“Franchising only works when a franchisor gets wealthy with its franchisees getting wealthy,” says Dan Rowe, CEO, Fransmart, US
Fransmart is the global leader in franchise development, turning emerging restaurant concepts into national and global brands. The company has sold over 5,000 franchises worldwide and launched franchising for Five Guys Burgers & Fries, Qdoba Mexican Grill, The Halal Guys, and many others from small concepts to dominant chains.
In conversation with Franchise India, Dan Rowe, CEO, Fransmart, United States, talks about their journey and how do they select the brands. He also explains about the importance of the relationship between a franchisee and a franchisor.
Evaluating the concept of the brand
Fransmart goes after the busiest mass gathering areas in the top 40-50 medium markets in North America and then see if the concept will work in each of these markets. It goes and looks at all these areas that have proven the outside concepts being successful. The company starts by seeing that can this brand grow to over 100 locations.
Fransmart then look at the concept it is choosing. It finds out if there is room for a category like that. Then, it looks at the specific brand and sees do they have the right unit economics, what is the ROI look like, what is the cost of opening up the location, what eventually is the profit, etc.
The company further looks for management. Is management smart enough to do it or is it savvy enough to basically put the right people in the right places?
“It doesn’t matter how much I think that the brand can grow or what is the opportunity of the brand, if you get the wrong owners and wrong ownership then nothing good is going to happen. If you don’t pick the right location, if you don’t have the right operator, if you’re not focused on giving it 100% every time to a customer, you are not going to be successful,” Dan Rowe stated.
How a franchisor should think from scale to sale?
The franchisor should think about the end first and then work backward so they should keep the end in mind because that drives all your decisions.
Dan said, “I’m always surprised that franchisors look at franchisees just for the franchise fee but what they really should be looking at a franchisee is the long-term value. For eg: If I sell out a five-unit franchise of any of my brands that’s two hundred thousand dollars from the fees. But, franchisee opening a million-dollar store and paying us 6% royalty, 2% marketing, another 2-3% on a supply line, so I’m here talking about a franchisee that pays you a hundred thousand dollars a year for 10-20 years. Also, if that franchisee opens 5 stores then he’s paying you five hundred thousand dollars a year. The franchisee is pre-paying you to come into the system.”
A franchisee is basically growing your ability to sell the company for a lot of money. The ideal franchise system has 500-1000 locations with only like 50-100 franchisees. Franchising only works if you get wealthy and your franchisees get wealthy.
The mindset of the franchisee and franchisor should be long-term and mutual success. The franchisee has to look at its 5-7 years plan. Similarly, franchisors have to look at their franchisees as partners. Franchisors should do everything they can to help their franchisees.