When considering franchise opportunities to buy, which ones are the best? Should I invest in a franchise opportunity that is tried and proven? Or, do I want to get in on the ground floor of that hot new concept?
I hear these questions a lot. And to be honest a lot comes down to personal preference. To begin with let’s examine the pros and cons of each. Let’s take a look at the Pizza industry.
An established franchise business is a much safer bet. For example, Pizza Hut has been around since 1959. By 1972 franchise and company restaurants numbered 1,000. In the next three years they numbered 3,000. Today they have more than 12,000 Pizza Hut Restaurants and Delivery Units operating in 86 countries worldwide. Do you think that their franchise opportunity is tried and proven? Of course it is. Do you think there is much risk in opting to start a new Pizza Hut franchise? Probably not.
But where is the “sizzle”? We all know the Pizza Hut name. It is the standard in the industry. But doesn’t it sound kind of boring? Guess again. Pizza Hut has added the “Wing Street” brand to it’s stores. Wings are a hot (pardon the pun) idea that is really catching on throughout the country. Also take a look at their new store designs. Not the typical red roofed buildings we all come to remember. These modern new stores are very eye catching. These two brands combined in one store have real appeal.
So you take a proven concept, add some pizzazz, and now you have a great franchise opportunity.
On the other end of the spectrum, let’s examine a newer franchise opportunity in Brixx Pizza. At Brixx they specialize in wood fired pizza. They have streamlined operations, strong sales to investment ratios, and a very efficient operation with a high gross profit margin. Obviously, they do not have the name recognition and marketing clout that Pizza Hut does. They only have 10 locations throughout North and South Carolina. But they really have a niche. Pizza Hut they are not, but they are different, and they are successful. Sizzle? You bet.
Generally speaking, a newer franchise opportunity will have a lower franchise fee and lower royalty fees than the big boys. Also, the big boys will likely have ongoing marketing and advertising fees. Therefore a newer franchise opportunity can actually be more profitable. Yes, they carry more risk, as the concept is not as tried and proven. But with risk comes reward.
With any franchise opportunity one really must do all of the homework. Today’s hot new concept may be yesterday’s news. Do you remember what a big splash Krispy Kreme Doughnut’s made when their stock debuted in 1999? A franchisor and a public company, Krispy Kreme’s stock traded at over $44.00 per share in late 2003. On November 17, 2007 it traded at a low of $2.57. On December 7, 2007 they announced that they were closing a substantial number of stores. I wouldn’t want to be a franchisee.
So whatever path you choose, do it wisely. Tried and proven tends to be a safer play. But new and exciting also can be a real money maker. It’s your choice!
Are "Ground Floor" Franchises Right for Me? - To learn more about this author, visit Tom Parsley's Website.
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