I’ve thought similar. There are a couple of different facets to the franchise market that could benefit from an in-depth study…
How to propose establishing a new franchise contract. For example, “Mom’s Home-style Corndogs” only has a couple of locations but are doing well and you’d like to come to them with a win-win proposal to open a couple of new locations based on their brand. What are some contract dos/donts?
I’m the owner of “Mom’s”. How do I grant rights to a franchisee but still protect myself and my brand from the hucksters from 1) approaching me with their bona-fide monorail offers?
Spitballing here, but expect a half-million, minimum, investment. Actually, I would probably double that.
Create a brand identity which flows through your restaurant decor, your menus, your labels and packaging, advertising, etc.
I figure this should go around $100k, but can go higher… much higher.
Engage with a foodstuff manufacturer to create seasonings, etc, built to your recipe specifications so you have that “vertically integrated supply chain” in regards to your food product.
(Have no idea what this would cost, but expect another $100k. But this is a guess - do we have any food industry people here?)
Do the same regarding other franchise-specific items involved - decor and fixtures, kitchen equipment, and the like.
Your goal is to have a team of suppliers who can build-out a new restaurant once the franchise agreement is signed w/o a lot of input from you after the agreement is signed.
You cannot do this after, it all must be done before you start selling franchises.
That should be the first quarter million.
Once you have your branding concept and your franchise supply chains settled, then…
Hire a lawyer and a CPA to put together the franchise disclosure document. Hell, even the audit of your books will likely go for $30k, minimum. Probably a quarter million here, at least.
I would not sign an agreement with a “franchisor” who does not have the vertically-integrated supply chain, the required vendors who are able to build-out a restaurant on demand, more. Along that path lies madness.
Here’s another in the same vein - Gregoire. They’ve been doing the exact same thing - advertising leaflets in all takeout orders, offering a $10k bounty for franchising and so on. I think they started doing this in 2021 or 2022 and so far nada as far as I can tell. I can only assume the model is just too risky for some one to want to invest the cash in these post-COVID years.
Now, I like that place - they make a damn fine sandwich. But they used to have two locations which they consolidated back to the original, as well as monthly (rather than quarterly) menu changes and no more entree dinner services. They seem to be cutting back in the name of greater fiscal efficiency. Which is reasonable, but does make me wonder just how viable they would be as a higher-end fast-casual franchise. Is this an attempt to create an empire or just an aging restaurant owner looking to establish a retirement revenue stream? Could be both I suppose .
@JohnT, going back to Dickey’s; let’s say I wanted to open one (I don’t). I do my due diligence & they tell me it’s gonna be $300m to open because that article stated that multiple people were told it would cost less than it actually did. I’m now at $350m in & figure I need another $100m to open; that’s 50% more than I was quoted. Are these franchisees proceeding on the sunk cost fallacy or do they have any recourse to go after the franchise for false promises? How iron clad are the agreements typically?
The Franchise Disclosure… which has the projections… and the Franchise Agreement… which is what you actually sign and does NOT have projections… are completely different things.
There is language in all FDD’s that the “Disclosures”… well, let me quote from Dickey’s FDD itself:
Please note that while part of my OP was about hidden, obscurant language, the above is found on PAGE 1. It’s very clear.
The projections are in the Disclosure Document, not the contract. Therefore, when you sign the contract, the franchisor is not legally bound by the projections. You are warned, many times, that these numbers are estimates or… at best… historical, and may not apply to you, the franchisee.
Part of the “signing party” includes you (the franchisee) signing a document that you fully understand the FDD and the franchise agreements. If you then decide to sue because of misrepresentation, you’re sure as shit going to be asked “were you lying then when you said… and signed to the fact… that you understand these documents, or are you lying now?”
So, in short, you it is very hard to successfully sue the franchisor because your store went over projections because:
The contract you actually signed does not contain these projections.
You were told, repeatedly, that these were unregulated projections.
You were told, repeatedly, that the numbers provided may not apply to your location.
You signed an agreement that said you fully understand the disclosure and agreement, including the fact the projections may not apply to your location.
To your question…
Some of it is sunk cost fallacy, but remember: there is an entire company (and industry) which is dedicated to pushing you forward on your franchise journey. They’ll know what to say to a newly-hesitant franchisee who is watching the bills pile up, they’ll know when to cajole, laugh, threaten, and more, all to the point of ensuring that the location is set up. And it’s worth it to them because they are using your money to execute a capital build-out of their brand, and if you crap out after spending (and going into debt) for $500k, well, they still have the new location! Thanks!
As for how iron-clad the agreements are, they are very tight, but there’s nothing that anyone can do if you just refuse to work the location any more (which happens quite often). They can’t enslave you, so what will happen if you’re done-done is they’ll try to find another buyer for your location, or just take it over themselves and then slap you with a lawsuit for breach of contract.
Or, if you’re lucky, there may be language in the agreement where they fine you “just” $100k, and then they’ll send you to the collection agencies and let them deal with the problem.
I’m curious if the OP has any opinion on the franchising of L&L. They have a nice backstory, recently covered on Hawai’i Public Radio. But an initially heartwarming beginning doesn’t guarantee that future owners who start franchising won’t act contrary to the original values of a business. (In the early days, additional L&Ls were opened by Chinese immigrants helped by the owner of the original L&L, also a Chinese, who didn’t want to expand himself but wanted to help fellow immigrants get a toehold in the business community).
Of course. The sweet Chinese guy who started L&L, then tried to help other start their own businesses, probably retired eons ago. I believe, but am not sure (I didn’t hear the broadcast, it was relayed to me by someone who did so I’m missing some details) a business group approached him and said, “hey, clearly there is potential to expand L&L - let us take over, and we’ll institute a formal franchising operation.”
Sorry if that was unclear from the way I worded my comment. What I meant was, maybe somebody like the two McDonald brothers or the founder of L&L were great guys.
That does NOT mean that whatever conglomerate is managing all the franchises that exist today are adhering to whatever values the original founders might have had.
Actually, I don’t know if they’re evil or not. They aren’t registered in Wisconsin or Indiana, so I tried finding them on the horrible CA Franchise database and could not find them to make an analysis.
Worked for me unless I missed something. Chrome on iPad Mini
Incidentally, the Santa Barbara one (actually way out in the ass end of Goleta by the Costco) has been in business for well over ten years and seems to be doing well.
As something of a hijack, the older meaning of the term franchise was the privilege of voting. In his book Are We Rome? (2007), Cullen Murphy traces a virtually identical progression (decay?) of the equivalent Latin term suffragium from the right to vote to a privilege that is bought and paid for.
We have one (L&L) on the other side of LAX in El Segundo.
Yeah, the one in El Segundo has probably been there that long at least. It’s on a corner with several other places that cater to the airport workers. Good location.
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