Did a Crisis Just Prove How Well the Franchise Restaurant Model Works?

Posted by Robin Gagnon on Mar 11, 2021 9:06:45 AM

 

While COVID brought many industries to a standstill, it’s clear that those who owned a franchise restaurant fared significantly better than independent operators. In this analysis of the aftermath of the immediate crisis, this restaurant broker lays out the wins for the franchise model when the hospitality industry was turned upside down by a pandemic.

For those operating any business, time was critical, both in the early days of the crisis, and as it lingered over many months. For the franchise restaurant model, the support of a major brand meant more bandwidth to cover the myriad issues facing the operators.

Did A Crisis Just Prove How Well the Franchise Restaurant Model Works

Funding was the most immediate need and for most franchise restaurant concepts, this was quickly communicated with franchisors offering in house training, educational webinars and support to get needed cash in the hands of those struggling in the very early days of the pandemic. Though this restaurant broker hasn’t seen specific data, I estimate that franchise restaurant concepts were first in line for assistance and will end up being the ones provided the most funds early, when it was most essential. We Sell Restaurants was offering free coaching and assistance to independent operators, but we have no idea how many fell through the cracks and didn’t get assistance to file for PPP money or EIDL loans.

Landlord negotiations were key and for large brands, many put their real estate departments to work with structured letters and requests for rent abatement or deferrals. The independent operator was on his own to try and negotiate without the power of a large brand with hundreds of locations for support.

As Americans began to understand how and when to order out, franchise restaurant concepts were giving clear direction and assistance to their franchisees to reduce menu sizes to the most profitable and easiest to transport foods. The entire industry underwent a nearly overnight transformation from dine-in to take-out. Shortage of take out containers was an early issue with franchise restaurant brands getting better deals because of negotiated supplier contracts. This left the independent operator to figure out how to cut down a menu, box it up, and hopefully, make some money in the process.

The nuts and bolts of preparing food for take-out and delivery on a massive scale was nothing compared to the new costs associated with the shift. This is again, where size began to matter, as franchise restaurant brands negotiated sharp deals and better margins when they could deliver 1,000 doors at a time onto a platform like DoorDash or UberEATS while the independent operator simply didn’t have the economies of scale.

The customer shifted in seconds from customers in line to an online experience. The franchise restaurant community drew on resources to understand the digital marketplace almost immediately and shifted ad dollars to these important channels. Reaching this customer as a single store or one that did not have the sophistication of digital marketing strategies within a trade area meant the independent restaurant simply didn’t have the same reach. For the independent operator, the Doordash or Uber online experience became their billboard and marketing as well as a mode of delivery.

Lastly, the voice of the customer was speaking loudly and frequently about safety surrounding their new dining experience. The franchise restaurant operator was prepared with talking points about how they were now cleaning and responding to a health crisis they had never seen. Because of better supply chain management and resources, they also had product on hand, including sanitizing sprays for tables, sneeze guards or plexi shields, while independent restaurants may have struggled for these basics.

Overall, the crisis, unfortunately, hit the independent restaurant harder with the lion’s share of the forecasted 110,000 restaurants lost falling into this category. That is a terrible loss for this industry and for the neighborhoods that are forever changed in their culinary viewpoint and diversity. Overall, there was immense knowledge and food experiences lost to many of us forever.

On the other hand, the franchise restaurant model proved itself to be incredibly resilient and responsive when the chips were down. For 2021, FRANdata predicts that by year-end, franchising will have recovered to nearly 2019 levels in most metrics: business growth, employment, economic outlook and the DGB. Franchises will employ some 8.3 million people, adding nearly 800,000 new jobs.

As I return to the original question posed by this article, "Did a Crisis just prove how well the franchise restaurant model works?"  In my mind, absolutely.  COVID came and Franchise Restaurants looked it in the eye and never blinked. Well done.

Topics: Restaurant COVID19 Advice

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