I'll start by saying my wife freaking loves Chicken Salad Chick. There's not one conveniently close to us, so she plans errands and other trips specifically around getting over there. I've never eaten there, so this is the extent of my personal knowledge of the restaurant, other than they seem to be popping up all over the place. So it very well may be a franchise with some staying power.
But as far as franchise restaurants go in general and whether or not they are good opportunities, I would advise your grandson to be VERY cautious about making this commitment for 3 reasons.
1. Based on my experience of selling businesses for nearly 20 years, most franchises are trash. The franchisor obviously started with a good business idea and built a successful operation, but the streets are littered with failed franchise concepts. Most of the time these franchisors become more interested in selling franchises, banking those initial fees and collecting monthly royalties than they do in the success of individual locations. It's a vicious cycle they fall into, where the allure of expansion blinds them to the struggles and problems at the store level. Remember, even when individual franchisees fail, the franchisor not only does not lose money, they are now free to sell that territory again. The house doesn't lose. There are obviously exceptions to this generality - there are some very good franchises out there, and there are also successful locations of "bad" franchises. But in my experience, the overwhelming majority of franchises don't meet the franchisees' expectations.
2. I tell business buyers this all the time when it comes to investing in franchises - if you don't have the liquidity sitting in your account today for the initial investment and operating capital for at least three locations, franchises aren't for you. It's rare for a single location of any franchise to generate the kind of cash flow most families need to survive. But if you can start one, work the kinks out, make it profitable and sustainable, then rinse a repeat a couple of times, you'll have built an actual "business" with operational efficiencies and best practices. Most buyers go into a franchise with the plan of expanding because they know one location won't cut it financially in the long run - but the biggest mistake most of these buyers make is expecting each new location to finance the opening of the next location. That rarely works out, which is why you have to go into the first location with the cash set aside already for your planned expansion.
3. Finally, even if you've addressed the first two hurdles above - if you don't have any restaurant experience, then stay the hell away from a franchise restaurant! We've all heard over and over that the restaurant business is the most difficult business to make it in - and there's a ton of truth to that statement. But buyers allow themselves to fall prey to the idea that a franchise eliminates the typical challenges that independent restaurants face, so it's "safe." That's just not true. It's still a restaurant and you still have no experience, regardless of what training and processes a franchisor might arm you with.
I'll reiterate, there are exceptions to every rule - there are some fantastic franchises out there that people have made millions of dollars owning and operating. But these are undoubtedly the exceptions.
Hope that helps ... happy to talk to your grandson if he wants to pick my brain.
jeremy@northstar-mergers.com
