2013 top food franchises

Franchise Business

FALL 2013

Ratings & Reviews of Today’s Top Franchises

THE LIST: Best of the Best Food Franchises PAGE 8

CHURROMANIA’s Bernardo Abend Finds Success with a Sweet Niche PAGE 17

REVIEW

TOP FOOD FRANCHISESFranchisee Satisfaction Study

SPECIAL REPORT:

From Friends to Franchisees: Black Bear Diner’s Tim Augustine & Burt Benepal PAGE 15

Long-time Detroit resident Nicole Wilski owns 6 Checkers restaurants in the Motor City and is in the process of opening 3 more

SPECIAL REPORT: Top Food Franchises

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This advertisiment is not an o�ering of a franchise. An o�ering can be made only by prospectus · We only sell franchises in states where our o�ering is registered.

125 stores WorldwideTo learn more about us write to [email protected]://www.churromania.com/franchises Churromania

@Churromania

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CHURROMANIA® is the most successful Churro franchise worldwide!!!

In-Line Stores in Malls In-Box Stores in Walmart Kiosks in Malls

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WHAT’S YOURNEXT PROJECT?WE’RE ALL

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For more information on this report, visit: www.FranchiseBusinessReview.com | 3


When people think franchise, “fast food” is often what comes to mind—and understandably so as the quick-service (QSR) space is one of the biggest and most competitive in all of franchising. But the food sector is loaded with franchise opportunities ranging from QSR and full-service restaurants to coffee shops and frozen treats.

So, how do you know which concept and brand is right for you?

That’s where we come in. Every year, Franchise Business Review surveys thousands of franchisees from hundreds of leading franchise brands to gauge franchisee satisfaction and performance. Not all brands willingly open their doors to an independent research firm like Franchise Business Review, but those who do can offer investors a wealth of information on the system’s leader-ship, culture, training and support, financial outlook, and franchisee community—all from the perspective of franchisees.

Having a detailed understanding of franchisee satisfaction and unit-level financial performance is critically important in the food industry—where competition is fierce, profit margins are slim, and consumer preferences are ever-changing. You need to know exactly what you’re getting into before you get into it.

This report highlights the top food franchises based solely on the satisfaction and performance of current franchise owners across the industry, and we dig into what potential franchisees should consider as they research opportunities.

No, the food business isn’t easy. But for the right person who finds the right franchise brand, the food business can offer an exciting, rewarding, and profitable opportunity.

Food For Thought

Happy franchising!

Molly Rowe, Editorial Director

This report highlights the top food franchises based solely on the satisfaction and performance of current franchise owners across the industry . . .

Eric Stites, CEOMichelle Rowan, PresidentMolly Rowe, Editorial DirectorMichael Kupfer, Online Marketing ManagerNicole Kenney, Client Services ManagerJamie Lavigne, Client ConsultantLinda Lorrey, Client ConsultantJay Metzenroth, Research AssistantThe Secret Agency, Layout & Production

Franchise Business Review is the leading market research company in the franchise industry, assisting prospective franchise buyers through the examination process of today’s leading franchise systems. Before you invest in any franchise opportunity, get the facts from Franchise Business Review. Our independent franchisee satisfaction reports measure the health of any franchise system, based exclusively on the feedback of today’s franchise owners ... the real franchise experts!



WHO WE AREFranchise Business Review is a national mar-ket research firm that focuses on franchisee satisfaction and performance. Our products include franchisee satisfaction reports, custom research, industry sector studies, and other projects and services focused on driving fran-chise performance.

WHAT WE DOTo compile the data for this report, we surveyed 4,328 franchisees, representing nearly 100 leading food franchise brands with a total of 21,200 food outlets across the United States and Canada. We contact all active franchisees within a franchise system and ask them to complete our satisfaction survey.

Franchisees answer 33 benchmark questions ranking their franchise system in the areas of financial opportunity, training and support, leadership, operations and product develop-ment, core values (e.g., honesty and integrity of franchisor), general satisfaction, and the franchisee community. An additional 16 questions ask franchisees about their market area, demographics, business lifestyle, overall enjoyment running their franchise, and role in the franchisee community. From this data, we identify our list of top food franchises with above average satisfaction.

It is important to note that all Franchise Business Review research studies are open to any North American-based franchise company with at least 10 operating franchisees

at absolutely no cost. The franchise companies listed in our reports are based solely on fran-chisee satisfaction ratings.

WHY SATISFACTION MATTERSBy all accounts, this is a great time to buy a food franchise. Franchise brands are outper-forming non-franchised businesses, franchise units are experiencing healthy returns, and many people who’ve been considering franchise opportunities for several years are finally committing to their dream business. But, no matter how rosy things look for franchising as a whole, nothing guarantees a franchisee or a franchise concept will be successful. Prospective franchisees must thoroughly research every opportunity they

Photo courtesy of Bahama Buck’s.

Top Franchisors Focus on Smart Growth, Long-Term Health, and Franchisee Profitability

The Bright Future of Food Franchising



are considering to determine if the concept is viable and the right fit for them.

One of the best ways to know if a franchise opportunity is really as good as it appears is to look at its third-party franchisee satisfaction data. Franchise systems that don’t provide third-party data may have deeper issues, and those that do provide data offer a wealth of information on the system’s leadership, culture, training and support, financial outlook, and franchisee community.

MODELS & CONCEPTSFranchise concepts within the food sector typically fall into one of several major catego-ries: QSR, fast casual [a variation of QSR that includes higher end, counter-service establish-ments], retail stores, mobile and kiosk outlets, delivery only, and full-service restaurants. These models may be further broken down by food type, such as burgers, wings, pizza, Mexican, ice cream/yogurt, coffee, and sushi, to name just a few. Because many of the models fit into a number of categories (a coffee shop that serves breakfast sandwiches, for example), the concept lines are often blurred.

Some franchisors offer multiple business models. East Coast Wings & Grill recently

expanded its offerings to include QSR oppor-tunities for franchisees who already own a flagship restaurant. Existing East Coast fran-chisees can open a QSR location for $325,000 (compared to around $650,000 for full-service restaurant). CEO Sam Ballas told us they began researching and prototyping this model a few years ago in an effort to offer less expen-sive multi-unit opportunities for franchisees and to offset a projected real estate shortage.

“We’ve been closely studying real estate in the past years and see a real crunch coming in 2014 and 2015,” Ballas said. “We’re just not going to be able to find the 4,000 foot space that the food sector is going to need.”

As in past years, franchise concepts offer-ing quick, inexpensive foods dominate our list. Pizza, subs, wings, frozen yogurt, and burgers remain the hottest foods in franchis-ing. Of course, “hot and trendy” segments don’t always translate into satisfied, profitable franchise owners. For example, there has been an explosion of brands in the frozen yogurt segment, and yet only one brand (Yogurtland) made our list this year.

While Five Guys may have been the prominent player in the “better burger” market several years ago, smaller brands like

MOOYAH have also made a name for them-selves in recent years—especially in terms of franchisee satisfaction.

Healthier foods continue to be popular, although we see fewer wrap, salad, and Asian grill concepts on our list this year. Most brands—even those traditionally known as “burger, shake, and fry” concepts—have adapt-ed their menus to include healthy options.

“We’re really known for wings and they’re not that healthy, so we’ve added other things to sway the veto vote,” said Steven Falciani, Senior Vice President of franchise operations for Quaker Steak and Lube. “We want to make it so if someone in the family doesn’t like wings but everyone else does, there’s something for everyone.”

MOOYAH President and CEO Bill Spae echoes the “silence the no vote” sentiment. He says that while MOOYAH’s menu has remained simple and focused on burgers, they offer diversity within that menu for different diet preferences (a bun-free, lettuce-wrapped burger for the gluten-conscience, for example).

“We offer five combos for under 600 calories, but we didn’t add any products to our menu to do that. It’s just a combination of different products we already offered,” Spae said.

While fads may significantly influence what’s hot in food franchising, not every company on our list is interested in jumping on a bandwagon. In fact, Black Bear Diner Co-President Bob Manley takes pride in his brand for not changing.

“We are not trying to compete for what’s new, what’s catching on right now,” Manley said. “We think there is still a legitimate spot in the market for what is old, what is traditional. We’ve kind of found a niche for ourselves within that group of people to remember what it was like when I was a kid—the environment, the comfort food.”

HWY 55 Burgers similarly holds onto tradition—marketing itself as a 50s-style American classic “from crispy onion rings to old-time rock n’ roll.”

QSR/Fast Casual

21

Full Service

12

6Retail/Snack

1Other

Top 40 Food Brands By Category



INVESTMENTFood is typically one of the more expensive sectors for franchise ownership because of build-out costs, equipment, and supplies required to run a restaurant, as well as prime real estate/lease rates. Our list of top food franchises includes a wide range of invest-ment options.

Mobile food concepts, like Kona Ice, Repicci’s Italian Ice, and Happy and Healthy Products, offer franchisees the opportunity to run a food-related business for less than $100,000 (approximately $99,000 for Kona, $74,000 for Repicci’s, $61,000 for Happy and Healthy). A quick-serve brand based in a retail strip center, like Wingstop, can cost less than $500,000 initially, depending on the real estate and overhead requirements. A full-service stand-alone restaurant, like UNO Chicago Grill, which requires a large site (and more employees and overhead for day-to-day operation), typically costs more than a million dollars to get started.

The investment range of the top food franchises on our list is $34,500 to $4 million, with a median initial investment of $445,000. (Note that this is the total initial investment, but with financing and lease options, the typi-cal upfront cash requirements tend to be 20 percent to 40 percent of that total investment.)

In the past few years, many franchisors have taken steps to reduce the cost of investing in a food franchise. MOOYAH, for example, has reduced its average investment from around $450,000 to under $400,000 by reducing the square footage and mechanical requirements. They are also looking to open restaurants in non-traditional spaces—airports, colleges, and stadiums—to reduce real estate costs.

The time investment for a food service franchisee can vary as much as the monetary investment, depending on the size and capacity of the franchise concept, the number of loca-tions, and how long the franchisee has been in business. Franchisors of location-based concepts (those that aren’t kiosk or truck-based) tell us the early months and sometimes years require long hours and a more than full-time commitment to running the business.

“An owner-operator can be expected to work 10- to 14-hour days, and they’re gruel-ing the first year,” said Ballas of East Coast Wings & Grill. “Eventually, you have the opportunity to roll those hours back as you learn the business, pay your dues, and hire the right management team.”

The importance of a new franchisee being well-capitalized cannot be overstated. Prospec-tive franchisees should carefully review a brand’s FDD and ask the franchisor and current opera-tors what efforts have been made to ensure

franchisees are well-capitalized for start-up and economic ups and downs. The Item 7 in the FDD outlines the expenditures needed to establish a business, but all Item 7s are not equal. Some companies will outline the neces-sary working capital, but others—who might want to keep the stated investment level as low as possible—don’t. Any investor should understand and plan for the fact that it might take significantly more capital than what is listed in the Item 7 to get a new franchise busi-ness up and running. Having several sources of reserve capital and a solid contingency plan in the event that your new business ramps-up slower than expected will save you many sleep-less nights.

We also recommend that where possible, all potential franchisees thoroughly review and understand a company’s Item 19, if included, so they have a better idea of what to expect in the way of profitability. Not all franchise companies provide an Item 19 as part of their FDD because it’s not required. And like the Item 7, every Item 19 is different in the way it outlines unit-level financials. A good Item 19 can provide invaluable informa-tion related to potential profitability of the business, assuming the franchise company publishes accurate revenue and cost figures.

In our interviews for this report, franchi-sors told us they have become much more

*These are broad estimates of initial capital investments, and each franchise brand will have

speci�c liquid capital and net worth requirements.

$30,000 – $250,000+Kiosk/Mobile/Non-Traditional Locations

$100,000 – $400,000+Conversions of Existing Locations

$175,000 – $500,000+Retail/In-Line Strip Center Locations

$750,000 – $2,000,000+Stand-alone/New Construction Locations

Photo courtesy of Black Bear Diner.

Typical Investment Ranges for Food Franchise Locations



frank in their discussions with franchisees about what exactly they’ll need for capital to be successful.

“I think sometimes just the nature of the regulations surrounding franchising make people hesitant to have some of those con-versations with prospective franchisees,” said Culver’s President and COO Phil Keiser. “But we just feel that you have to say, ‘Hey, you’re thin. You don’t have enough money. You’re going to have to find the perfect circumstance to build a restaurant so if you can find the right set of circumstances, we’re with you.’”

If, as a prospective franchisee, a franchisor doesn’t scrutinize your financial strengths and weaknesses, you should be skeptical.

“We never take someone in who is under-capitalized,” said Ballas of East Coast Wings & Grill. “Franchisees can have an off weekend, but the bills still keep coming. You have to give them the big picture—maybe they have to bring in partnerships to strengthen it. We make it as tough as we can for franchisees, and the ones who get through do very, very well. We don’t have underperforming stores in our system.”

INCOME AND PROFITABILITYAverage annual income (defined as any income, salary, or profit the owner takes out of the business) for all food franchisees is

$82,000—the same as 2012. Not surprisingly, franchisees of our top 40 food franchises report higher annual incomes of $98,500—20 percent higher compared to other food brands, and 38 percent higher compared to non-food franchisees.

While aggregate franchisee incomes can be a valuable reference point, it is important to note that average numbers—especially when you are looking at financial information—can be very misleading. Average data includes all franchisees together, both single and multi-unit owners, as well as new franchisees, and those that have been operating for many years. In most cases, median data points can be much more helpful than averages. For example: While the “average” food franchisee earned $82,000 last year, 50 percent of the food operators we surveyed earned less than $50,000, while only 25 percent earned over $100,000.

When doing your research and busi-ness planning, it is important to distinguish

between business profit and owner income. Prospective franchisees often confuse a busi-ness’s potential profits with their potential annual income/salary, which is a big mistake. As a business owner, before you can “pay yourself,” you often have to pay business taxes, debt repayments on loans, and reinvest in your business (that new piece of equipment you need, or the new signage you’re required to buy, for example). While your business may grow to be quite profitable, your actual income could be substantially lower. Talk with as many other franchisees as possible, and confirm that your business profit and income expectations and projections are realistic.

Many of the franchisors we interviewed for this report said they are taking a close look at how to reduce costs and improve profitability and income for franchisees.

“Several years ago, we began working pretty diligently on how we can reduce the costs, get a more efficient business design and building design, and how we can fit on more affordable real estate,” said Keiser of Culvers.

Finally, on the topic of income and profitability, while many food franchises report relatively high unit-level sales and/or profitability, it is important to look at the whole picture when considering a franchise investment. For example, a food franchise may offer slightly higher profitability com-pared to other businesses, but if the initial investment is three times higher, your overall return on investment is potentially going to be significantly lower. Work through your long-term financial projections with a good accountant, and compare your potential franchise investment to other businesses, as well as other investment opportunities (i.e. real estate, stocks, etc.) to see how they compare.

Multi-unit ownership is a common requirement by food franchisors because it is easier from a development standpoint to work with an owner who is going to operate several locations. Running multiple locations obviously involves different skills and more money than a single unit, so this is an important consideration for prospective franchisees. Even if you’re not yet ready to own multiple units but think you may one day, you’ll want to consider this in your initial research.

“You need to evaluate the programs a franchisor has in place to see if there is a specific program that fits your needs,” said Jennifer Durham, Vice President of Franchise Development for Checkers and Rally’s. “Good franchisors have an understanding of the variety of franchisees that come into their system and they adopt their support structures to fit the needs of those candidates. I’d look for that if I were on the buying side of this decision.”

Of course, there are still brands that prefer single-unit deals because they are looking for a different type of franchise owner—one who wants to be very involved in the day-to-day running of the business. “We actually get franchisees coming to us because we will do a single unit,” said Culver’s Keiser. “They don’t need the same kind of balance sheet that they would to do a 10-restaurant agreement.”

It’s obviously critically important that a prospective franchisee understand the terms of their franchise agreement—whether it requires multi-unit ownership and the associated timeline for ramp-up (as well as the penalties if timelines are not met)—before jumping all in with multiple stores.

Multi-unit vs. Single-unit Ownership

Continued on page 10.

Franchisors told us they have become much more frank in their discussions with franchisees about what exactly they’ll need for capital to be successful.

8 | For more information on the companies in this report, visit www.FBR50.com


* View this company’s full satisfaction report at: www.FranchiseBusinessReview.com

THE LISTBest of the Best: Today’s Top 40 Food Franchises

“ Everyone helps each other—from ideas to building sales, it’s a family here that I am proud to be a part of.”

– HWY 55 franchisee

“ The franchisee community is getting better every year with the addition of new passionate franchisees.”

– Zoup! franchisee

Startup Investment

Cash Requirement

Domestic Franchises

Culver’s — see ad on p. 14Full-service restaurant specializing in handcrafted American food & ice cream

$1,439,000 – $3,087,000

$350,000 485

Kona IceMobile shaved ice

$99,800 – $120,000

$20,000 – $25,000

408

* Firehouse Subs — see ad on Back Cover Fast casual restaurant specializing in subs & sandwiches

$178,376 – $625,801

$80,000 – $100,000

612

LaRosa’s PizzeriaFull-service restaurant specializing in pizza & other Italian favorites

$500,000 – $850,000

$150,000 – $255,000

49

* Checkers & Rally’s Quick-service restaurant & drive-thru specializing in burgers & fries

$111,000 – $825,000

$250,000 456

* HWY 55 Burgers 50s-style family restaurant

$191,280 – $342,130

$125,000 109

Auntie Anne’sQuick-service pretzel bakery

$194,875 – $367,600

$40,000 – $80,000

1,015

Penn StationQuick-service restaurant specializing in subs & sandwiches

$320,798 – $460,813

$175,000 254

Hardee’s Quick-service restaurant specializing in burgers & fries

$1,147,900 – $1,542,000

$300,000 1,705

Simple Simon’s Pizza — see ad on p. 16Full-service restaurant specializing in pizza

$89,500 – $593,500

$25,000 230

Bahama Buck’sSmoothies & shaved ice

$184,000 – $558,000

$90,000 + 30

* East Coast Wings & Grill — Inside Back Cover Full-service restaurant specializing in chicken wings

$245,050 – $873,374

$250,000 – $575,000

25

Happy and Healthy ProductsHome-based store specializing in frozen novelties

$34,508 – $89,045

$34,508 – $89,045

56

Bruegger’s BagelsBakery café specializing in bagels

$389,600 – $591,600

$150,000 102

Charley’s Philly SteaksQuick-service restaurant specializing in subs & sandwiches

$101,572 – $465,282

$75,000 – $100,000

412

Biggby CoffeeCafé concept specializing in gourmet coffee

$161,100 – $340,100

$70,000 151

Zoup!Fast casual soup

$365,900 – $558,900

$120,000 49

Captain D’sQuick-service restaurant specializing in seafood

$206,000 – $1,281,400

$300,000 240

Village InnFull-service restaurant specializing in American comfort food

$695,000 – $2,178,000

$695,000 – $2,178,000

89

Chopped LeafQuick-service and take out specializing in salads

$215,000 – $370,000

$70,000 – $90,000

13

For more information on the companies in this report, visit www.FBR50.com | 9


Startup Investment

Cash Requirement

Domestic Franchises

Black Bear Diner — see profile on p. 16Full-service restaurant specializing in homestyle diner food

$544,300 – $1,353,700

$750,000 – $1,000,000

45

The HoneyBaked Ham Co. — see ad on p. 16Retail concept specializing in meat products

$278,300 – $409,900

$150,000 188

McAlister’s DeliFast casual deli specializing in sandwiches

$650,000 $30,000 – $35,000

266

BarberitosSouthwestern grill quick-service restaurant

$100,000 – $450,000

$30,000 – $50,000

31

WingStop Quick-service restaurant specializing in chicken wings

$252,621 – $554,898

$200,000 599

Beef O’Brady’s Full-service sports bar themed restaurant

$256,500 – $866,500

$125,000 220

* Famous Dave’s Full-service restaurant specializing in barbeque

$636,750 – $4,239,750

$636,750 – $4,239,750

133

Uno Chicago GrillFull-service restaurant specializing in deep dish pizzas

$1,500,000 – $2,500,000

$500,000 – $1,000,000

49

Billy Sims BarbecueQuick service restaurant specializing in barbeque

$169,200 – $433,100

$250,000 36

Fox’s Pizza DenFast casual restaurant specializing in pizza

$100,500 – $157,550

$100,500 – $157,550

283

Quaker Steak & LubeFull-service motorsports themed restaurant

$1,150,000 – $4,300,000

$1,150,000 – $4,300,000

41

Yogurtland Quick-service frozen yogurt

$323,159 – $725,451

$400,000 251

Fuzzy’s Taco ShopQuick-service restaurant specializing in tacos

$330,260 – $704,210

$330,260 – $704,210

61

Repicci’s Italian IceQuick-service shaved italian ice

$49,500 – $99,900

$50,000 48

Nothing Bundt CakesRetail bakery specializing in customized cakes

$339,800 – $440,700

$150,000 67

* CHURROMANIA — see ad on p. 2; profile on p. 17 Quick-service restaurant specializing in churros

$145,000 – $335,000

$145,000 – $335,000

15

Kilwin’s Retail store specializing in chocolate

$307,897 – $496,293

$125,000 – $130,000

83

* MOOYAH Quick-service restaurant specializing in burgers, fries & shakes

$334,950 – $529,700

$250,000 50

Hurricane Grill & WingsFull-service restaurant specializing in chicken wings

$297,000 – $847,000

$250,000 50

Cheeburger CheeburgerFast casual restaurant speciailizing in burgers

$215,250 – $577,500

$150,000 – $200,000

69

“ I am very pleased with the product the brand produces. The franchise system gives me a good edge to compete in the market and do well.”

– MOOYAH franchisee

Question from 2013 survey: What advice would you give to

your franchisor?

“ What really helped me getting started was spending a whole day with a local franchisee near me — nothing better than on the job training.”

“ Don’t always rely on the same franchisees for advice and guidance … There are many others out here that have different experiences to share.”

“ Listen to the franchise body; they are in the trenches.”

“ Remember the ‘little guy’ when making decisions that require increased costs”

“ We really need to have marketing materials long before a promotion starts so we can get material ordered before the promotion hits instead of half way through it.”

“ Do more to help franchisees maintain larger accounts by helping them find ways to logistically service them. It would help not only the franchisees be more profitable, but would also help build the brand, which in turn helps the company grow.”



PROS & CONS OF THE FOOD BUSINESS

ProsAsk a franchisor or a franchisee to talk about the pros of the food sector and you’ll undoubtedly hear “exciting, people-filled, and food-loving.” It’s an industry that offers franchisees and their customers immediate gratification. At the same time, it’s ever-chang-ing, never boring, and impossible to outsource.

“You’ve always got a captive audience—people always need to eat,” said Firehouse Subs franchisee Elliott Goldsmith.

Although food is at the heart of every franchise concept within the food sector, there are countless investment options, busi-ness models, and food types for franchise operators to choose from. A prospective franchisee can choose to run anything from a van-based delivery business to a full-service

restaurant—with dozens of other business types in between.

A food franchise can be a substantial mon-eymaker, and multi-unit operators in particular may see a significant return on investment once they are established. The wide range of franchise models available to someone look-ing to enter the food services sector make the food business a feasible endeavor at almost any investment level.

Perhaps more than in any other franchise sector, operators of food franchises may reap significant benefits from being part of a large franchise system rather than operating alone. The food industry is highly competi-tive and trend-driven, and business owners in this space must constantly be marketing themselves and developing new products. Franchisees benefit from having a recognized brand and the support and resources of a

corporate office to help with these tasks.“One of the things I tell prospective

franchisees is that food is a high-risk busi-ness—there is no guarantee you are going to be successful. But if you come in with a franchise, you are going to have a better opportunity,” said MOOYAH’s Spae. “If you decide to open your own restaurant, which I’ve done, that is a pretty risky proposal.”

ConsThe food sector is not for the faint of heart in terms of what it takes to run and operate a successful business. Rising food costs, soaring competition, high employee turnover, and long hours are just a handful of the drawbacks.

“Years ago, I worked for Dave Thomas at Wendy’s and one of the things that he told me was that you had to be half crazy to be in the food business because that’s the only way

Continued from page 7.

Income Range

$0 - $25,000

$25,000 - $50,000

$50,000 - $75,000

$75,000 - $100,000

$100,000 - $125,000

$125,000 - $150,000

$150,000 - $175,000

$175,000 - $200,000

$200,000 - $225,000

$225,000 - $250,000

$250,000+

0% 5% 35%30%25%20%15%10%

Percent Response

FBR’s Top 40 Food Franchises All Food Franchises

* Income data listed above is based on independent surveys completed with 3,359 food industry franchisees in 2012. This sample included data from 84 franchise brands, representing 22,516 operating units. Profitability is defined as any annual pre-tax income the franchisee received including salary and/or business profits.

Average Income of FBR’s Top 40 Food Franchises vs. All Food Franchises



you would survive,” said MOOYAH’s Spae. “The competitive nature is probably the reason he felt that way—and that’s probably more true today.”

To keep up with that competition, franchise companies must constantly be researching and developing new products to keep up with the latest food trends. At the same time, they must be careful not to act too quickly. Every menu addition or concept change requires an additional investment from franchisees to re-vamp equipment and train staff, so if a seemingly hot trend is actually a short-lived fad, franchisees lose out. Good franchisors watch trends carefully and know when to act and when not to.

Getting started in the food sector typically requires a large investment, and early profit margins can be much lower than some other service industries—especially for operators of high cost, single-unit operations. It can take a long time for a new operator to recoup start-up costs. Many franchisees choose to operate multiple locations so they can gain operational efficiencies and turn a higher profit (i.e., sharing employees across locations reduces training costs, buying products in larger quantities reduces per unit costs, etc.). Still, operating multiple units significantly increases your overall investment and is only recommended for experienced, extremely well-financed candidates.

Ongoing expenses also are much higher than in other sectors and can fluctuate greatly based on what’s going on in the world. Climate-related price increases have become more common in the past few years, and rising fuel prices have also had a big impact on com-modities. Prospective franchisees should ask franchisors what safeguards (supply contracts, cost-cutting efforts, increased menu prices) they’ve put in place on an ongoing basis to help franchisees deal with high supply costs.

There is significant pressure in the food space in terms of pricing. Franchisors must constantly keep an eye on their prices, adjust-ing them to compete with other concepts. In recent years, a number of QSR concepts have introduced value-menu pricing as a means to out-price competition and keep customers coming in the door. Many franchisees ended up losing money with the value menus because they were forced to offer more food for less

money (while at the same time paying more for basic food supplies like corn and flour). In many concepts, even when sales were up, unit-level profitability suffered considerably, so to offset this, some brands have created new value product lines that cost less to produce.

MARKET ANALYSISThe National Restaurant Association’s 2013 Restaurant Industry Forecast predicted that total restaurant industry sales would reach a record high of $660.5 billion in 2013 (a 3.8 percent increase over 2012) and that the industry would add jobs at a 2.4 percent rate—close to a percentage point more than the projected 1.5 percent increase for total U.S. employment.

All of the franchisors we spoke with for this report said they’ve seen improvements at both the unit level and in new franchise sales over the past year. Brands that may have scaled back their franchise develop-ment efforts in recent years have been more aggressive in 2013, and many of our top brands experienced double-digit growth right through the recession.

The lending landscape has also loosened in the past year especially at the investment level required to open a full-service restaurant or QSR. For the first time in several years, none of the franchisors we spoke with for this report mentioned access to capital as a challenge for prospective franchisees. While most of the money needed to invest in a food

franchise still comes from traditional bank loans, some food concepts like Checkers and Rally’s have had success pairing franchise operators with financial investors.

“There are not a whole lot of high return opportunities for dollars these days, and the restaurant space is full of eager and hard-working individuals that don’t have financing, so matching the financial investment partner with the operating partner is something we are aggressively going after,” said Jennifer Durham, Vice President of Development at Checkers and Rally’s.

In 2013, the Affordable Care Act sig-nificantly affected the food service industry. Franchisors spent thousands of dollars researching the new law and educating franchisees on how to comply with health-care requirements.

Firehouse Subs CEO Don Fox told us he’s spent a significant amount of time in the last two years focused on Washington, D.C., working with the National Restaurant Asso-ciation to lobby on his franchisees’ behalf.

“In an ideal world, you hope everybody has equal access to our government, but that’s not always the case. If we’re able to leverage our position in the industry to help make that hap-pen, then that’s what we want to do,” Fox said.

For this reason, if you’re considering a franchise in the food sector (which can be heavily impacted by tax and regulatory changes), you may want to consider how involved the franchisor is in government relations.

Photo courtesy of Zoup!.



A Look at Food Franchisees

consider their schedule �exible or very �exible

have owned their franchise(s) for 5 years or less

have at least a bachelor’s degree

67%

62%

own 5 or more units;58% are single-unit owners11%

58%

operate in small or very small markets (compared to 29% of overall benchmark)

43%

are veterans10%

work 40 or more hours per week

work evenings at least a couple times per week

“almost always” work weekends

68%

59%

47%

62%

are between theages of 35 and 54

have an income over $100K 27%

(compared to 20% of overall benchmark)

(compared to 35% of overall benchmark)

WHAT IT TAKES TO BE SUCCESSFULThe food industry can be a very tough busi-ness in which to make money, and franchise operators must have the right skills and back-ground to be successful. Franchisees must be experienced business people, with knowledge of sales, marketing, and management. And it almost goes without saying that they must love food and be laser-focused on the total guest experience.

Ballas of East Coast Wings & Grill says he looks for passion, discipline, and financials in a franchise candidate. Before any prospective franchisee is accepted into the East Coast system, they go through a grueling applica-tion process that involves both candidates and their spouses (for individual investors). Prospective franchisees must work in an East Coast restaurant for up to three days before they qualify to be a “candidate,” and spouses must attend Discovery Day.

“We want to be sure the spouse under-stands our model, brand culture, franchising, and liability/accountability,” Ballas said.

The amount of staff management required to run the day-to-day business of a food fran-chise may be a drawback for some operators, depending on the size and structure of the concept. Many concepts require large numbers of low-wage, low-skilled employees. Even at the general manager level, it can be hard to find suitable workers.

“Our concept for a general manager is not an easy concept,” said Black Bear’s Manley. “If you do not have strong restaurant experience and passion to work a whole bunch of hours a week, it’s probably not the concept for you. We expect general managers to not only be good operationally, but to truly be able to form relationships with employees and guests and create an environment with us.”

A franchisee’s ability to reach out and network within the community can be a huge factor in the success or failure of a franchise in any sector, but this is especially true in food where the competition is great. Franchisees must be willing to spend countless hours selling themselves and their businesses in the community. If you’re considering a franchise opportunity, you may want to consider brands that have community involvement programs or a philanthropic slant to their mission, as these programs are a great way to become involved in the community and build brand

loyalty. For example, both MOOYAH and Firehouse Subs have strong national programs for giving back and encourage franchisees at the local level to be community-minded.

Matt Rusconi, who owns a MOOYAH franchise in Connecticut, says his store is actively involved in local sports programs.

“Being able to give back is about more than just business,” Rusconi said. “It’s about having the opportunity to give back to the families and institutions that make up the community in which we operate. It’s the least we can do. Having a franchise partner that understands that mentality makes it all the more feasible and powerful.”

Because of the unique challenges that face food operators, many franchisors and lenders require franchisees to have vast operational experience in the industry. This helps on two levels—franchisees know what they’re getting into and they are more likely to be successful in the day-to-day operations of their business because they’ve done or seen it before.

If you’re considering a food franchise, it’s important to know that your role will likely evolve over time. Firehouse Subs franchisee Goldsmith says his entire day-to-day routine has changed since first becoming a franchisee.

“Ten years ago, I was unlocking the door, slicing the meat, making the sandwiches. I was just trying to make sure we opened and closed the doors every day,” Goldsmith said. “Now, it’s a little different. I spend a lot more time working on my business and not in it. I’m more focused on the financials and opera-tional management of all my units and much less on actually making the sandwiches.” Goldsmith is about to open his seventh Firehouse Subs franchise.

FRANCHISEE SATISFACTIONForty franchise companies make up our list of the top food franchises for 2013—the same number as 2012. These are the brands that received above-average ratings from their franchisees in our independent satisfaction survey, which covers financial opportunity, training and support, leadership, operations and product development, core values, gener-al satisfaction, and the franchisee community.

The biggest variance (5.9 points) between the food industry and other industry bench-marks was in the area of Training and Support, which is driven by four key areas:



Training and Support Programs, Marketing and Promotional Programs, Effective Use of Technology, and System-wide Communica-tion. Food franchisees rated their franchisors’ Effective Use of Technology 8 points less than our benchmark across all industries (this is a big improvement over 2012 when satisfaction was 14 points less than benchmarks). Market-ing and Promotional Programs scored 5 points less than benchmark (again, an improvement from 2012 when franchisees rated their franchisors 12 points less than benchmark).

Another category where satisfaction among food franchisees lags behind our benchmarks (by 5 points) is in the area of Leadership. The leadership questions focus on corporate’s ability to promote a strong vision for the brand, a team culture, and drive the business forward.

It’s important to note that while satisfaction among all food franchisees lags behind other sectors, satisfaction among franchisees at our Top 40 companies actually exceeds the bench-mark for every single category of the survey.

Most food franchisors are beginning to understand that satisfied franchisees are more successful, more engaged, and only improve their corporate bottom line. All of the fran-chisors we spoke with (all from companies with high franchisee satisfaction) said they spend a considerable amount of time focus-ing on unit-level economics and working with their franchisees.

“When we do our franchise operations visits, instead of it being an inspection with a checklist, we are more focused on business support,” said Falciani of Quaker Steak and Lube. “We look at profitability first, then revenue, quality and delivery, standards, and checklists. Our franchisees appreciate that. We want our partners to do well. If they don’t do well, we don’t do well.”

SUMMARYFood franchises offer an exciting, ever-changing, never-boring environment to franchisees who don’t mind making a bigger financial investment, working long

hours, and managing a large and diverse workforce. Food operators remain some of the most passionate in all of franchising, and while the investment is higher than in other sectors, so is the potential for return. In the past year, we’ve seen improvements in the lending landscape and in profitability, and franchisee satisfaction has held steady.

Potential business owners may be initially attracted to the hype around a particular brand or the overall idea of running a restaurant, but this should come second behind thorough due diligence. Prospective franchisees must do their homework and compare brands side-by-side—looking at both well-known food franchises and some of the smaller, lesser-known opportunities. Every food franchise has its own culture, and franchisees should carefully consider how that culture fits with their own business goals before commit-ting to a brand.

For more detailed research on specific food service franchises, please visit us online at www.FranchiseBusinessReview.com.

Franchisee Satisfaction: Food Sector vs. All Industries

Overall

General Satisfaction

Financial Opportunity

Self-Evaluation

Franchisee Community

Core Values

Leadership

Franchise System

Training & Support

0% 10% 70%60%50%40%30%20%

Percent of Satisfaction

All food All Industries

* Satisfaction comparison data above is based on independent surveys of franchisees completed within the previous 12 months. FBR’s Food Sector Benchmark is based on data from 3,359 food industry franchisees. The FBR Benchmark is based on data from 16,995 franchisees across all industries.

80%



Culver’sStartup Investment: $1,439,000 – $3,087,000Cash Required: $350,000Domestic Franchises: 485

Culver’s franchise partners all have one thing in common, and that’s a commitment to our founding principles of freshness and quality, hospitality and service to the community. Our franchise partners are critical to Culver’s success because as owner-operators they’re engaged in their business every day, working side-by-side with their team, leading by example. We’re looking for franchise partners with the leadership skills to take a team of people and operate a Culver’s according to our high standards. You need energy and enthusiasm. You have to be willing to work hard. You have to love people and believe, as we do, that having a great heart is also good business.

For more information on Culver’s opportunities, call (608) 644-2600 or visit www.ownaculvers.com.

Firehouse SubsStartup Investment: $178,376 – $625,801Cash Required: $80,000 – $100,000Domestic Franchises: 612

As one of the country’s fastest growing restaurant brands and a leader in the fast casual industry, the demand for our uniquely prepared specialty subs is growing by leaps and bounds, opening up opportunities for expansion in new and existing markets. With our strong brand identity, exceptional franchisee relationships, high average unit volume, well-defined real estate guidelines, and passionate executive team, Firehouse Subs is perfectly poised for development with the right investor.

For more information on Firehouse Subs opportunities, call (877) 887-8330 or visit www.firehousesubs.com/franchising.

Checkers & Rally’sStartup Investment: $111,000 – $825,000Cash Required: $250,000Domestic Franchises: 456

Checkers/Rally’s Drive-In Restaurants is the largest double drive-thru restaurant chain in the United States. Today, the Tampa-based company develops, owns, operates, and franchises nearly 800 Checkers and Rally’s restaurants across the U.S. In recent years, the brand has received some of the restaurant industry’s most prestigious awards including the “Hot! Again” award from Nation’s Restaurant News.

For more information on Checkers & Rally’s opportunities, call (813) 283-7049 or visit www.checkersfranchise.com.


Auntie Anne’sStartup Investment: $194,875 – $367,600Cash Required: $40,000 – $80,000Domestic Franchises: 1,015

Auntie Anne’s is the world’s largest hand-rolled pretzel franchise. With over 1,100 locations worldwide, Auntie Anne’s stores hand-roll and bake their irresistible pretzels in full view of customers. At Auntie Anne’s, we’re all about rolling out pretzel perfection. As part of Auntie Anne’s involvement in the VetFran program, active and retired military candidates will pay a reduced franchise fee of $20,000 for any location they open.

For more information on Auntie Anne’s opportunities, call (717) 435-1479 or visit www.auntieannesfranchising.com.

Hardee’sStartup Investment: $1,147,900 – $1,542,000Cash Required: $300,000Domestic Franchises: 1,705

At Hardee’s, our next success story is you. We consistently out-deliver the competition with a menu strategy that focuses on developing premium, sit-down restaurant-quality menu items that offer the convenience and value of fast food. With our consistent track record of AUV sales growth and solid unit economics, we run the business so our franchisees can be successful. Celebrating over 50 years in the quick-service industry, Hardee’s is a wholly owned subsidiary of CKE Restaurants. As of the end 2012, the company, through its subsidiaries, had a total of 3,307 franchised or company-operated restaurants in 42 states and in 28 countries.

For more information on Hardee’s opportunities, call (866) 253-7655 or visit www.ckefranchise.com.

Simple Simon’s PizzaStartup Investment: $89,500 – $593,500Cash Required: $25,000Domestic Franchises: 230

Simple Simon’s Pizza was founded in 1982 based on a simple philosophy to serve the best quality pizzas, calzones, and sandwiches at the most affordable price in a family atmosphere that people can enjoy.

For more information on Simple Simon’s Pizza opportunities, call (800) 261-6375 or visit www.simplesimonspizza.com/franchise-info.

East Coast Wings & GrillStartup Investment: $245,050 – $873,374Cash Required: $250,000- $575,000Domestic Franchises: 25

East Coast Wings & Grill has strong unit economics because we’ve created a formula that works! We offer a wide variety of fresh menu items and the nation’s #1 wings in 75 flavors and nine heat indexes in a full-service, casual dining experience. By focusing on our delicious food in a friendly environment, we’re taking a wing concept to new heights! Transparency and an open FDD show our true value and brand integrity. We maintain superior satisfaction ratings with our franchisees and support them at every level. Fresh food, friendly, fun environment and a financially sound investment … no wonder we’re an irresistible opportunity for savvy investors looking for a proven concept.

For more information on East Coast Wings & Grill opportunities, call (800) 381-3802 or visit www.eastcoastwings.com.

How long have you been a franchisee?We have been franchisees of several concepts spanning a combined 60+ years’ experience in the full-service, family-style restaurant segment. We’ve been friends for over 20 years and saw an opportunity to blend our talents with an exciting concept.

What is your favorite item off your menu?There are a lot of great items but our Chicken Fried Steak is out of this world!

Why did you decide to buy a franchise?We appreciate the ability to be creative in an entrepreneurial environment. Menu design and development is left to the brand that solicits and values our input. We get the benefit of the franchisor’s heavy lifting while maintaining a level of independence.

Why did you choose your franchise?Black Bear Diner is an emerging brand that reflects the values in food and service as well as their commitment to quality that most closely mirrors ours. You see this not only in their menu and food offerings, but most importantly, in the faces of the staff who have genuine pride being associated with the brand.

What is the best part of being your own boss?Being responsible for our own destiny.

Where do you see yourself in five years?Continuing to grow and develop locations.

For more information on Black Bear Diner opportunities, call (530) 243-2327 or visit www.blackbeardiner.com.

Black Bear Diner, Northern California

Tim Augustine & Burt Benepal

F E AT U R E D

Franchisee



Black Bear DinerStartup Investment: $544,300 – $1,353,700Cash Required: $750,000 - $1,000,000Domestic Franchises: 45

Black Bear Diner franchisees are proven restaurant operators whose passion, energy, and entrepreneurial spirit reflect that of our founders who opened the original Mt. Shasta location in 1995. We are committed to delivering huge portions of comfort food classics in a fun, family-friendly atmosphere. Our franchise partners reflect this commitment by building successful teams who carry on our founding principles to serve our guests and their communities. If you are an experienced, capitalized restaurateur who has proven success in the industry and can meet our financial requirements, we would love to hear from you.

For more information on Black Bear Diner opportunities, call (530) 243-2327 or visit www.blackbeardiner.com.

Zoup!Startup Investment: $365,900 – $558,900Cash Required: $120,000Domestic Franchises: 49

Founded in 1998, Zoup! is the leading fast-casual soup concept restaurant that is defining the category with its premium and proprietary soups and other recipes. With the same “Everything Matters” philosophy that ensures quality, satisfaction, and convenience for customers, Zoup! has created the infrastructure, systems, and support programs that give franchisees the tools they need to build their own successful businesses. In addition to the opportunity to own a one-of-a-kind, exciting business that has a proven record of success, Zoup! franchisees enjoy a strong niche positioning consistent with consumer preferences, and availability of great territories.

For more information on Zoup! opportunities, call (800) 940-ZOUP(9687) or visit www.zoupfranchise.com.


WingstopStartup Investment: $252,621 – $554,898Cash Required: $200,000Domestic Franchises: 599

Wingstop Restaurants, the Wing Experts, is rapidly expanding and will soon have 600 restaurants operating throughout the U.S. as well as international markets. We attract franchisees from all walks of life, and it is our simple operating platform, fresh cooked-to-order wings, and small footprint that makes Wingstop a franchisor company of choice. We continue to look for ways to reduce investment costs for our franchisees, yielding a stronger ROI. Wingstop is very proud of our accomplishments within the industry, and we are currently celebrating over 9 straight years of same store sales growth. Franchisees are trained in our top notch 4-week training program and receive ongoing support as they open and operate their restaurants.

For more information on Wingstop opportunities, call (972) 686-6500 or visit www.wingstopfranchise.com.

The HoneyBaked Ham Co.Startup Investment: $278,300 – $409,900Cash Required: $150,000Domestic Franchises: 188

HoneyBaked was founded in 1957 and is a premium food retailer known for the most flavorful, moist, and tender Honey Baked Hams® and Turkey Breasts you’ll find anywhere, as well as a host of other fully cooked entrees, side items, and desserts. Franchise owners benefit from HoneyBaked’s strong brand identity, multiple revenue streams, and ease of operations.

For more information on The HoneyBaked Ham Co. opportunities, call (866) 968-7424 or visit www.honeybakedfranchise.com.

CHURROMANIAStartup Investment: $145,000 – $335,000Cash Required: $145,000 – $335,000Domestic Franchises: 15

CHURROMANIA is the most successful and largest franchise specializing in churros and hot chocolate since 1997. A Churro is a power-packed sweet treat favorite that can be shared with family and friends! The menu is unique and offers the consumer a variety of toppings and fillings including sugar, cinnamon, dulce de leche, strawberry, chocolate, Nutella, and key lime pie. CHURROMANIA has more than 120 worldwide stores. The company provides 360-degree franchisee support to ensure optimal training, P&L optimization, management assistance, and efficient brand marketing.

For more information on CHURROMANIA opportunities, call (786) 401-6026 or visit www.churromania.com/franchises.

Fuzzy’s Taco ShopStartup Investment: $330,260 – $704,210Cash Required: $330,260 - $704,210Domestic Franchises: 61

Fuzzy’s Taco Shop’s corporate-owned and franchise locations serve fresh, handmade Baja-style Mexican food in 70 stores across 11 states. All of our restaurants offer patio seating, and our specialties include fish tacos, burritos, queso, and ice-cold beer. The atmosphere is bright, fun, and energetic—perfect for gathering with friends and family to watch a game, enjoy a beverage, or hang out. Our owners value giving back to their communities, and we recently paired with a national charity to celebrate Fuzzy’s 10th anniversary. If you get the FTS vibe and believe in operational excellence, we may be right for each other!

For more information on Fuzzy’s Taco Shop opportunities, call (817) 624-8226 or visit www.fuzzystacoshop.com.

How long have you been a franchisee?1.5 Years

What is your favorite item off your menu?Twist Dulce de Leche

Why did you choose your franchise?It was a great opportunity to buy one of the busiest stores in the CHURROMANIA franchise system with perfect Latin demographics and a high quality product—it was a win-win situation.

What is the best part of being your own boss?You work hard to earn your own money, have a flexible schedule, and there are endless possibilities to grow.

What is the worst part of being your own boss?You are always on call, and if an emergency comes up, I’m the problem solver.

Where do you see yourself in five years?I see myself with 10+ stores

What keeps you up at night?Nothing. I sleep like a baby. If you organize your time and schedule, there is no need to be up at night.

Who has most influenced your approach to business?My father—he was the best mentor I could ever have.

For more information on CHURROMANIA opportunities, call (786) 401-6026 or visit www.churromania.com/franchises.

CHURROMANIA Hialeah, FL

Bernardo Abend

F E AT U R E D

Franchisee



Would you do it all over?

Long-Term Growth Opportunity

44%YesProbably20%

Probably Not9%Neutral15%

No12%

< 30

14%

30-40

21%

40-50 50-60

25%

60+

24%

< 2

34%

2-5

19%

6-9 10+

Age

18-24

1% 13%

25-34

25%

17%

35-44

36%

45-54

21%

22%

55-64

4%

65+

23%

Tenure (in years)

Average Hours Per Week

8

35%

5% Very Weak12%

17%Very Strong

Weak

Strong

31%Moderate

15%

NORTHEAST

39%

SOUTH

28%

MIDWEST18%

WEST

2%CANADA 2%INTERNATIONAL

2013 top food franchises

Documents

franchise opportunities

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food franchises2

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franchise businessfall

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