I almost bought a restaurant. Even the good ones like McDonald's aren't great. They're a lot of hard work to keep alive, very low profit margins, easily influenced by little things like 6% tax.
It's the kind of thing you put half a million dollars into and earns about $10k/month on average, loses $10k/month on a bad month, and teases you with the possibility of making $100k/month on paper.
It also requires a lot of accounting and dealing with minimum wage workers who have to be trained in basic etiquette, like not sleeping during rush hour and not throwing drinks at rude customers. Which is not really the niche for many of us.
and whilst McDonalds (the parent company) isn't going to close for good, I know people that managed to lose money attempting to run similar franchises.
In such a setup, all the technology, the supplies and the marketing (besides quality standards and training of personnel) come from the franchisor, so the "added value" by the franchisee is relatively low, and compensated accordingly.
I meant "restaurant" as a system that converts raw food into money.
McDonald's, franchise or not, counts. Though to my understanding, they're not doing the franchise model as much anymore and are managing it themselves instead.
The linked article supports my view and is actually a little more profitable than expected. It quotes 20% net profit, which is amazing when most of the restaurants I see make close to 0% net profit.
Franchises add quite a lot of value. The hardest things in running a restaurant are marketing, product development & training, and supply chain. They supply all of these. If you want 'passive' income, franchises are the the closest thing to it.
>Franchises add quite a lot of value. The hardest things in running a restaurant are marketing, product development & training, and supply chain. They supply all of these. If you want 'passive' income, franchises are the the closest thing to it.
Yep, the whole point is that "they" decide (and can calculate at the third decimal point, remember it is "their" business and "they" have decades of experience in it) how much is what you bring home.
A "franchise" is also the closest thing to being between a rock and a hard place, you have more or less fixed prices (sale prices) and fixed (by them) costs, the only variables you can somehow manage is volume of sales (and it depends mostly or more than anything else on location) and personnel costs (which is anyway in most countries regulated by Law).
>And while I am not dumb enough to have imagined I’d make much money as a passive, partial investor in a New York City restaurant, I was dumb enough to think that I could probably earn my money back-ish, while at the same time helping some decent young men fulfill their dream. (Also, it seemed more fun than investing in a municipal-bond mutual fund, which cannot, thanks to the killjoys at the S.E.C., give investors free beers.) But of the many failures of logic and foresight of that investment, which I made in 2010, the one that stings the most is not realizing that so few restaurants in New York make money precisely because too many restaurants in New York have investors like me.
>That business, more or less, stinks. New York restaurants are at the intersection of the low-margin world of food businesses like grocery stores (low margin because so many compete in the all-out war to sell food) and taste-predicting nobody-knows-anything businesses like Hollywood. I spoke to one of the two owners of the restaurant, who wished to remain anonymous in case he decided to keep his hand in the restaurant business. He provided me with the Manhattan math, from the seven-year profit-and-loss statement. If you as a customer generated a hundred-dollar tab, about thirty-seven dollars went to the staff (plus the twenty or so dollars you tipped); twenty-nine dollars went to buying the food and beverages that became your meal; fifteen dollars went to the landlord; six dollars went for supplies (such as new forks) and maintenance (hello, plumber); five dollars went to bank fees, insurance, and workers’ comp; five dollars went to other costs (utilities, permits); and just under three dollars (two dollars and eighty cents, to be exact) was left over for operating income. For the record, that is less than was paid in credit-card fees.
[...]
>Yet I’ve come to conclude that the restaurants New York needs are doomed, financially, to fail. That’s because amateur capital backed by magical thinking and a desire for fun distorts the economics for everyone. New restaurants, with too-easy access to financing from people like me, invest too much in design, tableware, food, and service, driving up every customer’s expectations of every restaurant in a cyclone of unprofitability. Landlords, with enough dreamers to fill their spaces, can command nightmare rents. If restaurants had to be good business ideas, and attract sophisticated investors who mercilessly demanded a profit, there would be fewer restaurants. They would be less cool. The food would be less good.
I'm curious about this. Could you please explain more?