The current landscape of restaurant franchising is tough — complicated supply chains, expensive costs and labor shortages. Vanity locations, expensive dining rooms and over-equipped kitchens might be impressive to look at, but the numbers don’t work. Franchisors must remember they are in the royalty business, and if they want their royalties to grow, their franchisees must want to keep opening new locations.
Profitable franchises that are built to do more volume in less space typically have lower opening costs and can operate with fewer employees. These are the only franchises that are going to keep growing. Franchisors will only attract smart, experienced franchisees and investors by cutting the fat on bloated franchise models and concentrating on what makes money — so much money that franchisees want to keep opening more locations.
More volume in less space
In food franchises, you should be engineering smaller and more efficient kitchens and dining rooms that reflect the popularity of off-premises dining. Utilizing off-premises partners like Olo or Uber Eats will drive revenue. Co-packers will eliminate your need for some equipment, reduce kitchen labor and allow you to open smaller, more efficient locations.
The public has made its choice when it comes to off-premises dining — so instead of investing in excess capacity, invest in your tech stack. Franchisors must optimize delivery and carryout services, as well as find ways to actively engage with and market to their customers. Nowadays, customers want to eat what they want, where they want and how they want. If you can’t serve your customers their preferred way, someone else will.
Franchisors can’t forget the 80-20 rule — 80% of your sales come from 20% of your menu items. The other 80% of your menu items are eroding margins and complicating operations. Your customers don’t even like those items, so don’t waste your time with them. Menu discipline and menu engineering allow you to eliminate food and labor costs, waste and mistakes that degrade your brand.
Service industries aren’t immune to this rule. Be ruthless about building your menu with the items and services that are profitable, easy to execute and make you famous. Stop doing anything else.
Automate or lose
Engineer out as much labor and as many mistakes as you can. Ordering kiosks and automats are providing customers with a streamlined experience while also allowing restaurants to cut back on expensive labor. Those who do not change with the times will get left behind.
Saving money with modern technologies allows businesses to devote funds to taking care of existing employees. Finding new labor is much harder than taking care of your in-house winners — don’t take them for granted.
Rise Southern Biscuits, an emerging franchise that’s growing rapidly, recently cut dinner service from its restaurants. It also added ordering kiosks and automats. In that time, revenue is up more than 20% and profits have doubled, despite closing at 2 p.m. every day. Employees, especially high-achieving management, are compensated well. Turnover is practically nonexistent. This is how you build a company that will last.
Don’t hire more people – hire the right people
Justin Rosenberg, the CEO of Honeygrow, recently appeared on Sam Oches’ podcast Take-Away. In his talk with Oches, Rosenberg discussed making some mistakes with Honeygrow’s growth and how he was able to turn the tide by slimming his business model down. Specifically, he spoke of the importance of hiring the right people rather than building a large administrative infrastructure.
G&A costs can add up quickly. Being smart about the people you put in place can ensure that you’re not sinking your business with a bloated budget. If your food franchise is struggling, take a cue from Rosenberg and take a good, hard look at how you can restructure your administrative model.
Simplicity leads to more real estate options
Acquiring great real estate is hard. Winning the real estate game can be the difference between staying stagnant and explosive growth. A simple business model allows you to fit your business into a wider variety of spaces.
Opportunities to expand operations into untraditional spaces can be key to building momentum. Locations like airports, cruise ships, truck stops and stadiums offer unique challenges but can be highly visible and highly profitable. Building a simple business plan allows you to be able to take these opportunities as they come.
Don’t ignore conversion opportunities. After the recent rise in interest rates, more and more empty retail and dining spaces are available. Fitting your business in these spaces translates into cheaper initial builds and quicker franchise growth. Less money upfront means a quicker path to profitability.
Digital marketing matters
Long gone are the days of expensive marketing campaigns that blanket large territories that won’t benefit your growth. Even a guy like Salt Bae can become a national phenomenon with the right message. A mom-and-pop shop in Wichita can achieve global recognition with the right campaign.
If you’re a franchise operating in the southwest with plans to focus growth in that area, marketing to the east coast is a waste of time and money. Cutting out irrelevant geographic regions from your marketing plan is cost-effective. Grow in the garden you’re planted.
**This piece was originally published on Entrepreneur.com on February 2nd, 2023**