Experience in assessing Franchise opportunities

April 06, 2021

by a searcher from IESE Business School in Barcelona, Spain

Hello everyone,

I have come across an opportunity to buy the first two stores of an açai (healthy foods) bar which the owner wants to turn into a franchise, and therefore wants to focus on building the franchise, not operating the stores. I have partnered with the former manager of the two stores and am evaluating the purchase to then push the expansion and growth of the business. Any one here can share learnings of operating franchises?

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Reply by a searcher
from Harvard University in Miami, FL, USA

Hey Lucas - two things I'd think about right off the bat are (1) What are the unit economics of the existing two stores and what was the all-in cost to build them? Prospective franchisees will likely want to see a payback of ~3 years given how early stage the concept is (i.e. the upfront cost of the store divided by the annual profit of the store should be ~3 years or less). For the franchised stores, you'll have to consider the franchise fee as an incremental upfront cost and you'll also have to deduct royalties & marketing expenses from profit. After making those adjustments, you should still get to that max ~3 year payback or the concept will be extremely difficult to scale (note that for more mature concepts the target payback ends up settling around ~5 years###-###-#### Are there other similar concepts in the market you're targeting? If so, try to get as much info as you can on the unit economics of those stores and on their success in scaling. This will give you a view into how much potential there is for your acai concept and will definitely be relevant for prospective franchisees (many consider several concepts before selecting the one they sign up with)

Reply by a searcher
from Columbia University in Jacksonville, FL, USA

Hey Lucas, my family's (brother's now) business is franchising with 65 locations (McDonald's). I was CFO/Controller for 11 years there and we made 25 acquisitions during that time. I love Acai bowls and frequently eat them. However, there are a plethora of places that serve them. What is your competitive advantage? Training, employee selection, and employee retention are the keys to a good franchise model. Each General Manager has to be in charge of their own P&L (at least Food, Labor, and Sales). Inventory management, waste management, and a correct labor model are all vital. Supply chain needs to be solid. If you are at a few units, reach out to me. I can point you to funding if you need it. Feel free to DM. There are a lot of other good points in the comments above. I would love to learn more. redacted

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