Making The Case Against Restaurant Franchising

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As a seasoned restaurateur, I have firsthand experience of the challenges and triumphs that come from operating and expanding establishments. By way of background, I started 2023 with just six Swiss Butter restaurants, and that number will have grown to 14 by the end of this year. I have a further 15 venues planned for 2024, and an additional 29 for 2025.

I think it would be fair to say that when it comes to expansion, I have experience on my side. And while franchising may seem appealing to many aspiring entrepreneurs in the restaurant industry, I firmly believe that it is not the best path for finding long-term success and fulfilment.

Supported by compelling research, as well as the wealth of knowledge I have gained from my own experience with Swiss Butter, here are five reasons why I believe a self-owned instead of a franchise-operated approach to expansion will lead to a higher brand value in the long term.

Source: Swiss Butter

1/ EMBRACING LOCAL CONNECTIONS, AND CULTIVATING COMMUNITY SUPPORT
Self-owned restaurants are more easily able to become a part of the local community’s fabric by incorporating elements that reflect and celebrate the area’s unique culture. In a franchise arrangement, it is usually the franchisor who will have full authority over the decision-making process when it comes to the core brand elements, such as design.

Importantly, being self-owned does not imply that there is an absence of strong brand guidelines that govern our actions; rather, it signifies our unique ability to swiftly embrace or adjust our guidelines when an advantageous prospect emerges. In addition, we utilize social media and digital platforms to engage in real conversations with our customers. Actively seeking feedback from our customers on a local level demonstrates our commitment to customer satisfaction, instead of customers feeling like they are trying to communicate with a faceless franchise.

By listening to customer opinions, suggestions, and concerns, self-owned restaurants are able to adapt and evolve to better serve their community’s needs, enhancing the overall dining experience. From a personal perspective, social media is one of the many ways I enjoy humanizing Swiss Butter’s overall dining experience.

2/ ESCAPING OPERATIONAL CONSTRAINTS AND CORPORATE CONTROL
Franchisees often find themselves ensnared in a web of operational constraints imposed by the franchisor. From standardized menus and pricing structures, to uniformity in store design, franchisees have limited control over their businesses’ day-to-day operations.

This lack of autonomy not only stifles creativity, hampers the ability to respond to local market demands, and diminishes the unique identity of the establishment, but a study published in the Journal of Business Venturing also found that franchisees experience lower job satisfaction due to reduced decision-making authority and limited flexibility, negatively impacting their long-term commitment and success.

When creating a new Swiss Butter store, our creativity knows no bounds, thanks to our decision to remain unfranchised. As a result, we are able to sculpt spaces that embody the essence of the communities in which we exist. More importantly though, we rid ourselves from the constraints of a slow and bureaucratic decision-making process. We are able to make decisions with agility and confidence.

Instead of rigid guidelines that hamper growth, our guidelines are simplified, our systems are fluid, and our leaders are empowered to make high level decisions, while maintaining brand standards. The key here is embedding our culture with thoughtful leadership, tolerance to risk-taking, and ongoing education.

3/ HIDDEN COSTS AND UNFAIR SUPPLIER RELATIONSHIPS
Franchisees face additional hidden costs beyond the initial investment and their obligation to franchise fees and ongoing royalty fees. In addition, some franchisors often require the purchase of supplies, ingredients, and equipment from approved distributors, which oftentimes are the franchisors themselves, sometimes at inflated prices.

This practice, known as “captive market” pricing, benefits the franchisor and preferred suppliers, at the expense of franchisees. A study by the American Association of Franchisees and Dealers revealed that many franchisors charge higher prices for supplies to franchisees, compared to what they charge their company-owned stores. These inflated costs erode profit margins, and limit the financial viability of franchisees.

At Swiss Butter, being self-owned, we were able to reverse plan the entire supply chain process, starting with maximizing the value at consumer level (quality versus price) and taking it upstream all the way to the source. This means we secure our supply chain to preserve value for the consumer and therefore the brand. Every time we make a better deal with a distributor or supplier, the entire experience is impacted positively.

For example, despite the nationwide inflation in the UAE, caused directly and indirectly by global supply chain crises, economic instability, and the COVID-19 pandemic, we at Swiss Butter were able to absorb the inflation in the market. Our prices have not changed, whereas the UAE in general has witnessed a conservative 15% increase in pricing across restaurants. We could have only done this by taking it upstream. To put it in simple terms, when a problem happens, it is the franchisee’s problem, but in our case, every problem is our problem, so we pull every possible solution to preserve the customer experience, and maintain brand value.

4/ ENHANCED EMPLOYEE ENGAGEMENT AND RETENTION
A study published in the Journal of Small Business Management found that employee turnover rates in self-owned restaurants were significantly lower compared to franchise establishments. This stability leads to improved customer service, increased productivity, and ultimately, higher profitability.

At Swiss Butter, our commitment to remaining unfranchised extends beyond our customers- it extends to our employees as well. By not franchising, we cultivate a workplace where employee satisfaction flourishes. Our “Day-One” succession plan means that any Swiss Butter team member, from any one of our stores, has the visibility, coaching, training program, and momentum to grow into a leadership position in any one of our countries.

Source: Swiss Butter

Our team members are thus valued contributors who are empowered to shape the restaurant’s success. With a focus on fostering a collaborative and inclusive environment, we prioritize the well-being, growth, and development of our staff. This commitment to our team translates into a genuine passion for their work, resulting in exceptional service and a warm, welcoming atmosphere that our guests can feel with every visit. At Swiss Butter, we believe that by investing in our employees, we create an experience that goes beyond the plate, leaving a lasting impression on both our team and our valued guests.

5/ AVOIDING THE FINANCIAL BURDEN OF FRANCHISING
Franchising in the restaurant industry entails significant financial obligations that can burden entrepreneurs for years to come. Franchise fees and ongoing royalties deplete the limited capital of aspiring restaurateurs. According to a report by FRANdata, a leading franchise research firm, the average restaurant franchise fee ranges from US$250,000 to $1 million, with ongoing royalty fees averaging between 4% and 12% of monthly gross sales. These expenses can be prohibitive, especially for individuals with limited resources and access to funding.

The freedom of creativity and autonomy, agility in decision making, the avoidance of financial burdens, guidelines that promote operational fluidity versus constraints, higher control on the supply chain, genuine community connections, and enhanced employee engagement are all compelling reasons to opt for a company-owned restaurant expansion model.

By embracing the challenges and opportunities that come with it, I truly believe that restaurateurs can create unique dining experiences, connect with communities all over the world, and thrive in an industry that values innovation and individuality, all the while growing their brand value, and building real long-lasting relationships with their customers.

This article is from Entrepreneur.com