By Paul Tran - Where to invest your food franchise dollars -- with a Mature Brand, or an Emerging, High Growth Brand? Fransmart's Paul Tran shares insights that have enlightened many investors seeking profitable franchises, debunked widely accepted franchising myths, and reminded best-in-class food operators why they were originally successful.
As Senior Director at Fransmart, one of my most important roles is to grow our firm’s portfolio of profitable food franchises, by bringing in experienced franchisees looking to expand with “the next hot concept”. From Five Guys Burgers & Fries to Qdoba Mexican Grill, Fransmart has helped many emerging brands become marketplace icons.
It’s exciting and fulfilling to see a small but profitable food franchise connect with the right partners it needs to become the next Subway, McDonald’s or Qdoba. Ironically though, one of the biggest challenges we face is with franchise candidates who believe that the best route to a profitable franchise business is with mature restaurant brands.
Everyone is guilty of it: “Man – if only I bought [insert “Apple,” “Microsoft,” “Google”] stock when it first became available. I would’ve been rich by now!” Yes – you would’ve been. And I would’ve been your best friend =)
All national and international restaurant chains start with a single location.
McDonalds, Subway, Taco Bell and Pizza Hut are in their maturity, and their most profitable franchises with triple-digit, thousand-percentage rates of growth are now only seen in history books. Very rarely do older brands make breakthroughs that achieve the same results as in their early days. Plus, you pay a higher premium for them now because although the profitability is only in the single multiples, it’s a “sure thing”.
Food franchises – like stocks – are an investment vehicle, and the same concepts apply. There are some players that continue to surprise and outperform with profitable franchises, but they are few and far between. Most already have market saturation, come at a high price tag, or are extremely difficult to obtain. And, as with stocks, you never want to buy high.
Dan Rowe CEO of Fransmart (of Five Guys and Qdoba food franchise fame) gives sound advice to operators: “Brands that you see all over the place and seem safe – are considered close to or at the peak of their life cycle; and it’s always better to be at the front of it, so that you can enjoy success longer. If [food operators] have confidence in their ability to plug a new, high-potential concept into their portfolio, they stand to win huge.”
Emerging brands are where growth investors need to be taking a look for profitable franchises. Fransmart started Five Guys when the company just had mom, dad, five brothers and five stores. It was only a locally known brand, but Fransmart connected them to the right people who loved the food, believed in the brand and its potential. Now it is America’s fastest-growing chain, according to Technomic. Their franchisees were ahead of the curve even before there was a “better burger” category and were rewarded with highly profitable franchises from it.
Fransmart’s CEO Dan Rowe had a similar success story with Qdoba. Rowe grew Qdoba from one unit to 100 stores, sold it to Jack-in-the-Box, and now it is the #2 Mexican fast casual chain - second only to Chipotle (who doesn’t franchise).
The ones who believed in the young brands and understood the power of the “1st mover advantage” – are now the early [insert “Apple,” “Google,” and “Microsoft”] investors of the food franchise industry. And yes – they are rich with profitable franchises that will last long into the future.
DISCLAIMER: I am in no way bashing any of our iconic industry titans. They are the reason the career I love and the reason why the economy sustains. I’m only giving you another perspective.
Paul Tran is the Senior Director of Development at Fransmart - the largest franchise development company in the world, known for launching highly-successful restaurant chains including Five Guys Burgers & Fries, Elevation Burger, Qdoba Mexican Grill, zpizza, and other national and global brands. He manages the firm’s emerging concepts division and is involved in recruiting franchise operators, raising capital, and territory development. (Article updated December 2015, from a 2012 publication)