HI Rodinhooders,
As I keep on reading about my dream project (a QSR) and its surrounding on various blogs, I came across this wonderful post on yourstory.in. It was about two guys named David Grifftih and Gaurav Jain, both of them are based in Bangalore.
They gave me quite a few points to discuss about, the former started his entrepreneur career by taking up franchisee of Subway and Wangs Kitchen, while the latter started up with his own brand called “MAST KALANDAR“.
They both had their view points about entering the food and beverage sector, from which I have induced certain points which I wish to share out here. I will be taking it one-by-one, as to what the difference is between the franchise based start-up and the other creating your own brand.
David Griffith’s views about a franchise are :
” A lot of people partner a big brand thinking the brand will take care of everything, which is not really true. The brand will provide you with the food and the basic framework of business, but most of the work has to be done by you,” says David
This is a true case, in Vile Parle (Mumbai) where I live all the major brands like Mc Donald’s, Dominos, Subway, Gelato and others are out here.
But due to unhygienic and non-maintenance concerns and poor management Subway had to shut down. the reasons were that the staff weren’t taking care of the store and neither were the owners. A lot of start-ups who tie up with major brands fall prey as they think the brand name will be enough to create a successful business, but it is not the case, a lot of ground level work needs to be done.
FRANCHISE SET-UP AND RUNNING COSTS :
It cost Rs 40-60 lakhs to start a Subway chain based on the location selected to setup shop. Griffith also says keeping a six-month buffer of working capital is a good idea to ensure day-to-day operations are not affected.
Every month the franchisee has to pay a percentage of the revenue back to the franchise. This is over and above the money spent on acquiring franchise rights. The royalty charged is 5 to 7 percent of monthly net sales.
As stated above a franchise cost lot and usually start-ups are not highly funded, thus this route is a big no way. As the amount of deposit or royalty cost as you may wish to call it as, is usually really high, this can be the amount equal to starting up your own brand. In addition there is a burden of every month royalty payments, this impact your bottomline profits, as this could be a huge chunk of your net take home profits, for example :
Net Sales : Rs. 10,00,000/-
Monthly Running costs : 2,50,000/- ( it includes rent, salaries, electricity bill, taxes, maintenance, etc)
Raw Material Cost : 6,00,000/-
ROYALTY : 7% X 10,00,000 = 70,000/-
NET PROFIT = 10,00,000 – 2,50,000 – 6,00,000 – 70,000 = 80,000/-
This is a pure assumption.
N Manikantan, GM marketing of Nandos says :
Nandos looks for partners who can afford capital, have an interest in the food industry and are ready to be a working entrepreneur. “We make sure all Nandos franchise owners work at the restaurant every day,” says Manikantan.
It clearly shows that a successful brand name may help attract customers to the store, but it doesn’t guarantee repeated customers, this is purely based on the entrepreneur who takes up the franchisee, has to nurture the store and work for it.
Being the owner : Gaurav Jain (Mast Kalandar)
Gaurav and Pallavi Jain
Gaurav Jain, the founder of Mast Kalandar, who took the non-franchise route invested Rs 18 lakhs to start their restaurant in the outskirts of Bangalore two years back – which was all his life savings till that point.
Mast Kalandar is their first venture and started as a small restaurant on the outskirts of Bangalore. But today they are a successful chain of over 40 restaurants across four cities. Things picked up for Gaurav after they got their funding, which also gave them access to expert advice through the advisory board who joined them.
If you see above this amount is equivalent to the deposit amount given to the franchise, and out here there is no royalty on monthly sales, this means another monthly benefit of Rs. 70,000/- (approx).
WHAT’S THE BEST :
Well since I’m creating my own brand, by bootstrapping it, thus I would end it by saying for me and those with a limited budget it is best to create your own brand, and launch, though marketing expenses will be a bit higher than any normal franchisee, as the brand name needs to be created.
Working with a franchise also has an additional setback that you won’t be known by your name but by your brand which you run, where as in an own brand people will know you as you are the founder, this is my view.
Yet David Griffith in the end says :
“For someone who’s just entering the business, its a great idea to start with a reputed franchise, just to get an idea of how to work in the business. It’s worked for me.”
Image Courtesy : Yourstory.in
Ashish Parik
Hi Karan,
It is really a nice question. One of my friend has started an outlet of a reputed brand. He along with other 2 people invested around Rs 40 lac. I think running a franchisee in food business is again like working for somebody else. You are not required to be foodie or passionate for cooking to start this. All you need is money and good management skills. Rest will be handled by the brand itself.
Second option is much better however it need lots of patience and hard work to establish the brand. You can refer yourstory.in for the story of Prashant Kulkarni (if i am not wrong). Was software engineer and now entrepreneur in food business “Chattar Pattar”. There may be 4-5 franchisees of his chain in Gujarat.
Love cooking and have limited budget, it is better to build your own brand.. Want fast returns go for franchisee of reputed brand.
Karan Pandhi
Hi Ashish,
thanks a lot for your points, glad to receive them, and will look out for chattar pattar in gujarat.
I do love cooking, and I’m a serious guy when it comes to food, here is another of my post about the funding pitch, you can go through to check some photos of my cooking ideas :
https://www.therodinhoods.com/forum/topics/the-final-step-to-my-dream-pr…
Tanutejas Saraswat
What I feel is-
If you go for a Franchisee model, you will pay some handsome amount and royalty and will work for atleast 6-8 months to create the buzz and to grow the customers base etc and when you reach at that stage where revenue starts multiplying, you will definitely feel awesome. It will grow but then Whats next?? In order to multiply the revenue you have to take some more franchisee..
BUT if you start your own brand, you can go with your imagination on what do you want and what not, how much capital you want to spend is also will be in your hands And then again you will spend approx 1 year to create the buzz and make your brand strong.. . It will grow slowly but what if it starts growing madly?? Now in this case- You have the option to offer franchisee to others- You will get the royalty, some cash which will be helpful for advertising and marketing…
anoop
Hello Karan,
Having started and closed a restaurant I can give you some perspective on this
Franchising: You get expert advice on locations,brand recall in customers minds ,marketing costs taken care off etc.The downside is you have very less room to innovate and if you fail the loss is entirely yours’e.I believe this is a mid step between working and having your own brand
Own set up: This is a different ball game all together you are responsible for everything from supply chain to delivery.If you have like minded team of 2~3 people or your family members only venture in this direction.Since if you are alone you get pulled in many directions and not sure of the end results.The main problem is delivery of products at a constant price with highly volatile cost of raw materials .Since there is no single cost element that is constant in the food industry.
In my opinion it is better to start with a franchisee model.Learn the ropes of the trade establish your supply chain,name for the owner in the market you are operating and then open your own venture to bring in the innovation and products you want in the market.
Please feel free to get in touch for any assistance you might require
Cheers
Anoop
Karan Pandhi
Hi Tanutejas,
Thanks for your valuable inputs.
Karan Pandhi
Hi Anoop,
Thanks a lot for your valuable points, will surely contact for any help required.
I’m working on my own brand, these are just view points, it’s for those who want to start and are confused on what to do in the food and beverage industry and how to start-up, any how thank you for your points.
Kaizad Patel
Dear Karan,
The restaurant business is one that you must be passionate and willing to be involved hands on 24/7. This is not to say that you don’t need to be involved in other businesses but in the restaurant business your life pretty mush revolves around it.
Being a business that deals with perishable items, cost fluctuations in produce, hygiene and sanitation and labour are areas that will take constant attention. In the QSR business you should be willing to do everything you expect of your staff. That means, cook, serve, clean up etc.
Working with a franchise does have its advantages like the others have enumerated. You will get a play book which you follow with limited or no scope to innovate or do something other than what the franchisor offers. You do get a tried and tested formula (established brands) for which you pay the franchise fee and royalty. You do get marketing support and operational support but the key ingredient in the success of a QSR operation is your sweat equity.
On the other hand if you have a clear definition of a concept you wish to launch on your own you need to go thru the whole gamut from concept development, to kitchen design (plumbing, electrical, exhaust), interiors, selecting furniture, fittings and equipment, service wares to napkins and staff uniforms etc. The HR aspect of hiring, training and retaining the right staff. If you are cut out for this then jump on the wagon.
Also you should be someone who loves to deal with people a high intra personal skill level is needed in this business.
Prior to focusing on my customer experience measurement business I was a hotel and restaurant consultant for 9 years and help many individuals set up their restaurants and hotels. If I can be of assistance do contact me.
Best of luck
Kaiz
Karan Pandhi
hi Kaizan,
Thanks a lot for your views and points.
Will surely contact for any help needed in future, and would be glad once I start-up will be awaiting a visit.