For months, the buzz in franchising circles has been the effect that brands’ reliance on multi-unit operators has had on the quick-serve and fast-casual industries. A spike in franchise sales and concentration has put more emphasis on the “bigger is better” model of owner-operators. Indeed, many emerging concepts are hitching all of their growth and franchise sales exclusively on multi-unit franchisee corporations.
While shifts in supplies, ad agreements, and market research have been relatively easy to measure, the latest imprint of the multi-unit boom gives a more subtle impression: à la carte franchise fees.
A recent survey of franchise and royalty fees by FRANdata shows that while royalties still range anywhere from 4 to 12 percent and initial fees range anywhere from $7,000 to $45,000 per store, franchisors might be re-assessing what they charge to be part of their restaurant networks.
Many brand representatives contacted for this story said they were assessing their fees and royalties plans and expected to fine-tune any changes by the end of the next fiscal quarter. Many said they were considering changes to the lengths of their franchising agreements. Others said they were assessing the possibilities of licensing agreements to make expansion possibilities more flexible.
As more franchises decided to grow almost exclusively through tapping multi-unit operators, the pace of change will accelerate, making it hard for them to stay ahead of their longtime competitors as well as start-up brands. Therefore, as one franchise developer put it, “You’re gauging the market that’s already out there and, at the same time, trying to steer where it will go. Not just follow it, but steer it.”
Into that mix goes predictions on secondary-city markets, international franchising models, and other incentives that might entice experienced, successful franchisees to broaden their business horizons with another brand. Finding the fee and royalty schedule that will fit all of those parties is like trying to nail gelatin to a tree.