning routines.
There will usually also be a section devoted to standard forms. These might include contracts of employment, agreements with managers or staff requiring them to keep the Franchisor's trade secrets, methods, etc. secret and not to use or disclose them for any purpose except in the discharge of their responsibilities as employees and contract forms used in the course of the conduct of the franchised business.
It is not sufficient just to create a manual when launching the franchise. Franchisors must be conscious of the need constantly to keep their systems and menus under review and to introduce changes and variety so that their operation is at the forefront of the market. Such changes and variations should be reflected in supplements and amendments to the manual.
Documentation
Once the restaurant format has been created and the know-how and systems committed to written form in a manual – usually in an online, digital format, the franchisor needs to ensure that its brand is properly protected, that it has developed an appropriate infra structure to manage and support the franchise and produce an appropriate franchise agreement drafted by expert franchise lawyers.
The franchisor/franchisee relationship is a complex one which needs to be regulated by an agreement drafted by an experienced franchising lawyer who understands not only the subtle nuances of the franchise relationships but also how a host of complex laws impact upon it. A well drafted agreement will not guarantee that a franchise will be a success, but a poorly drafted one is likely to ensure that it is a failure.
Conclusion
When a restaurant business uses franchising to expand domestically or internationally it needs to ensure that the concept is a sound and profitable one, that it is appropriately described in the manual and that a franchise agreement drafted by expert franchise lawyers properly regulates the franchisor/franchisee relationship.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
