Franchising

Franchise Opportunity Analysis:

Bombers Burrito Bar

Claudette B. Lawson

Southern New Hampshire University

Author Note

This paper was prepared for OL 640: Franchising, taught by Dr. Gary White

Outline

1. Summary

2. Overview of the Business Concept

3. Assessment of the Five Industry Forces

4. Criteria for Successful Franchises

5. Benefits of Franchising for the Franchisor

6. Disadvantages to the Franchisor

7. 12-Month Action Plan

8. Conclusion

9. References

Summary

This paper provides an overview and franchise opportunity analysis of the local chain restaurant, Bombers Burrito Bar. Bombers Burrito Bar is known for their giant burritos, award-winning wings and great drinks. They are committed to serving great food made from fresh ingredients and shaking delicious premium margaritas and beers. The company was founded in 1997 with $15,000 and today they have a total of three locations. Bombers is the hot spot for students, poor rock bands, cheap state workers and pretty much anyone with a tattoo or multiple facial piercings, states the company website (Our History, n.d.). They specialize in great food for great prices. The atmosphere at Bombers is very festive, high energy and always includes a diverse clientele.

Assessing the franchise concept utilizing Michael Porter’s framework of five industry forces (rivalry, threat of substitutes, buyer power, supplier power, and threat of new entrants and entry barriers) shows that Bombers is in a good position to be successful. Weighing out the benefits of the franchise system against some of the potential disadvantages shows that the benefits far outweigh any disadvantages with the main advantage being the opportunity to quickly expand with limited capital outlay.

Before expanding through franchising, the company will utilize a 12 month PERT process to prepare itself for franchising their operations and they will put together a well rounded board of advisors to help them along the way.

Overview of the Business Concept

Bombers Burrito Bar is known for their giant burritos, award-winning wings and great drinks. They are committed to serving great food made from fresh ingredients and shaking delicious premium margaritas and beers. The company was founded in 1997 with $15,000 and today they have a total of three locations. Bombers is the hot spot for students, poor rock bands, cheap state workers and pretty much anyone with a tattoo or multiple facial piercings, states the company website (Our History, n.d.). They specialize in great food for great prices. The atmosphere at Bombers is very festive, high energy and always includes a diverse clientele.

Assessment of the Five Industry Forces

I believe that developing Bombers into a franchise would be a great opportunity for both the franchisor and the franchisee. Porter (n.d.) provides a framework of five industry forces that strategic business managers can evaluate to develop an edge over rival firms and better understand the industry context. A brief description of each of the five forces and my assessment of Bombers with each of these follows:

1. Rivalry – the competition among rival firms with intensity influenced by the amount of firms competing for the same customers and resources, slow market growth causing firms to fight for market share, high fixed costs, high storage costs or highly perishable products, low switching costs, low levels of product differentiation, and high exit barriers.

a. In the local Albany, NY territory there is limited rivalry in their niche burrito bar industry. Main competitors are Chipotle, Chili’s, and Moe’s, but none of these caters to the fast food industry and also provides a bar atmosphere.

2. Threat of Substitutes – a threat of substitutes exists when a product’s demand is affected by the price change of a substitute product.

a. Bombers focuses on offering locally grown products for the majority of their menu items, but their bar menu and other restaurant needs could be subject to pricing concerns. This would not only affect Bombers, though, it would affect all of their competitors. Operating on a franchise capacity would enable them to secure bulk goods at cheaper prices.

3. Buyer Power – The power of buyers is the impact that customers have on a producing industry.

a. No particular buyer has any particular influence on the products or pricing of the Bombers products.

4. Supplier Power – Suppliers, if powerful, can exert an influence on the producing industry, such as selling raw materials at a high price to capture some of the industry’s profits.

a. There are many competitive suppliers within the Albany area, so I don’t believe that Bombers would be subjected to this issue.

5. Threat of New Entrants and Entry Barriers - Barriers to entry are unique industry characteristics that define the industry.

a. There are not many barriers to entry within the burrito industry. The current competitors will probably have greater economies of scale, but Bombers has been able to penetrate the inner city market and tap the bar clientele to build a loyal client base.

Criteria for Successful Franchises

Bombers meets many of the criteria that Judd and Justis (2008) describe that will make it a good franchise. The criteria described by Judd and Justis (2008) are:

· Business owner/franchisor must have an entrepreneurial spirit

· Must have a prototype store or unit

· Must be able to replicate my prototype units

· Must be able to teach your system for operating the business to others – prospective franchisees and their staffs

· The products and services must be viewed as valuable and superior to the competition

· The product must meet the test of distance

· The product must provide a differential advantage over the competition

· Growth plans must be realistic (pp. 42-45)

Bombers is owned by a entrepreneurial owner who started the business with $15,000 won in a bet. All three of their local stores are operating profitably and successfully. Whether you enter the Albany, Schenectady, or Troy bars you will be greeted with the same type of energy and high quality food. The service is always prompt and servers greet you with a smile.

Benefits of Franchising for the Franchisor

The benefits of franchising Bombers to the franchisor would be that they would be able to expand quickly with limited capital outlay. Goldberg (n.d.) says that the “primary benefit is the ability to use other people’s money to expand the brand more rapidly than they could either on their own or through investors or lenders.” Judd and Justis (2008) explain that “expansion efforts are costly and franchising provides an opportunity to share this burden on the road to success” (p. 38). The royalty fees and other costs can provide significant income to franchisors. Franchisors are able to expand into other geographic markets while still focusing on their local market. “Rapid expansion through a franchising network enables the franchisor to devote more time to operational planning, market analysis and assessment, quality control, and strategies for improving the franchise system itself (Judd & Justis, 2008, p. 38). The franchised business will be able to take advantage of economies of scale by purchasing in bulk. Advertising is a shared cost of franchisees which can help the franchisor increase their market presence.

Disadvantages to the Franchisor

Some of the potential disadvantages of franchising your business are recruitment issues, commucation problems, and loss of freedom (Judd & Justis, 2008, p. 40). Franchisors may find that it is hard to find potential franchisees who have the experience, motivation or proper capital backing needed to become successful franchisees (Judd & Justis, 2008, p. 40). There is a great deal of work that goes into owning a franchised business and it is essential that potential franchisees are carefully selected to ensure theirs and ultimately your success.

Communication problems can be driven by an unclearly written franchise agreement. All terms must be written out clearly to avoid future misunderstandings. Conflicts can arise due to lack of support, inadequate training, territorial problems, misrepresentation, fraud, and unhappy franchisees. The franchisor must ensure that regular and clear communication is provided to all franchisees as well as sufficient support and training (staff, n.d.).

The expansion of the franchise system can cause the franchisor to lose the freedom they had grown accustomed to. As the business expands, the franchisor’s flexibility to change products, add new products, eliminate services or change policies can be significantly be reduced (Judd & Justis, 2008, p. 41).

12 Month Action Plan

Now that we have decided to franchise our Bombers Burrito Bar business, a 12-month action plan must be put together to ensure that the organization carefully steps into the franchising business with a well thought out plan for success. Utilizing the project evaluation review technique (PERT) listed by Judd & Justis, 2008, p. 89), beginning the franchise system can be broken out into well-defined and manageable phases.

PHASE 1 – Research and Analysis – Months 1 - 3

Phase 1 will be carried out in months one through three and is very significant to the franchises overall success due to all of the background work that is completed. In this phase we will conduct a more thorough feasibility analysis and then complete our business plan. The business plan is key to our success and includes a “detailed blueprint of operations” (Judd & Justis, 2008, p. 68). The business plan includes the following sections:

· Executive Summary: Details the company’s name, type of business, description, key personnel, start-up schedule and competition, funds requested, funds use statement, and fund repayment

· Marketing Plan: Major marketing objectives, plan, pricing strategy, franchise recruitment plan, franchise prospectus, franchise sales and advertising, franchise location criteria selection, grand opening plan, and customer advertising

· Management Structure: Headquarters to include the organizational structure, policies and personnel. Franchise to also include their organizational structure, policies, and personnel. Operations manual, training manual and PERT chart

· Financing and Accounting for both headquarters and franchisees: start-up costs, financial position for securing franchise, pro forma income statement and balance sheet, projected cash flow, breakeven analysis, ratio analysis, and provision for taxation

· Legal Aspects: Business structure, contracts, licenses, trademarks, insurance, disclosure documents, franchise agreement, and franchisor-franchisee conditions

· The Appendix will include building plans, layout design, graphs, working papers, diagrams, layouts, and charts (Judd & Justis, 2008, p. 73)

In Phase 1 we will also put together our franchise advisory board. The franchise advisory board will provide a way for us to gain advice and counsel from experienced and knowledgeable professionals with varying professional backgrounds. “A qualified Board of directors can be a significant benefit for a franchisor” with some of the benefits being to:

· Bring objectivity to franchisor strategy and important decision making

· Provide an expertise that the franchisor does not have

· The opportunity to receive feedback and input from people not related to franchise ownership either financially or otherwise

· A group of specialists that can provide competent advice when needed

· Can be more cost effective versus engaging various consultants (Teixeira, n.d., Why franchisors).

I plan on selecting an attorney and CPA that are both well versed in the franchise and restaurant industries, a marketing executive to provide input into our marketing campaigns, a culinary arts director from a local and reputable college to provide insight into how we can enhance our menu and also build relationships with the community, an executive from a local business that can provide insight into the business side of things, an educator from a university with a background in organizational leadership to help us create a corporate culture that will lead to success, and a member of the International Franchise Association to help provide insight into franchise operations. This well rounded team will be a valuable asset to our operations and will help us to consider all aspects of franchising our burrito bar.

PHASE 2 – Organizational Development (Internal and External) – Months 3 - 5

In months three through five we will undergo phase 2, which is developing our internal and external organization. We will put together our legal documents, operating documents, training manual, recruitment brochure, marketing plan, franchise recruitment strategy, and location analysis criteria (Judd & Justis, 2008, pp. 89-90).

PHASE 3 – Marketing to Franchisees – Months 5 – 12

In month 5 we will begin marketing to franchisees. In this phase we will compile our marketing package, develop a franchisee profile, and begin mass advertising to attract our ideal franchisee. Seminars can be held both online and at various target locations as well.

PHASE 4 – Franchisee Selection – Months 6 – 12

In this phase, we will begin to review applications, interview potential franchisees and begin our selection processes based on the requirements that we have decided upon for successful franchisees.

PHASE 5 – Site (Building) and Training – Months 7 – 12

In phase 5 we will focus on site selection and training. The franchisees will need to select their own sites, but we will want to review the sites to ensure they meet our site qualifications. While the sites are being prepared, the franchisee and their management team will begin training at one of our existing restaurants.

PHASE 5 – Start-up and Feedback

In the start-up phase, the franchisor will assist the franchisee with their grand opening activities and be available to assist them while they get up and running. In addition, eliciting feedback will be essential for the franchisor as they seek to tweak their franchise system for optimal success.

In conclusion, the Bomber’s Burrito Bar concept will be a successful franchise business because of their easily standardized procedures and policies, they use fresh ingredients that caters to the more holistic and organic audience (currently a popular trend), they offer a popular ethnic food, they provide a relaxed but fun bar atmosphere that caters to a wide age range, and also because they locally own and operate three successful stores. I would definitely invest in the franchise system because I am a fan of the business and believe that the concept would be able to be duplicated in other markets.

References: