Is Your Franchising Dream Waiting?

The Five Questions I Would Ask to Help Decide on a Franchise Concept

As Co-CEO of BIGGBY COFFEE I have presented at hundreds of Discovery Days– we call them Sales Seminars -- to educate and inform ‘Potential New Franchisees’ on whether they would like to move forward with becoming a Franchisee of our concept.

Typical discovery events for any franchise revolve around communicating the culture of the concept and competency of the management team. A potential franchisee is usually trying to assess whether they would like to move forward.

So invariably at the end of a Sales Seminar the questions start with all manner of questions about territory, product, technology, franchise fees, royalty, profit, success rates, etc. All good questions, some of which can be answered and some not.

But what everybody is really trying to get at is this:

1.    Will I be successful?

2.    Will the concept be successful?

Will I be successful?

Of course, no franchise concept can answer that question, regardless of how confident they may be. That would be a promise that shouldn’t be made. First, there is risk in any venture. Second, there are just too many variables at play. And third, so much of the business will rely on the very individual that is asking the question. There is no way to guarantee that anybody or everybody will be successful.

But let us say you are of sound body and mind, and you intend to give this concept your undivided attention, energy, and effort. Then I think you will be in pretty good shape with whatever well researched concept you choose.

If you really want to know whether you will be successful in any small business endeavor, I recommend you read the book “Grind” by Michael McFall.

Pay particular attention to Chapters 1 (Due Diligence) and 2 (Sell More Shit).

Full disclosure, Mike and I are Co-CEO/Founders.

Will the concept be successful?

There is no way to guarantee that either. But there is evidence you can look at that will indicate whether the business is headed in the right direction. If you are captivated by a concept, then hopefully you have already been a regular customer, and therefore are quite familiar with their offerings, culture, and capability.

Here are the five questions that would help me understand whether there is real opportunity:

1.    Look out at the industry. Does it seem like a segment that is growing?

Take the Pizza Delivery segment, for example. It seems to me that between national, regional, and local concepts there are plenty of them out there. For one concept to grow over another, it must take the others market share. In other words, this is not early game where the market is wide open for the taking. This will be a battle by price point, or marketing, or perhaps a unique technology.

Another example though is the Specialty Coffee segment. When we started with the first location in 1995 about 70% of Americans drank coffee, but only 5% of that 70% drank specialty coffee. Today 25 years later, still about 70% of Americans drink coffee, but the percent of specialty coffee drinkers of that 70% coffee drinking population has grown to about 27%. There are parts of this country and other parts of the world where that percent is much higher, anywhere from 40% - 70%. In other words, the industry itself is still growing. There is still ‘white space’ of opportunity. Plenty of upside.

2.    What are the Same Store Sales or Comparable Store Sales rate?

Generally Comparable Store Sales indicate the health of a concept. Comparable Store Sales measure the sales growth rate of all locations that have been open over 13 months. It is a measure of health because it generally indicates whether a concept can attract new customers, retain old customers, get them to spend more, or get them to come more often. This might be done by operational excellence, operational uniqueness, product uniqueness, culture, marketing, technology, or all the above. When done right it is always reflected in a higher Comparable Stores Sales rate. Compare the franchise concept you are looking at to other industry leaders to help measure their success.

As an example, here is what Comparable Store Sales looks like for three Specialty Coffee Industry leaders pre-COVID 19, and then heading straight into the Pandemic. Generally, in a growing industry a +5% comparable would be considered healthy, whereas lower single digits in a growing industry would suggest something is anemic.

3.    What is your percentage of ‘new contracts’ to ‘current locations’?

This is important because it indicates momentum for the industry. When an industry like the Burger segment is saturated the percentage of new units added tend to be in the low single digits relative to the total units open. Can you remember the last time you saw a new location for a McDonald's in the US that was not a remodel or a relocate? A high growth concept will see new store growth rates in the high double-digit range, let us say 20% plus. This should be important to a potential franchisee because not only are you looking for comparable store growth at the unit level, but you may also want to grow the number of units you have. As of the posting of this article BIGGBY COFFEE is currently at 26%.

4.    Of those new contracts, how many are organic versus new?

This is a super-premium question because it could indicate that current franchisees are happy with their locations’ success and that they see adding more locations as a way of expanding on that success. It also suggests that they are comfortable with their relationship with the concept. At BIGGBY COFFEE we put an equal emphasis on building relationships and growth and so you would not be surprised to find that our ratio of organic to new is over 50%.

One note of caution. Some concepts will sign franchise locations 5 or 10 at a time to ‘investor’ groups. Unless this is an experienced multi-unit food service operator, I am always leery of this, and even then, there is something said for learning the business from the ground up. I always discount these from organic growth because they reflect a little less on success of the concept and a little more on a good sales team. I apologize for my cynicism but too many times I have seen ’50 units sold’ to ‘such and such group’ only to see one or none ever open.

5.    How many franchisee lawsuits are there?

Franchising as an industry can be very litigious, that is a fact. If a concept has a lawsuit or two that in of itself may not be a red flag. But if they are numerous and consistent, I think there are some questions to ask. I would suggest that 9 out of 10 times it comes down to a misalignment of values. That is why at BIGGBY COFFEE we lead with our values, they are bold, overt, and not for everybody. We understand that, but when we are entertaining a new franchisee, we want them to feel the full force of these values. Just like any marriage, you can be different, but the values must be aligned for the relationship to survive long term. At BIGGBY COFFEE we are in it for the long haul and have no franchisee lawsuits.

When jumping into the franchise model I would always suggest doing something you know you are going to love first, but then to help narrow refine your decision, these five questions are rarely asked but ever so valuable as insight into the real growth opportunity. 

All data in this article is accurate on day of publication.