I’ve often thought about buying a sub shop or a pizza franchise. I love the food and the ones I eat at always seem busy. Everybody knows their name and brand. It sounds so cool owning a pizza place too, just sounds fun.
I looked into buying a pizza franchise that I am very familiar with, and extremely popular in my home town. It cost about 300K to start and an ongoing royalty of 8-10% of sales. There are others that are much cheaper. So, I looked at a few of these opportunities, and saw a lot sub and pizza shops that were being sold much cheaper. <100k. After researching more, I realized that they’re selling because they were losing money. I looked further into it and read about owners stories of Pizza, Subs, Party stores, (I call liquor stores party stores). The very vast majority of these places are always owner run. They’re not passive and the owners basically bought an expensive job. This is defiantly something I do not want. There are shops that are very profitable and closer to passively run, but what I have noticed is that those were bought years ago and are very established, and probably paid for by now.
I then talked to a few franchisees from the food industry some including people I personally know. I realized a few things.
-If the price of cheese goes up, you don’t have control over that, if a soda tax goes through, that will affect your business. A small fluctuation in price or a small stupid law will have large fluctuations in your income.
-The main problem I realized is that you are at the mercy of your employees. Go into a party store or carry out shop, you see either the owner working there or teenagers to young twenty somethings working there. Remember when you had a summer job, or an after-school job. How much did you care about that job? I remember when I worked flipping pizzas on my summer break, people would show up high, they would quit on site, or just no call – no show. It’s very hard to attract and retain talent when the margins are small. If an employee or two don’t show up. You’re going to get the ‘we’re short today’ call and you’re going to have to go in if they can’t get anyone to work on their day off.
This is devastating to a small business.
-The franchisor can also make you remodel the store every few years, and usually there’s nothing you can do about it. All expenses will be out of your pocket.
Not all food franchises are going to be like this, however, I know this will be the case for most. There are some that were bought years ago, have an established manager in place and are able to retain their employees or manage the constant flow of them. If someone wants to buy a job for themselves and their family, or split a franchise with a friend, go for it. But realize this will be your job. You will be responsible for all the pizzas that come out of the oven.
But better yet, if you can find one that was started 25 years ago and is in a great popular area, where the owner is passive and wants to retire with solid management in place; that would be the best option.
If you want to learn more about franchising, read www.qsrmagazine.com You can find rankings of the most popular franchises, average sales per unit, number of units franchised and company owned, and the growth of the franchise.
In conclusion there is no way I would buy a small food/service franchise. It will lock you into a specific location for as long as you own it, and force you to work there, leaving you little options in life with minimal pay.