To franchise? Or not to franchise?

Many of our clients have asked me about franchising the brands we are helping them to grow. Who wouldn’t think about that? The idea of plenty of mail-box money and growing a business through capital from franchisees is very attractive.

My advice is clear. The only reason to franchise is if there is a realistic future opportunity to attract existing, professional, multi-unit and multi-concept franchise groups. If that’s not part of the picture, the owners will end up franchising to their cousins, their neighbor a few blocks away who is a restaurant manager, and the IT refugee who is cashing in her 401K to buy into the hospitality industry. In that case, I recommend sticking with company-owned stores.

The Saxton Group. You have never heard of them, but you may eat at their restaurants frequently. In this week’s Dallas Business Journal, Steve Thompson writes about changes in The Saxton Group’s management team, and interviews me about the implications of those changes.

Like many similar organization around the country, The Saxton Group is great at being a multi-unit and multi-concept franchisee. These companies are the unsung heroes of the restaurant industry. They tend to be outstanding at operations and execution and local store marketing. Concept development is not their thing. They pick and choose concepts to develop because there are more concepts out there than there are these professional groups to franchise them. Saxton operates 27 McAlister’s Delis in Texas and is the territory franchisee in a large swath of Texas for Pinkberry Yogurt.

You’ve probably never heard of our client OPH-DFW, either. The Dallas franchisee of The Original Pancake House, is another example of an experienced multi-unit operator. This Original Pancake House franchisee operates six units in North Texas. Since Original Pancake House is a relatively low-profile franchisor, many of their guests think they are an independently owned restaurant group. That works in their favor because they are perceived as home-grown.

Experienced groups of multi-unit franchisees can build brands and enhance reputations. On the other hand, when checks start arriving from people without a proven track record, the big risk is the deterioration of the brand and a bunch of headaches teaching inexperienced people how to run the branded restaurants.

Thirty years of experience has taught me that successful restaurant concepts have no trouble attracting growth capital. Mail-box money is a nice thought. Unless the owners are ready to dance with the big boys, they are better off attracting capital and building their own stores.