Just out of curiosity, I’m interested in understanding the experience of running a franchise as an “owner” of the location. I have no intention or desire to run one myself, yet I find it interesting. From the outside, it seems like a weird relationship in which you are the owner and not at the same time. You own the location, but mostly everything major is decided and dictated by the franchise company. So, what’s it like?
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How do you view your relationship with the franchise and your employees?
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What do you label and describe your position as?
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What are your responsibilities?
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What is it like to manage your employees?
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What are the benefits of running it?
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What are the downsides?
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Is it a lucrative investment?
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Was it hard to get into and start up? Were there any major barriers initially?
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It is easy once you get used to it, or is it a lot of work?
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If you suddenly didn’t have the franchise, would you try to start it again?
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Anything else I might not have thought to ask?
The best description I have seen for single store franchisees is, you’ve paid a lot to give yourself a job. They are not lucrative, and in fact, are capital intensive, and often predatory.
There is a very high up front cost, and you generally do not own the real estate. This means you are locked into 30 year leases, often with complicated terms that are solely beneficial to the land owner.
Next, with regards to liquidity, if you don’t own the real estate, you often can’t get multiple business loans with a single franchise, so you must secure the loan with your personal assets, which means you will go personally bankrupt if you hit a rough patch.
Then, after dealing with the complicated business to business transactions and legal work, you still have to deal with the corporate bullshit, taxes, and supervisory duties, particularly if you do not already have a strong business partner to do this for you.
Pretty much, unless you are independently wealthy, own the real estate in a high traffic location, or already have multiple other franchises, it’s a losing venture that will kill your soul and eat every dollar you have.
Been there, done that. Would not recommend. Space Pirate has nailed the experience. I paid a lot of money for essentially a job, and ended up selling at a loss just to get my time and mental health back.
That was back around 2010 so I’m sure it’s an even more difficult situation for franchisees today.
Ask me anything, I guess?
I’m interested what kind of franchise you ran, so like was it a big national chain? Or a small thing with a few locations? I wonder whether either is better.
It was a national tech store, so had a few hundred locations around the country. I just had the one.
One of the big challenges was having little to no say in brand or supplier decisions etc. Specifically, we also struggled with paying inflated wholesale prices with the franchisee or then benefiting from volume rebates which weren’t shared. Really crushed our margins!
I suppose in a smaller chain you might be a little closer to the franchisor, and you might have some influence, but ultimately you’ll always be the little guy.
So most of these places are ran by a person that got trapped into a shitty deal like a timeshare?
I think most are run by franchise groups that own a lot of franchises.
Most likely they also own the land or can negotiate better terms because of their size. Same for negotiating with vendors and the various corporate entities as well.
E.g. it seems like it isn’t something you want to do as an individual but as a corporation that owns several. Aka you need money to even have a chance to do it in a way that makes sense.
The biggest one I know is Collins Foods Australia. It runs a significant chunk of KFC in Australia, Germany, and the Netherlands along with Taco Bell in Australia https://www.collinsfoods.com/about-us/
I’ve worked for both individual owners and corporate owners, and it really really depends on the franchise. Chick-Fil-A is like owning a money printer as an individual owner. Pizza Hut is nearly impossible for even a large company to run profitably.
My last job was with the largest operator of both Pizza Hut and Wendy’s in the US, they filed for bankruptcy two months after I quit because Pizza Hut was such a loss that even the Wendy’s profits could not cover the losses.
I currently work with a bunch of CFA operators and no one owns more than two stores and they all seem to do quite well for themselves while paying their employees pretty damn good wages.
Worth noting that CFA is notoriously difficult to franchise with. They’re extremely selective on what types of people that they’ll enter into franchise contracts with. And they’re extremely choosy about locations, because they do everything in their power to avoid over-saturating a particular market. They’d rather have one extremely busy location, instead of two locations nearby that both struggle. Basically, unless you’re a rich white Republican christian man with a trophy tradwife, you have near zero chance of getting franchise rights with CFA.
On the bright side, once you get your foot in the door, you’re pretty much set for life. It only costs a relatively small up-front buy-in to prove that you’re committed. Then CFA will build the location for you, and ensure the new location gets up and running smoothly.
Thanks for sharing! Why do you think Pizza Huts are doing so poorly, and do you think that Pizza Hut in general will be going out of business anytime soon?