National QSR franchising

January 27, 2023

by a searcher from New York University - Leonard N. Stern School of Business in Los Angeles, CA, USA

Any perspective on becoming a franchisee of a national chain (i.e. Wendy's, Wingstop etc) in lieu of a more traditional search...+ anyone have experience leveraging brokers such as National Franchise Sales?

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Reply by a searcher
from University of Virginia in North Haledon, NJ, USA

Hi Peter - I did this exact things ~7 years ago. Set out on a search to acquire a business and ultimately acquired exclusive development rights for Sonic Drive-Ins in 3 NJ counties. I ended up exiting after determining that the economics to build or acquire a Sonic in NJ just didn't make sense and that the real winners in this market are McDonald's and Wendy's (Chik-fil-a too but you can only do one). Lot's to consider but I would say the following:

- No franchise worth doing will come from a franchise broker. Maybe there's an exception but I haven't seen it.
-It's possible to acquire an existing franchise location from a business broker, but usually existing franchisees have first dibs. So if none of the highly skilled operators with direct concept experience have acquired the unit(s) you have to ask why.
- It's a very hands on business until you have massive scale...then you can rely more on a management team
- Fully loaded investment can be $1.5M-$3.0M directionally depending upon concept and location. Maybe more maybe less. Obviously it varies widely (Panera outparcel vs. Subway/Dunkin). The point is though, if it costs you $2M to build a Wendy's, at $2M revenue, you might get EBITDA of $500K at run rate with very limited growth potential since you're beholden to the location. You invested at 4X EBITDA but it takes you###-###-#### months to open your first location after being approved by the franchisor, finding a suitable site, building the restaurant, and opening.
- Despite all the negatives I just laid out, there are some concepts that are as good as gold: MCD, Wendy's, Chik-Fil-A, Panera. Different hurdles/profiles for each, and you're typically required to have operated multiple units of another concept before they'll look your way - but if you can get into one of those you're in good shape.

Reply by an intermediary
in Saline, MI 48176, USA

Hi Peter, like any brokering professional, the value is in their ability to pre-screen the candidate and get them directly in front of the decision maker bypassing the line at the front door. Also saving their client time for going after franchises they may not qualify for. I have a client right now (I only do financing, not franchise brokering) that has had his heart set on only one brand. He has done everything on his own, and he does qualify for them. However it has taken him almost two years for the corporate office to commit and provide him with and ADA. In my opinion, finding the franchise broker who would have had access to that officer, could have meant him being in business by now.

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