I recently posted on the Secret Sauce for Franchise Investing. The post features an article outlining what private equity investors like about franchises. Today, I want to touch on the first “ingredient” which is whether the franchise’s product is straight-forward and consistently replicated.
This is much harder than you may think for franchise operations to attain but it is often the difference between a successful or unsuccessful franchise. Think about McDonald’s for a second. I would argue that McDonald’s success isn’t because their burgers and fries aren’t the best tasting. In fact, I’d argue that many other places have better burgers and fries. However, the key to McDonald’s success has been that their business is straight-forward AND consistently replicated. Each and every time you walk into a McDonald’s you pretty much know what you are going to get in terms of the experience. The food tastes virtually the same, the service is virtually the same, the locations look and feel virtually the same and the price is virtually the same. There usually isn’t much difference among the various locations.
On the other hand, I am familiar with a different restaurant franchise (mostly regional) that has struggled. One of the major reasons this franchise has struggled is because it has been unable to consistently replicate its customer experience system-wide. In fact, some locations even have different recipes for the food and you are never certain how the food will taste from location to location. This causes issues not only for customers but also among the franchisees. Some franchisees are unwilling to give up their recipes for a more systematic approach because they only consider their location rather than the franchise system itself. In the end this franchise will likely never reach its true potential unless the franchisees buy into a common approach and deliver a consistent experience. There is just too much uncertainty from location to location.
The allure of franchising is that the franchisor has a proven system which will help you be successful. But know that all franchise systems are not created equal. Learn about the system and conduct your due diligence on whether the franchise system you are considering consistently replicates its offerings. It could be the difference between success and failure.