Franchisee growth continues unabated

Applebee's restaurant

Franchisee growth continues unabated

With an unprecedented amount of financing available and a whole lot of restaurants up for sale, restaurant franchisees are finding a market in which they can quickly build large organizations, sometimes from the ground up.

Take, Tom Garrett, who resigned as CEO of Arby’s in 2010. He re-emerged on the restaurant scene two years later — as a franchisee of Burger King. Garrett founded GPS Hospitality Inc., starting with the acquisition of 42 Burger King locations in the Atlanta area. The company has done several deals since, and now has 221 units, already making GPS one of the largest franchisees in the system.

Garrett has no intent of stopping that growth. “Our goal is to have 400 GPS Hospitality restaurants by 2018, and I truly believe we can achieve that goal if we stay true to our core values,” Garrett told Nation’s Restaurant News. “In this last year alone, people have really started to recognize what kind of company we are, and that we are good operators.”

For Garrett, the move was a return to the franchisee world. He had risen from an assistant manager to become the president of RTM Restaurant Group, which for a time was the largest franchisee in the country with 775 Arby’s, before the franchisor bought the company.

Yet, the move is indicative of the current market, and the opportunities available for entrepreneurs. The market is attracting a flurry of investment from private equity groups and lenders, all eager to put money into the businesses.

It is also attracting a new generation of investors into the business, including former restaurant company executives and even those who operated businesses in other industries.

“Folks have figured out that restaurants, especially larger restaurants, are not as risky,” said Cristin O’Hara, managing director and market executive with Bank of America Merrill Lynch. “They’re cash generators.”

A few key elements are driving overall investment in the restaurant business, both among brands and among franchisees.

A safe investment

Consumer investors have shifted funds to the restaurant business because it’s generally safer than other industries. Other consumer sectors, notably retail, have faced intense competition from Internet retailers that compete with lower prices and lower margins.

The restaurant business generates a ton of cash while operating a proven business that, once it gets going, can be difficult to kill.

That consistency has brought a bunch of lenders into the industry in recent years. The lenders have competed to make loans to large-scale franchise businesses. That competition is driving down the cost of loans and the terms available to these companies.

“It’s a favorable market for borrowers right now,” said Brian Frank, who heads the Restaurant Franchise Lending Group with TD Bank. “With so many lenders in the marketplace, and folks wanting to do business, the terms are very favorable to the borrower.”

Large-scale franchisees like GPS Hospitality actually represent a relatively safe investment.

“It’s a cash business,” Frank said. “You know exactly how you did at the end of every day. There are not many businesses that you know at the end of the day how much you sold.”

Brands like Burger King, Taco Bell, TGI Fridays, Applebee’s Neighborhood Bar & Grill have long track records and have thrived in good times and survived recessions. They have the strength of national brands that often advertise heavily on television.

The operators are buying market-controlling positions in the franchisees. By purchasing, say, all the Burger King locations in a given market, the operators don’t have to worry about a nearby unit run poorly by a different franchisee ruining their business. They also control the marketing message.

 

Blog: Why aren’t more franchisees on company boards?

California law extends new protections to franchisees

See the latest news from NRN

 

Back

What Clients Say About Patrice & Associates

  • Karen Horton has been amazing! 

    She found me and helped me get my desired position.  She’s pleasantly meticulous, hard working and very friendly which makes talking with her easy.  I would definitely recommend her to anyone who needs help.  

    Many Thanks!

    Netra

    Karen Horton has been amazing!
  • Hiring Workshop - Jobs Hiring Tips for CandidatesDavid Kohlasch is a sure bet!

    David Kohlasch was instrumental in securing my recent placement as a sales manager. He set up interviews quickly, helped me with my resume, spent significant time with me discussing the position and answering all of my questions. I highly recommend his services!    

    Thank you,

    Robyn Dank

    David Kohlasch is a sure bet!
  • Thank you for helping me Bruce Leininger!

    To be honest, I couldn’t be happier having someone help navigate me in changing jobs because for one, that's a crazy thing sometimes. You know the current system your in and are comfortable, but you want something more that's why your looking for a new job no matter the reason. But having someone help you and give you advice for real life is even more valuable. Mr. Bruce Leininger has been the biggest helping hand I could have ever encountered, great person and businessman! I’d also call him a great friend through all of this process.          

    Much Gratitude,

    William

    Thank you for helping me Bruce Leininger!
  • Sally truly cares about your personal growth!

    When working with Sally Kennedy, you can tell she is very experienced and knowledgeable about the interview process and what employers are looking for.  She kept me updated and had thorough communication throughout the whole process.  She truly cares about your career and your own personal interest, and it shows in her work. Could not be more pleased!    

    Blake Schwier

    Sally truly cares about your personal growth!
  • Let me just say Allison Sullivan was exceptional!

    Allison contacted me after locating my resume.  She was very professional, kind and wonderful to deal with.  She followed up with me numerous times to check in and make sure the interview process was going smooth.  I got hired and even then, Allison made sure everything was moving along.  If you need a recruiter, she is your person!    

    Dorothy Santiago

    Let me just say Allison Sullivan was exceptional!