Sarah finally worked up the courage to invest her life's savings into a fast-casual restaurant franchise. Lured by the franchisor's compelling marketing and promise of a proven turnkey restaurant operation, she believed success was all but guaranteed. A year later, despite diligently sticking to the system, she's struggling. She’s now questioning the system, along with the people who sold it to her.
Is the system flawed? Is her location an anomaly? Is her franchisor as incompetent and untrustworthy as she sometimes thinks (and as other struggling franchisees tell her)?
In my work as a speaker and writer for the franchise industry, I meet a lot of franchisors and the franchisees who rely on them. I’ve come across some questionable characters and some systems that are far from proven. But what I see much more often are smart, well-intentioned franchisors with solid, replicable operations, and some hard-working franchisees who stick to the system, but aren’t getting the results they expected.
Many factors impact restaurant performance. But sometimes the gap between what franchisees hoped for and what they’re experiencing stems from a deficiency in one or more of four critical skills for business success. Without mastery of all four, it’s impossible to determine how effective this system really is. A perfect tool in the hands of someone using it improperly won’t yield the desired results. The operation may be tried and true, but the owner’s skillset (or lack thereof) is the ultimate factor that needs proving — or improving.
Franchisors can’t be experts in everything. Their job is to master pizza, chicken, or ice cream, and then figure out how to sell it. They offer proprietary intellectual tools and processes. That’s a lot — usually worth the franchise fee and royalties franchisees pay. But it’s not enough.
Restaurant franchisees also need four additional competencies to get the most ROI from their business. Two of these are soft skills, and two are hard skills. These four abilities lie outside of the franchise system but are as critical to the restaurant as the recipes. Until these skills are mastered, it’s hard to gauge how good the system really is. Let’s look at each:
That’s the owner’s ability to control their thoughts and feelings to ensure they’re performing at their best. I meet so many struggling franchisees held back by fear, anxiety, mistrust, impatience, and resistance to change. When faced with challenges (a daily occurrence in a restaurant), they catastrophize. When sales go down and costs go up, they panic or blame their franchisor. One franchisee from a well-known retail brand freaked out when another location opened in the next town over. He complained to his field consultant that sales had dropped and he had less money in the bank. The field consultant ran some reports and determined that while sales had, in fact, dropped, traffic increased. They were doing more weekly transactions. It was their ticket size that decreased. Their transactions were smaller, suggesting the business had become complacent about selling. Overcome with emotion, the owner hadn’t looked at the numbers. He just went with his feelings, which can often be misleading.
I also see the opposite. I meet a lot of high-performing franchisees, whom I call in my first book “wealthy franchisees,” who maintain a winning mindset. They keep their heads clear. They build trust with the corporate office. When they disagree with the franchisor, they communicate without being disagreeable. They lean into change and continuously improve. They connect with other franchisees. They place little outside blame and take responsibility for their own business. They buy struggling locations from those with poor self-management and quickly turn those stores around, infusing the system with their own mental strength. An owner with a bad location and great mindset will always out-perform someone with the opposite. Top restaurant management starts with top self-management.
2. People management
The restaurant industry, inherently volatile and fast-paced, hinges heavily on effective management of its hourly workers. Yet, in the franchise world, this paramount component often lacks the necessary guidance and support. Why? Franchisors are caught in a delicate balance. On one side, they want their franchisees to succeed, and effective people management is a cornerstone of this success. On the other, they're wary of stepping too deep into the management process due to the lurking fear of being designated as joint employers. This designation could saddle them with substantial liabilities for any missteps at individual franchise locations. As a result, while franchisors might willingly assist with supply chain issues, branding, or operational challenges, they generally maintain a distance when it comes to the nuanced arena of employee management.
I hear many restaurant owners bemoan the lack of work ethic, commitment, or reliability of young workers. Employees don’t show up for interviews. They complain. They ghost. As a former business owner and member of the aging Generation X, I’ve observed these common workplace behaviors, and it really bothered me. It burdened my business and contradicted my views of appropriate workplace behavior. It still does.
But having navigated these very challenges and having worked with so many other business owners in the same boat, I've observed a different narrative. In many instances the problem isn't necessarily the workers but the environment in which they work, the leadership they are under, and the systems or lack thereof that guide them. In other words, in many restaurants, management can do more to mitigate these problems than they realize.
Don’t take my word for it. Ask Justin Stewart, who, along with his brother, runs 128 KFC restaurants. Or Ray Howell, who operates 19 Tropical Smoothie Cafes. These restaurant owners love their employees and they get great performance out of them. I interviewed these franchise owners along with many others for my new book about managing hourly workers. They’ve mastered the practice of building culture, of understanding the needs of team members and understanding what motivates them — and what doesn’t. They’ve become employers of choice. They’ve cracked the code to managing employees (while controlling labor costs). They’re not without employee issues, but they do considerably better than most. They’ve proved that today’s workforce can be recruited, retained, and inspired. (I’ll be writing more about how to make this happen.)
Many employers don’t believe this, and the mere suggestion that they’re not managing as well as they could angers them. That’s why self-management and people management go hand in hand.
The focus of my work is on the human side of business. Franchise brands bring me in to address the mindset of owners and managers, and the culture of their teams. The best franchisees demonstrate high emotional intelligence and it unquestionably give them an edge.
But soft skills alone aren’t enough. There’s a restaurant that needs to be run and a business that has to be grown. Working with a solid restaurant system is great, but there are two hard skills outside of the system that must also be mastered.
3. Marketing acumen
While franchisors might steer the national marketing helm to create brand awareness, the local waters are where franchisees must shine. It’s up to the franchisee to bring more customers to their doorstep. I've observed tensions where both franchisors and franchisees expect more marketing effort from the other.
The best franchisees don’t rely on the national marketing campaign to generate business. They market constantly and consistently. During slow times, they market even more. Owners who come into franchising with an appreciation for good marketing and the know-how to execute it are at a huge advantage.
Of the four skills discussed in this article, marketing is the one where brands offer the most resources and guidance. But while many provide an array of recommended tactics that are part of their system, there's a distinct gap when it comes to instilling a deeper, more holistic understanding of marketing as a dynamic skill. Instead of merely prescribing specific campaigns or promotions, franchisors could significantly bolster their franchisees' success by coaching them on the foundational principles of marketing. This could encompass lessons on identifying and understanding their local target audience, the art of crafting compelling brand stories tailored to their community, and the science of evaluating the ROI on various marketing initiatives.
But franchisees can’t rely on their corporate partners to educate them in marketing. It’s an opportunity for the franchisor, but not necessarily a responsibility. Their commitment may be limited to providing marketing “support.” Ultimately, it’s on franchisees to acquire this essential business skill. Whatever business you’re in, you’re in the marketing business. You need to know how to do it.
4. Financial acumen
I spent a day coaching a franchisee in an ice cream chain and saw he was running high on food costs. I weighed an employee’s ice cream scoop — described to me as about average in size — and it exceeded brand standards. The franchisee didn’t seem concerned until I penciled it out and showed him how over-scooping was bleeding his profits to the tune of tens of thousands of dollars annually. It was one reason he wasn’t getting the ROI he desired. This franchisee was hard-working and smart. He learned how to make ice cream, manage the machines, and serve the frozen treats listed on the brand’s menu. He knew the system. What he didn’t know was how to make money.
At the heart of every successful restaurant franchise lies a foundation of solid financial management. This encompasses much more than just tallying daily sales. True financial acumen involves understanding and regularly reviewing P&L statements to discern the health of the business. It's about maintaining optimal inventory levels to prevent wastage and unnecessary costs while ensuring customer demands are met seamlessly.
Furthermore, franchisees should be familiar with key benchmarks for costs. Knowing industry standards and how their numbers compare can highlight areas for improvement or potential concerns. Effective bookkeeping, not just as a tax season necessity but as a consistent practice, is crucial. It offers clarity on cash flows and can pinpoint exact areas of overspending or underutilization.
But it doesn't end there. Understanding how to access and wisely use credit can be the bridge between seizing growth opportunities or remaining stagnant. Credit can empower franchisees to renovate, expand, or invest in marketing campaigns that might be out of reach with cash-on-hand. However, this requires knowledge on the best terms and rates, and when to leverage debt versus when to avoid it.
The training I received as a franchisee barely grazed this critical skill set. We were given a few benchmarks for costs and a QuickBooks chart of accounts, but not much more than that. I made a point of learning this area of the business on my own. Too many other franchisees just stay busy, aware of what’s happening in the kitchen and dining room, but not in their investment as a whole.
A proven system for running the operation is a prerequisite for restaurant franchise success. But it’s hardly the entire formula. If franchisors are committed to their owners’ success, they should spend more time helping franchisees gain these competencies and/or take them into consideration when vetting franchise candidates. Meanwhile, franchisees must take it upon themselves to improve in these soft and hard skills. It’s the only way to prove the system, and to prove themselves.
Scott Greenberg is a speaker, writer and business coach and the author of The Wealthy Franchisee: Game-Changing Steps to Becoming a Thriving Franchise Superstar.
His new book, Stop the SHIFT SHOW: Turn Your Struggling Hourly Workers into a Top-Performing Team, will be released in February 2024. Find more information at www.scottgreenberg.com.