How To Activity

Would You Buy This Franchise? Although opening a franchise is not a “sure thing,” franchising’s  immense popularity is due, in part, to the support, experience, and training that franchisors provide  their franchisees. Many would-be entrepreneurs believe that franchising reduces their risk of failure  and see it as the key to their success. Large, established franchises have systems in place that have  been replicated thousands of times and allow franchisees to follow a formula for success that the  franchisor has worked out over many years. Many small franchisors don’t have the benefit of  learning from the mistakes of setting up thousands of outlets to fine-tune their business systems.  Some franchisors build their business models on fads that will fade, while others tap into meaningful  trends. Some of these small franchises have the potential to become tomorrow’s franchise giants;  others will fall by the wayside. What factors increase the probability that a new franchise will  succeed? Unique concept. To be successful, a franchise must offer a unique concept that registers  with customers by solving a problem or making their lives better or easier and gives the company a  competitive edge in the marketplace. Effective and efficient system. Successful franchisors have  developed a system that enables the business to operate smoothly and efficiently. They also work  constantly to improve the system. New franchisors whose goal is to sell franchises rather than to  focus on ensuring franchisees’ success by providing them with a well-functioning system are more  likely to fail. Replicable system. Not only must a franchise system be effective and efficient, it also  must be replicable. The ideal franchise system is easily teachable to franchisees. Experience. To be  able to provide franchisees with an efficient, effective system, a franchisor must have experience in  the industry and must have built a successful operation as an independent business owner before  starting to sell franchises. Powerful marketing. Successful franchisors understand the importance of  building recognition for their brands and devote proper resources to protecting their brand names  and building recognition for them among customers. BurgerFi Nearly half of all consumers eat a  hamburger at least once per week, and many “better burger” franchises, such as Five Guys Burgers  and Fries, Wayback Burgers, Mooyah, Smashburger, and others, have capitalized on the opportunity  to sell premium burgers to hungry customers. In a typical year, Americans eat more than 9 billion  burgers. In the United States, hamburger restaurants generate $70 billion in annual sales. In 2010,  restaurateur John Rosatti noticed that one of the best-selling items on his full-service restaurant’s  menu was its burgers, and in 2010, Rosatti partnered with Lee Goldberg to open two BurgerFi  restaurants in southern Florida. BurgerFi features 100 percent pure Angus beef patties with no  hormones or antibiotics, made-from-scratch fries, double-battered onion rings, Kobe beef hot dogs,  fresh toppings, local craft beers, and wine. Two years later, BurgerFi began selling franchises, and  business partners Jim Pagano and Henry Talerico were the company’s first franchisees. Pagano had  owned several businesses during his career, including an auto dealership, and decided that the time  was right to get into the restaurant business. By being the first franchisee in the BurgerFi system,  Pagano and Talerico were able to have their choice of territories. They entered into an area  development agreement with BurgerFi to open multiple units in Orlando and Gainesville, Florida.  Purchasing a BurgerFi franchise requires an investment of $460,000 to $995,000, including $37,500  for the franchise fee. Prospective franchisees must have a net worth of $1 million, with $500,000 of  liquid capital. Franchisees also agree to pay an ongoing royalty of 5.5 percent of their gross sales.  BurgerFi requires at least one member of a franchise group to have prior experience operating a  restaurant (preferably multiple restaurants). BurgerFi (the name comes from its founders’ desire to  lead the “Burgerfication” of the United States) plans to have 300 locations across the United States  in four years. The premium burger market is getting crowded, and operating a successful restaurant  is extremely challenging. Owners often struggle to keep food and labor costs under control, 

counteract constant employee turnover, and cope with long hours. Franchisees, however, benefit  from affiliating with a recognized brand, relying on an established business system, and leaning on  support from an experienced franchisor.     Questions:   

1. What are the advantages and disadvantages of purchasing an outlet from a small  franchisor?  

  2. Suppose that one of your friends is considering purchasing a BurgerFi franchise and asks 

your opinion. What advice would you offer him or her?   

3. Develop a list of questions that a prospective franchisee should ask the franchisor and  existing franchisees before deciding to invest in a franchise.  

    Sources: Based on Jason Daley, “How to Succeed in Franchising Your Business,” Entrepreneur, ay  2015, pp. 91-97; Julie Bennett, “Hot New Franchise Concepts Offer Rewards, But Not Without Risks,”  Wall Street Journal, September 24, 2015, p. B8; “Exclusive Interview with Nick King, Managing  Director of BurgerFi, the World’s Fastest Growing All-Natural Burger Franchise,” Franchise Chatter,  June 15, 2012,  https://www.franchisechatter.com/2012/06/15/exclusive-interview-with-nick-king-managing-directo r-of-burgerfi-the-worlds-fastest-growing-all-natural-burger-franchise/; “BurgerFi International LLC,”  Entrepreneur, August 2017, https://www.entrepreneur.com/franchises/burgerfiintlllc/334264.