Franchise Canada January/February 2004

Could you have what it takes to open and run a successful restaurant? Chances are the answer is yes if you are a combination entrepreneur, entertainer and magician. If this describes you, read on. Heres a quick guide to what you need to know to become a successful restaurateur. Every year, hundreds of thousands of restaurants open with great expectations. And every year, almost as many close down, Brian Cooper, Brian Floody and Gina McNeil write in Start and Run a Restaurant Business, published by Self-Counsel Press Canada. Success in owning a restaurant will come as a direct result of solid business practices and an ability to entertain and satisfy your customers, they say. Perhaps the easiest route to fulfilling your restaurateur dream is to seek out a franchise and often the help, financial and otherwise, of family, friends and bankers where the formula for success is already laid down in a roadmap to success. Thats what John Epstein, a former financial planner in Toronto, did when he invested in the East Side Marios restaurant chain by becoming a franchisee in Orillia, Ont. 10 years ago. His advice is not to let the buy-in price tag for this dream scare you. Opening a restaurant can cost upwards to $1 million, and sometimes more. I have always thought that knowledge capital is a scarcer commodity than financial capital, Epstein says, and it is knowledge capital you bring to the table that could help make this dream your reality. Most workers in the restaurant game think only of themselves as employees, with little career ambition or ownership possibilities beyond dreams, Epstein explains. The fact is, there is plenty of opportunity, especially for talented workers.

Getting into the business is not a decision to be taken lightly, says Wayne Maillet of Stonewater Group in New Westminster, B.C., operator of Mr. Mikes West Coast Grill. Today, the restaurant business is highly competitive, requiring long hours and hard work. At the same time, when done well, it can be profitable and highly rewarding, he says. His key advice is that anyone considering opening a restaurant should work in the business or a least observe how things are done to ensure this is a good career move.

Success in owning a restaurant comes as a direct result of solid business practices and an ability to entertain and satisfy customers
Epstein suggests taking your knowledge capital and combining it with the idea that those with wealth are more plentiful than one might think. He has found that many wealthy people dream of having their own bar or restaurant and are willing to invest funds. What they lack is the time to run the business. Thus, says Epstein, the investment of time by competent, knowledgeable people can open those restaurateur-dream doors. Many franchisors will allow job shadowing for a period of time so that a prospective franchisee can ensure that they are comfortable with the amount and type of work involved, Maillet says. Mr. Mikes allows a candidate to job shadow for a week to give them a feel for the business and provide an opportunity for the franchisor to observe how the prospective franchisee interacts with customers and employees. Entering the business through a franchise makes things much easier. You are able to take advantage of a proven success formula, as these days it is more difficult for

an independent restaurant to compete in the hospitality industry. Strong franchises have clearly defined systems providing consistent, reliable results when implemented well. The franchisor helps with all aspects of opening the restaurant, from finding the location to helping to obtain financing, liquor licences, insurance, recruiting staff and dealing with suppliers. For example, Rickys All Day Grill offers a very high level of industry-leading field support and training says Kit Dei Cont-Oye, executive assistant at the head office in Burnaby, B.C. This starts at the onset of the relationship with our franchisees, she says. The operations team provides the franchisee with a complete countdown schedule, or what you may call inproject management a critical path. The franchisee is walked through a timeline for the opening and everything from the ordering and delivery of equipment to the placing of recruitment ads for employees.

Add such business costs as monthly royalty fees that average about 4.5 per cent of net sales for use of the brand name, the proven operation system and successful method of doing business. National advertising contributions are usually about three per cent of net sales to pay for the production of ads and promotional materials, along with market research required to build recognition of the brand. For those in the know but with little dough, Epstein says its not unusual for wealthy investors to go through a series of managers before landing the right one. There are thousands in the business, but scant few who are capable of truly managing effectively, he says. Those with competency should pester their restaurant employers for more responsibility to build their knowledge capital. They can then advance into increasing levels of management to the point where they become critically key employees. He suggests this winning strategy for key employees who want to become franchisees: save as much as possible of their pay and bonuses while aligning with friends and family as investors to buy their first (fairly modest) restaurant, typically a run-down spot with potential that he or she turns around usually by working 6.5 days a week. The idea is to build in a novel twist, concept, feature, menu or location so sales will (at least) triple, word-ofmouth will build traffic and the starter restaurant can be sold for a profit, Espstein says. This sum is then invested in a bigger and better project, perhaps a franchised concept, on his or her own or with a silent partner.

Mr. Mikes West Coast Grill

Casual dining restaurants are typically in the investment range of about $450,000 to $1 million, require 40 to 60 employees and are licensed to serve liquor. Here are some examples of buy-in costs for becoming a full-service restaurant franchisee: East Side Marios (Prime Restaurants) calls itself an affordable American Italian Eatery with an exuberant atmosphere. The franchise fee is $50,000 and capital required runs from $400,000 to $500,000. Mr. Mikes West Coast Grill, with a primary focus on beef, has a franchise fee of $37,500 and capital required is $500,000 to $1 million. Rickys All Day Grill, a family-style restaurant, has a $45,000 franchise fee and capital investment of $450,000 to $575,000 required. More expert pointers to ponder: Gather information: Contact existing franchisees in the system to ask about costs, staffing requirements, expected sales levels, realistic profitability, insight into challenges, expectations of franchisor support and other aspects. Staffing: This is dictated by annual sales volume, seasonality and the labour pool. Full-timers are hard to find, the use of students can be high and leads to higher turnover and training costs. Typical casual dining locations might have a sales range of $1.3 million to $4 million a year and 35 to 100 or

more staff. Franchisors often assist with opening teams training franchisees and managers in the first month or two and help with job fairs and mass hirings. Liquor license: This usually is a basic application to a government agency. It requires a background clear of criminal convictions, a list of shareholders who share liability and communications for staff training in serving alcohol.

So, given several franchise systems you are interested in, all offering these key advantages, how do you decide which franchise to invest in? One of the first things to do is identify which segment of the restaurant industry you want to be in. Family, casual, quick service, breakfast-only and fast food each have a different customer that they are targeting, Maillet says. They also each have a different investment range and different level of staffing required.

Learn about the culture of the company and be comfortable with the quality of people who are at the corporate office and who will be providing you with ongoing support. Do you get along with them? Do you share their values?
- Wayne Maillet, VP Franchising, Mr. Mikes West Coast Grill
Insurance: A full range of coverage is needed. All the basics, plus more focus on business interruption (such as power failures, lost time to fire and rebuilds) and material coverage for liquor infractions and risk liability. Location, location, location: Most chains are adept at location selection, able to help you find sites that will generate sales volume. Quality franchisors have the ability to recognize a site that is potentially a winner and also when the occupancy cost is appropriate (or excessive). Accounting services: Franchisees have access to regular reports that provide financial analysis or operational control. Identified are areas of concern and checklists to bring expenses in line with strategic operating ratios. Food and menu development: Franchisors usually have a food consultant that monitors industry trends to stay ahead of the competition and keep the menu fresh and exciting. Ongoing operational support: Every management function, ranging from job descriptions to maintenance and meal preparation, is documented and regularly revised and updated as necessary to ensure the most effective methods are being used. The franchisor often schedules periodic visits, mystery diner (quality control) programs and counseling so managers understand what is happening in the restaurant and changes that can improve efficiencies and profitability. When accessing the opportunities, select a franchise where the systems are firmly established and documented. Choose the franchisor the has a food offering that meets the needs of your community and that has a food quality that you will be proud of serving, Maillet says. Learn about the culture of the company and be comfortable with the quality of the people who are at the corporate office and who will be providing you with the ongoing support. Do you get along with them? Do you share their values? Talk to existing franchisees and ask what kind of support they received initially and ongoing. This size of the corporate office does not necessarily equate to the amount of support. Do all this, he says, and you will have laid a solid foundation on which to build your dream of success as a restaurateur.

This article has been adpated from the original version, which appeared in the January/Febraury 2004 issue of Franchise Canada Magazine.