Choosing to franchise a restaurant vs. maintain independent ownership can be a daunting decision, especially if you’re just getting started in the restaurant industry. Both franchising and owning come with their own sets of pros and cons, and there isn’t one option that is better than the other. Whether franchising or owning is best for you depends on your professional, financial, and business goals, your ownership structure, and the options available to you. If you’re looking to enter the foodservice industry and need to make a decision, we’ll outline what franchising and ownership entail, the costs associated with each, and how they compare.
Learn more about the differences between owning and franchising:
What Is a Franchise Restaurant?
A restaurant franchise is a contractual agreement, and most importantly, a relationship, between a restaurant’s corporate owner (franchisor) and the restaurant’s current operator (franchisee). Based on this relationship, the brand’s owner licenses a restaurant to be owned and operated by the franchisee. The franchisee pays for use of the intellectual property, the trademark, and the marketing plan. This codependency allows a franchisee to open a restaurant with an existing business model, operating procedures, and support and management training, while the corporate proprietors profit from fees and expand the brand. Franchising works best for:
- Lower risk startup opportunities
- Industry newcomers
Pros and Cons of Franchising a Restaurant
As with any business concept, franchising a restaurant isn’t without pros and cons. Franchises offer a wealth of resources to pool from, especially larger regional or national chains, which can set you up for success early, but there are tradeoffs. Evaluate the positives and negatives of franchising a restaurant and how they relate to one another, as well as how they could impact your long-term goals.
Advantages of Franchising
The main advantages of franchising are security and support. Stepping into a recognizable brand comes with its perks. This is especially valuable in the foodservice industry, which can be volatile and difficult to navigate if you're a newcomer.
- Brand awareness: Franchise owners benefit from instant brand awareness and trust that could otherwise typically take years to build. New franchise owners benefit greatly from this scenario of an immediate customer following, and can reap the rewards since the franchisor has already taken the risks, learned the ropes, and survived, so new owners don’t have to.
- Enhanced training: Franchisees can expect a comprehensive training process before launching their restaurant, providing new owners with the foundational knowledge they need to own and operate a profitable business. These programs can last from a few days to a few months, depending on an operator's background. Classroom work, shadowing, and on-the-job training are aspects a franchisee can expect, and going through the process can increase their success rate compared to independent owners.
- Operational support: A restaurant franchise offers peace of mind that the biggest risks facing the brand have already been sorted out by the corporate owner. New restaurant franchise owners will be in business for themselves, but will have the added tools and resources from their franchisor to make their restaurant succeed.
Disadvantages of Franchising
While franchisees enjoy the benefits of security, stability, and fundamental knowledge that come along with operating a franchise, there are still drawbacks. These mostly come in the form of operational limitations, increased oversight, and higher overhead costs, which may impact your bottom line and long-term flexibility.
- Limited independence: Upon signing the contract, owners must uphold their end of the bargain by continuing to follow the brand's operating procedures and methods. Although franchise owners own their restaurants, they do not own the brand. Rather, they are essentially leasing the rights to the brand for a specified period. Hours of operation, advertising plans, menu offerings, vendors an owner chooses to buy from, and the number of employees an owner plans to hire may be restricted under this agreement.
- Franchising costs: Owning a restaurant franchise comes with a heavy price tag, and franchisees should be prepared for high upfront costs. Even before the contract is signed, owners will need money to cover legal fees, building maintenance, equipment, annual royalties, specific employee uniforms, and promotional expenses, among others.
- Limited growth potential: Parent companies do not want multiple franchises competing in the same area, so spatial and geographic growth might be limited for an owner. Owners who purchase a franchise should not expect to open another one on the other side of town, since this could conflict with the overall brand.
- Termination and renewal: Breaking the rules, such as failing to abide by the brand’s standards or failing to pay royalties, will often result in termination of the restaurant franchise owner, which can lead to the loss of your investment. Franchisors also control whether a restaurant will be renewed at the end of the contract, and can even change the terms and conditions when they renew the franchise. For franchisees that own multiple locations, territories may be decreased or changed upon renewal, and royalties may increase without the owner's consent.
Franchise Restaurant FAQ
There are so many different considerations to account for when starting a franchise restaurant that many prospective operators can get lost in the process. We'll answer the most frequently asked questions to help guide your decision.
What Are the Responsibilities of a Restaurant Franchisee?
Among the operational and financial demands of running a restaurant franchise, the key responsibility of a franchisee is to be a responsible and effective steward of the brand. Meet the expectations set out in your franchising agreement, maintain a healthy relationship with employees, and emphasize food safety. Negative press associated with foodborne illness outbreaks or poor customer interactions won’t just reflect on you, but the brand as a whole.
How Much Creative Control Does a Restaurant Franchisee Have?
Operating as a franchisee leaves you with very little creative control. Your menu, decor, and exterior design will all be decided by the franchisor, leaving limited opportunities to experiment with the brand’s foods or aesthetic. Many franchises will regularly audit locations to ensure the brand is being represented properly.
How Much Does it Cost to Open a Franchise Restaurant?
The exact cost of opening a restaurant franchise varies significantly depending on which franchise you choose, where you’re located, and how your business operates. Costs can accumulate quickly, and some of the most common examples include:
- Initial franchising fee: A one-time, upfront payment made to a franchise to secure your franchising agreement. This fee opens the door for you to operate under the brand’s name and use its resources, and it can cost anywhere from a few thousand dollars to several hundred thousand dollars.
- Royalties: Restaurant franchisees are expected to pay monthly royalty fees to uphold their agreement. These typically come in the form of a percentage of your monthly gross sales, but can also be a flat monthly fee. Keep in mind that the terms of your royalty agreement may change each year.
- National advertising campaign fees: Many restaurant franchises require their locations to contribute money each month to fund regional or national marketing campaigns. This can be based on a small percentage of your gross sales or a flat monthly fee.
How Much Experience Does a Restaurant Franchisee Need?
A restaurant franchisee requires a moderate amount of experience in the foodservice industry. An advanced understanding of operating a restaurant is beneficial, but franchises come with tried-and-true business models, providing operators with the support and education they need to succeed. This provides an easier point of entry than starting independently.
What Is an Independent Restaurant?
An independent restaurant is an establishment that is owned and operated completely on its own, typically with a single owner or ownership group. Operators maintain full control over every aspect of the business, shaping it according to their own desires and vision. They can be profitable and rewarding in the long run, but also carry more risk, especially at the start. Independent ownership works best for:
- Seasoned industry professionals
- Individuals with high risk capabilities and capital
- Unique creative concepts
Pros and Cons of Independent Ownership
Starting an independent restaurant is inherently risky, but it can also come with a greater reward. Just like any business, independent ownership comes with its own set of pros and cons, which you should thoroughly evaluate. Consider what you want to accomplish and make sure you have a thorough restaurant business plan before committing to starting an independent restaurant.
Advantages of Independent Ownership
When people think about starting an independent restaurant, they think about having something to call their own. The advantages of independent ownership primarily revolve around having the freedom to do what you want, the opportunities available to you, and the place you hold in the community.
- Complete control: Being the sole owner of a restaurant gives you authority over every decision that is made. From the menu to design choices to your advertising strategy, and everything in between, the business will be entirely based on your or your group’s vision. You won’t feel restricted by the operational structure a franchisor might set up for you, and you’ll maintain the ability to be dynamic, giving you a leg up on the competition in a busy, ever-changing industry.
- Profit retention: With independent ownership comes freedom from paying franchising or licensing fees. You’ll have full control over your profit margin and how you manage your budget, freeing up valuable capital to focus on your immediate needs. This also gives you the flexibility to adjust your spending as needed, which is especially valuable when launching a new restaurant and brand.
- Community: One of the most rewarding aspects of managing an independent business is the ability to ingrain yourself in the community. You can sponsor local organizations, plan or host events, and even source food or restaurant equipment from local suppliers. The best independent restaurants have a chance to establish themselves as a pillar in the community, even becoming a destination for guests from out of town.
Disadvantages of Independent Ownership
While starting an independently-owned restaurant comes with many rewards, there are still significant downsides to consider. Many of these come in the form of decreased stability and security. For that reason, it’s often suggested that prospective independent restaurant owners should have a wealth of industry experience. This doesn’t always have to be as an owner, and could be from working in or around restaurants instead. Many new restaurants fail each year, and you must be aware of these risks before finalizing your decision.
- High startup costs: Because you’re starting from scratch, new independent restaurants are associated with high initial costs. Not only do you have to buy or rent a building, but you’ll have to invest in renovating that building, purchase equipment and supplies, and acquire the right permits and licenses, among other costs. These can pile up fast, and many operators have to secure outside funding to handle them.
- Lower initial ROI: Because of the high costs of starting an independent restaurant, many operators struggle with significantly lower ROI than expected in their early years. Many restaurants take years to become profitable, and you must have enough cash flow to handle your expenses and establish yourself in the market.
- Low brand awareness: If you’re establishing a new brand, public awareness will naturally start low. Customer loyalty is difficult to establish and even harder to grow, especially if there are other competitors near your chosen location. You’ll have to come up with creative marketing strategies and work hard to put out a great product that builds awareness and buzz about your restaurant.
Independent Restaurant FAQ
An independent restaurant has many moving parts, which can make it difficult to determine if it's the best option for you. Below, we've outlined some of the most common questions about starting an independent restaurant to aid you in your restaurant startup journey.
What Are the Responsibilities of a Restaurant Owner?
In general, all responsibilities fall on you when you’re an independent owner. While this can be a profitable and rewarding factor in the long run, it means you must be thorough with all of your initial responsibilities. Develop a thorough thorough restaurant concept, write a thoughtful business plan, and have the funds and industry knowledge necessary to start on the right foot.
How Much Creative Control Does a Restaurant Owner Have?
An independent restaurant owner has complete creative control. For many, this is a large part of the appeal of independent ownership. You can have a say in your food offerings, menu changes, employment structure, and ambiance.
How Much Does it Cost to Open an Independent Restaurant?
The cost to start your own restaurant varies from operator to operator, but it is generally higher than starting a franchise restaurant. On average, the figure falls somewhere in the range of six figures, but some concepts may reach even higher. Account for the following general expenses, but understand that there may be more:
- Security deposit or down payment: A key part of starting a restaurant is finding a building to operate out of. Whether you’re buying or leasing a restaurant space, budget for a down payment or security deposit to make sure the space is yours.
- Construction costs: Once you’ve found a building, you’ll likely have to make renovations or alterations to adapt to your business concept. This could be as simple as repainting the interior and putting up a new sign, or as in-depth as changing the layout of the kitchen or adding on to the building for more space.
- Equipment and supplies: Without the right equipment and supplies, you won’t be able to prepare or serve your food. If you’re looking for a budget-friendly option, you could buy used equipment. However, depending on your menu, you might require specialized appliances to prepare your signature meals, which can drive the price up.
- Furniture: Decor is an essential consideration when starting a restaurant, as it impacts the overall ambiance and customer experience. This can encompass everything from the tables, chairs, or booths customers sit in to the decorations on the wall, and everything in between, and can quickly accumulate.
- Permits and licenses: A new business will have to apply for necessary permits and licenses, though the exact documentation you need will vary depending on your location. Consult with local officials on exactly what to apply for and how much they’ll cost to obtain.
How Much Experience Does a Restaurant Owner Need?
An independent restaurant requires a high level of experience to start. It’s possible to do this as a newcomer, but due to the dynamic nature of the industry and level of competition, you might start at a disadvantage.
With so many successful franchises as well as independent restaurants across the country, either option can provide you with a profitable and rewarding business endeavor. As a future business owner, your strengths and limitations are unique. Consider your goals and the pros and cons of each to determine if independent ownership or becoming a franchisee is best for you.
Over his 5+ years with WebstaurantStore, Jason has spent countless hours learning, researching, and writing about the foodservice industry. With expertise in technical topics, he takes pride in helping customers and readers understand everything from troubleshooting their equipment to the fundamentals of starting a business.
Learn more about this author and WebstaurantStore's Content Writing Team here!
