Dan Rowe’s Tips On Learning the Recipe for a Highly Profitable Restaurant Franchise in 2024 — and Beyond

Dan Rowe shares how embracing technology, optimizing real estate, and nurturing dynamic franchisor-franchisee relationships are key to flourishing in an evolving industry landscape. Dan is the CEO and Founder of Fransmart, the global leader in franchise development.

Dan Rowe, CEO of global franchising experts Fransmart.

Key Takeaways For Growing Highly Profitable Restaurant Franchises in 2024

• Leveraging technology can help replace expensive labor hours to maximize profits.
• Take advantage of restaurant closures to find 2nd generation locations to double your ROI.
• People are willing to pay more for a better experience.

Franchisees Want To Know How To Operate Restaurants Efficiently In 2024

It’s no secret that restaurant operating costs are about to get costlier. California’s minimum wage is rising to $20 per hour in 2024, and $24 in a few years. Because few actually work for minimum wage, the real average salary will be coming in closer to $25-$28 an hour.

Eliminating tipped wage credit means that even full-serve concepts offering tips to employees will be paying $25-$28 an hour. How do restaurants thrive when wages go up by one-third?

For franchisees and restaurant owners, the good news is that every day 8 billion people wake up on this planet hungry. So there’s plenty of opportunity in the developed world. However, restaurateurs today are facing challenges that can affect their profitability if they don’t respond.

Related: Visit Fransmart’s portfolio of the top emerging franchise brands that seasoned franchisees are investing in now.

How Franchise Owners Are Choosing The Correct Concepts

Let’s be honest: the only reason to buy a franchise is to become wealthy. So, choosing a concept that’s so successful people will want to keep reinvesting to open more locations is key. Remember, that first restaurant must also be so profitable that you want to keep reinvesting profits to open more locations. And that’s not as easy as it was even a few years ago.

The key is to control costs — especially labor costs — by utilizing technology. You can fill some roles formerly held by people, adding an extra concept to get customers in throughout the day. Now you can begin employing strategic leasing strategies, or creatively using social media.

Related: How blitzscaling works.

CA increases could wipe out entire business models including restaurant franchises

In any restaurant, the single biggest item on the P&L is labor. For generations, U.S. servers were usually paid minimum wage by the restaurant and relied on tips to bolster their earnings. They were used to hard work at low pay. That’s changed.

Restaurant employment is reaching pre-pandemic levels, and staff now want to feel safe, respected, and that they are a part of a team. Pay is a big part of that. Those California increases could wipe out entire business models, at a time when the National Restaurant Association expects a third of all restaurants to close.

Closed restaurants are an opportunity for franchisees with the vision and the money to make it a reality. Hungry people want to eat somewhere, and it can be at your location. You can make money doing it by pricing your food properly, and reducing the labor you must pay more.

Raising menu prices to cover the increasing cost of ingredients and labor is easy. People expect prices to rise and will pay for the right concept and quality. Waiting two years to raise prices to avoid alienating the customer means you’re missing two years of potential profit.

Consider Five Guys — its prices are far from the lowest in its category, but every year, its customer counts grow.

The next key is to engineer as much labor out of the restaurant as possible. This is while improving the customer experience. An example is at our client Rise Biscuits and Chicken Sandwiches. Rise’s success comes with replacing cashiers with an online app and in-store kiosks. Items are now ordered online, then placed in a heated locker for pickup.

This business savvy move has helped franchise owners in reducing costs and eliminating a second employee (the expo person). Think about your revenue growth potential when you remove the need to monitor the process. Not to mention you’re helping each restaurant optimize staffing from 6 people per shift to 4 — a one-third savings.

By saving on wages, you can pay the existing staff more. Meanwhile, customer scores are trending up, giving the restaurant credit for faster and more accurate service: customers were in charge and food was always ready when they came in.

Related: Get more info on owning a Rise Southern Biscuits and Righteous Chicken franchise, or submit your application.

More sales per square foot

Sales per square foot matter because you pay rent per square foot. The more sales you do per square foot, the lower your occupancy cost percentage will be, pushing more money to the bottom line.

You maximize those sales by maximizing traffic — you’re paying the same rent (ideally about 10% of sales) whether it’s busy or not. And every restaurant has busy and slow times. Subway, for example, does most of its business at lunchtime. But what about the rest of the time? What can you introduce that will bring in customers in later afternoons and after work and dinner?

The more sales you do per square foot, the lower your occupancy cost percentage will be, pushing more money to the bottom line.

One example is The Dog Haus, a Los Angeles-founded seller of gourmet hot dogs and sauces, which expanded into the Chicago area. The franchisee learned that Chicagoans have their own very strong opinions about hot dogs (no ketchup, ever!) and realized they’d need to expand the business model.

Thus Bad-Ass Burritos was born, now offering breakfast and late-night burritos, also with gourmet sauces. It was so successful that Bad Ass Breakfast Burritos is now expanding as a separate concept.

Another way franchisees are optimizing real estate is by outsourcing as much prep as possible. This helps to minimize onerous staff tasks. The Halal Guys, known for its flavors and sauces, does not prepare them on site. By co-packing (making the sauces elsewhere), its locations are cleaner.

Fewer staff hours are devoted to mopping up spills, and more space is available to serving customers.

Related: Get more info on owning a The Halal Guys franchise, or submit your application.

Second generation locations = highly profitable restaurant franchise in 2024

Personnel may be the largest item of your P&L. However, your location may be the most critical. What’s the solution? One way to keep outlay to a minimum is through conversions.

Store closures are opportunities for a new owner with a fresh concept, a fresh attitude and a fresh balance sheet. It is especially advantageous to take on a space that might have served something similar, so it is laid out and equipped to minimize construction.

A falafel shop can become a burger shop comparatively easily — and already has the proper ventilation in place. Also keep in mind the probable upcoming recession in real estate.

Many landlords have overfinanced their property, and with PPP and stimulus monies no longer available, may default. They may offer very favorable terms to keep their properties occupied and appealing to banks and buyers like you.

Talking tech + profitable restaurant franchise

Technology hasn’t just affected operations. It’s opened a world of marketing opportunities. Ensure that your search engine information is fully optimized and that you utilize media such as Facebook, Instagram and TikTok to not just show the food but tell the story around it. Keep up a robust loyalty program.

As important, knowing that marketing also entails creating the best possible relationships with your service providers. Just as Uber ranks customers, UberEats rates restaurants for ease of parking, for example, so drivers can decide whether or not to accept the assignment.

For any franchisor, there’s one last thing to remember for growing your highly profitable restaurant franchises in 2024: You are in business to serve your franchisees. They are paying you, and you need to make them happy. If they have an idea for layering a new concept that doesn’t compete with your business or ethos, let them try. It could be your next big win.

Dan Rowe is Founder & CEO of Fransmart, and a member of the ENTREPRENEUR LEADERSHIP NETWORK® CONTRIBUTOR