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Restaurant Franchising:
The Barbecue Concept Continues to Grow in Floridaby David G. Jackson
Well, it’s a jungle out there--a restaurant jungle that is. The big chains are growing, franchise operations are increasing, and local eateries continue to proliferate. Everyone in the USA, rich or poor, seems to be eating out regularly. Where will it all end? And how can your get you piece of the hamburger, barbecue, fried chicken or pizza business that seem to be the four basic food groups of Quick Service Restaurants (QSR)?
There appears to be three ways to go. If you own a restaurant and have a good location, are a really good manager, and are well financed, you probably are doing OK. The next group involves major chains, many of which are nationwide in scope, that offer you the opportunity to "join the management team of XYZ" and enjoy success. The third is to find a franchise operation that meets your skills, aspirations and finances.
We have all heard the stories about the millionaires all across the country who bought franchises in something called McDonald’s back in the 60s. Well, the franchise opportunities may not be quite that great today, but they are still pretty good if you get the right company. And that is the challenge--a challenge that works two ways: the company that is looking for a few good people to finance and run the operation, and operators who want a good company that will help them to build a successful operation. It sounds pretty straight forward, but is it?
First, the Good News
Franchising will be a trillion dollar business in the United States by the turn of the century. The International Franchise Association with headquarters in Washington, DC has more than 30,000 members who represent some 800 franchisors, 300 suppliers and about 29,000 franchisees. There are seventy categories of franchises--everything from air freight delivery to weight loss salons. Just about every type of business possible is franchised, but the largest franchise category is foodservice, which represents more than 25 percent of the total activity.
"Primarily, a franchise is a way to develop wealth, improve the economy, and provide employment," said Don J. DeBolt, the president of the IFA. DeBolt is well-known in business circles, appears regularly on television programs, and has a syndicated daily news program called "First Business."
"A franchise offers an astute business manager the opportunity to take advantage of successful systems that have been developed and proven over the years. However, success is not guaranteed, even though well-financed, well-managed franchise operations have a very high percentage of success."
New Competition for the Southeast
Damon’s helped start it all in 1979 with a small barbecue place in Columbus, Ohio, and has grown to 135 stores including two in England, and now the company is growing at twenty-five stores per year, most of them franchise operations, according to marketing director Kelly Clark. This restaurant is best described as a middle-of-the-road barbecue, more in the North Carolina style, which features four sauces. Most of their restaurants are east of the Mississippi--seven of which are in Florida--but they are currently opening stores in the Sacramento and San Diego areas of California. Twenty of the stores are company owned.
"Damon’s grew rapidly in the Columbus area and we started our franchise operation five years later," said Clark. "Our concept is really different from most other barbecue chains in that we focus on ribs, prime ribs and steak. Our restaurants also feature a sports club house setting with several TVs mounted on a wall and individual speakers at tables where customers can enjoy the big game while they eat their meals," he said. "Most stores also have carryout and some offer catering. We have house specialties such as our famous onion loaf, and some really wild desserts."
"Most of out stores are free-standing, between 6,000 and 9,500 square feet in size. Our concept is casual dining it its best. We do a lot of carryout in our stores that are associated with hotels. We feature a full bar, with alcohol beverages accounting for about 17 percent of total sales. So a prospective franchisee must be able to obtain a liquor license, which in some states can be quite a challenge," he said.
"We are currently going after multi-unit franchises. We like to work with people who understand the restaurant and franchise businesses. Some of our best franchisees also own other franchise operations such as Applebee’s Grill and Bar, and Burger King. There is no real conflict since we are not in direct competition with these other operations," Clark said. "Our goal is to have 200 units in operation by the year 2000."
The typical new franchisee has a three to five store exclusive territory. Existing buildings can be adopted. Damon’s supplies everything: kitchen equipment, restaurant decor, a food purchasing program for nationally known suppliers, and training in all aspects of the operation. The initial cost for developmental rights for a territory cost $20,000 and the franchise cost is $50,000. Additional costs may be financed with lenders approved by Damon’s.
Florida: A Real Proving Ground
"Florida has got to be the toughest place in the U.S. to start a new restaurant," said Doug Colson, president of Southwest Specialties Foods in Winter Park, Florida. "Orlando is used as a test area for many chains and new idea restaurants because of the dynamics of the area in terms of growth and tourist attraction. A whole lot of them just don’t make it," he said.
That’s why he feels that his Conway’s BBQ stores are ready for the franchise market. "I have been in the barbecue business for eight years, four of them with Damon’s. I wanted to get into the barbecue business--but not just the traditional restaurant. My idea was a multiple business, with several different income sources, including take-out sales, catering, and sale of sauces."
The store they came up with is Conway’s BBQ and they opened four company stores in Florida and operated them for four years to work out all of the problems and develop a system of operation, promotion, and management that will insure success for franchisees. "We will have seven stores by the end of the year, and we have three franchise development agreements."
"The area of the country that we feel is best for our barbecue restaurant development is the Southeast--Tennessee, North Carolina, South Carolina, Georgia, Florida, and Kansas City--places that really like good barbecue," Colson said. "We are developing regional sauces that will be compatible with local tastes."
The franchises are 100 percent turnkey. "We provide the kitchen, meat supplies, bean mix, and coleslaw recipes. We are looking for franchisees that have a proven business record--they don’t have to have restaurant/food business experience. We are looking first at in-line businesses, but eventually want to expand into truck stops. We want our stores to have a bright, clean environment," Colson said.
The initial investment can be as small as $100,000, but Conway’s is looking at agreements for developing at least seven properties to gain rapid product recognition. "We welcome inquiries, but investors should not expect a quick reply. "We are still working on our total package to make sure it is right. We want people to be able to achieve a three-to-one return on their investment--if all goes as expected," Conway said.
Florida and Beyond
Bruce Wunner is a retired executive of McDonald’s where he served for thirty-three years, part of that time as CEO of their Latin American division. Why would this man want to start a barbecue franchise operation that he hopes will go nationwide?
"Call it a passion for barbecue," Wunner said. "I have always loved it and have eaten it all over the world. So, not long after I retired in Florida, I got to thinking about how I could make this passion into a business and share it with others in our country, and maybe the world." The result was the BBQ Franchise Co. in Boca Raton, Florida which started Red’s BBQ Restaurants in 1997.
It began with three company owned stores where Wunner and a team of restaurant executives from across the country honed their concepts into a working model. The menu was shaped by nationally acclaimed chef Jack McDavid, host of the Food Channel’s "Grillin and Chillin" show. Red’s features hearty foods, ample portions, and bold flavor made with fresh ingredients. The use of vintage barbecue recipes and regional cooking styles adapts to any area of the country.
McDavid’s philosophy is not to overload the slow-cooked meat with sauce, but he makes allowances for regional preferences by offering six difference sauces reflecting varying barbecue styles on each table.
"We have a turnkey operation," said Wunner. "Franchisees are assisted with site location, restaurant design, management training, marketing, and advertising. A conventional franchise costs from $135,000 to $171,000, and a developmental franchise ranges from $207,000 to $269,000 per restaurant. Beer and wine licenses are OK, but there is no full bar service." The ideal location is a strip mall location of about 2,000 square feet with fifty to seventy-five seats, he said, and it takes about two months to build a store and have it ready for operation. The concept is for casual dining in a family friendly setting.
The BBQ Franchise Company’s goal is to go nationwide. In addition to Florida, Red’s BBQ stores are either in or are being built in South Carolina, Atlanta, and Puerto Rico. More than 150 stores are now planned, and they look to develop 400 stores in five years. "The bottom line is that we feel that it will take about three years to pay off a $650,000 investment, if everything goes as planned," said Wunner.
"Buyer Beware"
Charles Elliott is the general manager of Bison, the Franchise Network on the Internet. Bison lists at least 1,500 names of franchise companies whom a prospective franchisee can contact with a click of a mouse.
"We list anyone who wants to pay our fee," said Elliott, "and it is buyer beware all the way." Bison makes no effort to verify any business claim by the companies on their list. And there are some companies who are "a little vague" in their business statements.
"Many people are so anxious to get into business that they either don’t read or don’t understand the information provided them. The Uniform Franchising Offering Circular (UFOC) (containing vital information about a company) is a very critical document that must be studied carefully. And many people don’t know the difference between a franchise and what is called a business opportunity," said Elliott.
A franchise is a method of product or service distribution that is governed by a contract and is tied into a partnership arrangement for a period of time. A business opportunity usually provides equipment and supplies without a management plan and is not involved in the day-to-day operation of the business. "We have had complaints from people who didn’t understand the difference and had serious financial problems," he said.
"I believe that in general the restaurant and fast food market is saturated at this point, but that there is really room for growth for full service barbecue restaurants," Elliott said. In fact, according to NPD Foodservice Information Group, the growth of barbecue chain restaurants between 1997 and 1998 grew 3.5 percent, and steak/rib chains grew 10.6 percent, one of the biggest growths in the industry. The national growth of chains overall was 1.4 percent.
"What you are really looking for is brand and company name recognition," said Elliott. "If you provide a quality product that is popular with the public, you have a good chance to make it all work."
Elliott feels that in today’s market, you must be very well-financed to succeed even in a first-rate franchise business. There are a lot of franchises that you can get for as little as $5,000--usually home-based businesses, but they are often rip-offs. "Even UFOCs offer a real challenge. They can’t make profit claims, they have to list all royalties and advertising fees, and all other aspects of the business. "But many UFOCs I have seen are boilerplate, and require a great deal of additional research before you can make a valid decision to go with the company.
"A typical person making an inquiry is an early retiree who has some money and doesn’t want to quit working. Many of them want to build a business their children can take over. There are lots of opportunities out there, but let the buyer beware!" Elliott said.
David Jackson is a Contributing Editor for Fiery Foods & Barbecue Business Magazine, and has spent the last forty years working in national public relations, editing several publications, and writing books and articles on numerous subjects.
Related Information:
Casual Dining Restaurants Surge, 1997-1998
Steak/Rib
- Individual Restaurants: 6454, up 10.7 percent
- Chains: up 10.6 percent
Barbecue
- Individual Restaurants: 7,429, up 1 percent
- Chains: up 3.5 percent
Overall National Restaurant Growth, 1998
- Individual Restaurants: up 2.9 percent
- Chains: up 1.4 percent
Source: 1998 Recount U.S., a service of NPD Foodservice Information Group, Rosemont, IL.
More Diners
In addition, Casual Steakhouse traffic has increased 73 percent since 1993, according to the National Cattlemen’s Beef Association.
Is Franchising For You?
The real key is a thorough self examination before a business leader decides to launch a franchise operation. Following are a number of questions that the International Franchise Association encourages potential franchisees to ask:
Am I willing and able to take on the responsibilities of my own business?
Most people who have never operated their own business really don’t know what it takes. Typical work weeks are sixty to seventy hours, and franchisees have to be able to do everything in the business including pacifying angry customers and firing employees.
Will I enjoy the franchise?
Most franchise contracts range from 10 to 15 years. Is this the kind of business you will enjoy for that long?
Am I willing to follow the franchisor's system?
Each successful franchise operates on a predetermined formula that has proven to be successful. People who do not want to conform under rigid constraints should be very careful about buying a franchise.
Can I afford the franchise?
One of the major causes for business failure is under capitalization. Franchisees must not only have the start-up costs, but be able to operate for at least two years until the operation turns a profit. For some major franchise operations, this can mean up to $500,000.
Have I carefully studied all legal documents?
Franchisors are required by federal regulation (and often state laws) to make available a document called the Uniform Franchise Offering Circular (UFOC). It is supposed to list all of the details of the franchise, and other information including names of other franchisees, number of failures, financial information, how long in business, litigation against the company, etc. It is best to have an attorney review this with you.
Does the franchise I am considering have a record of success?
The UFOC should provide answers to these questions, but a prospective investor should look over the entire franchise company, including the CEO, board of directors and track record. This is very important if it is a new franchise company that may offer the opportunity to get in on a cutting-edge concept, but may not have had the opportunity to fully develop the concept.
Do I agree with the franchise on key issues?
It will pay a potential buyer to check on the business to make sure that their philosophies and ethics are compatible before all the other details are worked out.
Do I have family support?
Managing a franchise is a full time job requiring sacrifices of personal and family time. Family members should have a full understanding of this and be supportive of the decision to buy a franchise.
"In the U.S. franchising is an $800 billion a year business strategy. But as with any business opportunity, it pays to be cautious," said Don J. DeBolt, the president of the IFA. "Every day I tell prospective buyers: Don’t be in a hurry. Research, research, research. Consult professionals. Saving on fees may deprive you of critical information, particularly in the area in which you want to operate. Don’t overextend your finances. It will cost more than you think it will. And get the business you want. Don’t settle with the first one that comes along."