by Aaron Allen
Restaurant Consultant, Speaker & Industry Analyst
Aaron Allen & Associates
Franchising has enabled restaurant chains to grow exponentially across the world. And there is still plenty of room to grow even more. In mature markets like the U.S., chains account for almost 60% of foodservice sales – for every dollar you consume in restaurants, 60 cents go to a franchised system. But in emerging markets such as Latin America, the Middle East, or Asia Pacific, chains represent less than 20% of the market. As these geographies grow and mature the share of chains will increase and restaurant franchise opportunities could move the needle to get a share as high as that of mature markets.
Through time, international chains have expanded to new markets via franchising. Some establish a corporate foothold and franchise the rest of the system, while many directly look for master franchisees that can acquire brand rights to a large territory and that also bring specialization in a geography and can help through brand translation and local nuisance. Franchising also implies a lower investment than opening a large number of new locations, allowing a more capital-light model with better margins.
And there are advantages for franchisees as well. Franchising enables local players to bring on international brands that often have higher sales per unit (compared to local brands), and to import international systems for processes and efficiency without having to make a large initial investment to set them up (and saving in time as well). The payoff time also tends to be faster than starting with a new concept from scratch, and franchisees get support and guidance (on the contrary, if you are operating your own concept and it’s not working, you have no one to call but yourself). For those looking to create a new concept, if doing less than 20 units it’s often better to franchise – think of all the costs involved in creating a new concept, including logos, training manuals and standard operating procedures, design, operational and systems, everything would have to be created from scratch.
