Is the Franchise Model doomed?

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Re: Is the Franchise Model doomed?

Post by pseudo3d »

jamcool wrote: December 9th, 2021, 7:20 am Culver’s is all franchise and seems to be doing well, I understand they limit the number of stores per franchisor. And there is Dutch Brothers, which requires the franchisee to work at a DB site for a time period before offering them the franchise.
Is Dutch Bros franchisee owned? I imagine some are, but they're off to races in Texas, going from zero to 40 in this year alone, and when the first store in Texas opened in January of this year, it was more than 500 miles away from any other store.
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Re: Is the Franchise Model doomed?

Post by SamSpade »

Yes, Dutch Bros. now has private equity behind it but it’s all a franchise.
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Re: Is the Franchise Model doomed?

Post by buckguy »

Romr123 wrote: December 8th, 2021, 6:56 am Excellent topic.

By way of explanation, I was a field auditor (mystery shopper) for KFC in 1987-1989, and worked at General Motors (franchise model for dealers) for the last 12 years of my career). At KFC, corporate job, HQ employee, traveled the US (others in the group got to go international too). We hit all corporate locations 1x a month (which were generally at the time concentrated in bigger cities) , and would focus occasionally on a geographic blitz of a franchise market (which were shopped by a shopping service monthly--we were the calibrators, essentially). Generally, in those days, the system was roughly 1/3 corporate, 2/3 franchise (total sales were more evenly split 50/50). Corporate stores were generally more consistent and "clustered" around the bell-curve, but the best franchise store was better than best corporate store. Worst--was a toss-up. Some of the best corporate stores were clustered in specific markets (and were truly phenomenal), but there needed to be a certain volume before a store got good and consistently performing. For financial reasons, Yum has re-franchised nearly all stores (believe that they're only about 5% corporate at this point) in the US. The model can be good, but the current financial incentives within the QSR space prevent that.

Low-investment models and "innovative" models (the BurgerIM disaster, for instance) don't let the franchisor have enough $$$ for product development or operational control (notwithstanding the crooked owners) The "low investment/high skim" model (ChickFilA) is having a moment now, but as unemployment declines, fewer people are going to be interested in "throwing it all in" to gamble on a franchise. Area licenses/master franchisees (nearly everyone else) have all the bad and very little of the good (they have all the negatives and bring very few positives to the table).

A part of this situation which no one has brought up is the state-by-state regulation of franchises...each of the franchisors needs to be approved to sell franchises in specific states. This may be why the companies have better luck overseas---their partners are often the ones with local knowledge (where master franchisees here in the US really don't have much to add).
My impression is that foreign franchises usually go to a master franchisee who runs them as corporate operations, which provides more uniformity. That was the case when I was working in Asia during the 90s and 00s. Yum ran into the problem of their Thai franchisee breaking off and essentially preserving the menus but changing the name---much litigation followed but Yum did not win.

The foreign operations also are positioned differently and are able to develop items for local tastes. They usually target a more well-off demographic than they have in the US. In most of Asia, street food and its indoor counterpart, the food hall with independent stalls, occupy the niche that fast food has here, in terms of relative cost, although the clientele is often much broader in terms of economic background. The most expensively priced McDonalds operations in terms of local economy have long been in Japan and Thailand. Even with its economic growth during the early years of McD's operation there, McDonalds is still a more upscale operation in Japan than it is in the US. The quality usually is consistent with the relative costs---you get actual beef in foreign locations, not the gray mystery product we have here. The other strength is adding locally popular items---McDonald's has struggled to come up with a successful chicken sandwich product, yet their franchise is known as much or more for chicken, including sandwiches, than beef in Thailand and fried chicken outsells nuggets. They also have a lot of experience with veggie items in India.

There's a lot they could learn from franchises. I suspect that one thing that corporate did learn was how to combine franchises in a single building and how to incorporate them into non-truckstop type gas stations. Those were common overseas long before they were here.

Still, the foreign master franchise model can work just as badly as it does here---Shakey's lasted a bit longer in Asia than the US, but the product was equally horrible and Pizza Hut came to dominate that sector.

The regional franchise model has had pros and cons--KFCs used to run the gamut from takeout and a limited menu to places that were closer to a Howard Johnson's or Denny's but without breakfast. The Cleveland franchise was known for its burgers, hotdogs and onion rings as much as for the chicken. The regional model also sometimes allowed for subfranchises---Big Boy was like this. I believe Shoney's was a subfranchise of Frisch's (a master franchise that also had its own operations) and then decided to compete with Frisch and some of its other franchises. It could get even more complicated than that---an early subfranchise that became independent of the local regional subfranchise near us was allowed to continue as a Big Boy for many years even though it was a really horrible operation. The reiginoals varied a bit and had some local specialties but in the Midwest, Frisch ran better operations than most of the subfranchises.
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Re: Is the Franchise Model doomed?

Post by Romr123 »

Frisch's is a good example of differentiation in comparison with Elias Big Boy--both have the Big Boy, but Frisch's uses tartar sauce (white mayo like with relish) but Elias uses more of a thousand island (pink with relish--like the Big Mac). They're within 50-75 miles of each other in northern Ohio/Michigan.
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Re: Is the Franchise Model doomed?

Post by storewanderer »

buckguy wrote: December 18th, 2021, 5:45 am


There's a lot they could learn from franchises. I suspect that one thing that corporate did learn was how to combine franchises in a single building and how to incorporate them into non-truckstop type gas stations. Those were common overseas long before they were here.

Still, the foreign master franchise model can work just as badly as it does here---Shakey's lasted a bit longer in Asia than the US, but the product was equally horrible and Pizza Hut came to dominate that sector.
Shakey's has 500+ locations in Asia and has shares on one of the exchanges, I think the Philippine exchange. I think they are down to about 30 US locations mostly in Southern California. They were in Reno into mid 90's and I thought the pizza was terrible, the place was a dark depressing hell, and was not surprised when they closed. I think the ones left in SoCal rely heavily on a buffet type format, which is usually bad news. The one that is still open in Oroville, CA is the old pizza parlor format and is excellent and has the ratings there in Google to back that claim up.

I am not sure this concept you describe of co-branding into non-truck stop gas stations worked. There used to be a lot of Taco Bell Express units inside various gas stations- there were ones in Lovelock, NV; Bridgeport, CA; Reno-Red Rock Rd., NV; Fernley, NV. I only know of one left now (in Penn Valley, CA). Dunkin pulled its Speedway units out last year or the year before (ex Hess sites) and that was hundreds of units. More recently it has been more popular to see Subway in gas stations but even those seem to be closing.
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Re: Is the Franchise Model doomed?

Post by veteran+ »

Shakeys in Palm Springs is pretty bad as well.....................IMO.
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Re: Is the Franchise Model doomed?

Post by Super S »

storewanderer wrote: December 18th, 2021, 10:03 pm

Shakey's has 500+ locations in Asia and has shares on one of the exchanges, I think the Philippine exchange. I think they are down to about 30 US locations mostly in Southern California. They were in Reno into mid 90's and I thought the pizza was terrible, the place was a dark depressing hell, and was not surprised when they closed. I think the ones left in SoCal rely heavily on a buffet type format, which is usually bad news. The one that is still open in Oroville, CA is the old pizza parlor format and is excellent and has the ratings there in Google to back that claim up.

I am not sure this concept you describe of co-branding into non-truck stop gas stations worked. There used to be a lot of Taco Bell Express units inside various gas stations- there were ones in Lovelock, NV; Bridgeport, CA; Reno-Red Rock Rd., NV; Fernley, NV. I only know of one left now (in Penn Valley, CA). Dunkin pulled its Speedway units out last year or the year before (ex Hess sites) and that was hundreds of units. More recently it has been more popular to see Subway in gas stations but even those seem to be closing.
We have talked about the various issues at Subway, but will say that the gas station locations seem really pointless to me. The selection is very limited compared to a typical Subway location, and sometimes these gas station locations have one employee bouncing back and forth between cashier/convenience store duties and making Subway sandwiches. I am not saying that all locations are like this, but unless you have dedicated employees running the Subway, Taco Bell, or whatever is in the gas station, this really dilutes the restaurant brand's consistency.

Truck stop locations seem to be run as a typical franchise. A Love's Truck Stop near me has a Carl's Jr. location which for the most part looks like a typical location with seating and everything. It just happens to be the restaurant inside a truck stop. The various non-truck-stop franchises sometimes don't even have seating and are basically an extension of the front counter.
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Re: Is the Franchise Model doomed?

Post by BillyGr »

buckguy wrote: December 18th, 2021, 5:45 am The regional franchise model has had pros and cons--KFCs used to run the gamut from takeout and a limited menu to places that were closer to a Howard Johnson's or Denny's but without breakfast. The Cleveland franchise was known for its burgers, hotdogs and onion rings as much as for the chicken.
That likely stems from the early days, when the Colonel himself was out looking for people to sell his chicken. Many times, he would license someone with an existing restaurant to sell it as an add on to whatever they already offered, which is probably how you got things like you describe (or even something later on like the combination Geno's/KFC in the Baltimore area).

One fairly famous example is the Columbus (OH) area, with a chain of existing restaurants that eventually wound up being run by a guy named Dave, before he became far more known for square hamburgers and his daughter's name ;)
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Re: Is the Franchise Model doomed?

Post by bryceleinan »

SamSpade wrote: December 10th, 2021, 3:40 pm Yes, Dutch Bros. now has private equity behind it but it’s all a franchise.
Not anymore according to the FAQ on their website. All new stores are company owned - reading the shareholder financials as any stockholder can since they’re publicly traded, only about 30 stands are still franchise owned. Carson City is one, Spokane is another, I think Coos Bay/North Bend is another.
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Re: Is the Franchise Model doomed?

Post by storewanderer »

bryceleinan wrote: December 20th, 2021, 8:31 pm
SamSpade wrote: December 10th, 2021, 3:40 pm Yes, Dutch Bros. now has private equity behind it but it’s all a franchise.
Not anymore according to the FAQ on their website. All new stores are company owned - reading the shareholder financials as any stockholder can since they’re publicly traded, only about 30 stands are still franchise owned. Carson City is one, Spokane is another, I think Coos Bay/North Bend is another.
I thought they were running under an Operator model similar to Chickfila, but with Operators given clusters of locations.

Starbucks seems so envious of their success...

I am going to be curious to see how things play out with these chains. Dutch Bros. using this Operator model gives a lot more corporate control over the way the units are run. Starbucks being mostly corporate owned has historically made for strong consistency but with the recent labor shortages it seems like Starbucks is struggling to obtain staff despite their benefits offerings and despite paying higher wages than most fast food places pay. I am not sure if something has changed with Starbucks. They are the last fast food chain I would have expected to have staffing issues. Starbucks locations smell great when you walk in, like coffee. Many fast food places have quite unpleasant odors; grease, onions, etc. You would think folks looking for a job would appreciate the more pleasant environment of Starbucks in addition to the better pay/benefits.
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