What does anyone look for in a business, franchised or not? They want earning potential, a good model, and stability in the worst of times,” says Mary Ann O’Connell, president of consulting firm FranWise.
Without a doubt, 2020 provided America’s restaurant franchises a chance to prove their mettle. Brands didn’t just have themselves to look out for, but also the collective well-being of vast networks, pipelines, and prospective partners. The good news for quick-service restaurants, however, is that, by and large, the segment proved steadier than its sit-down counterparts. This led many chains to hit the recovery stretch at full gallop, with sales often comping well above 2019 levels. Digital and off-premises expansion. Stimulus in the pockets of consumers. Pent-up demand. All of these dynamics placed a changing and eager guest right in front of restaurants.
In terms of franchising, the market is ripe in a lot of respects. Success during the pandemic helps, naturally, yet so do conversion opportunities, the ability to dive into smaller formats, and large pools of capital raised and horded when the stakes were highest.
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“What makes a good restaurant franchise investment for the modern-day candidate is one that appeals to the core American palate with room for innovation, has markets still to be developed, strong unit economics, and stronger leadership to innovate and anticipate changes in the economy and consumer spending habits,” O’Connell says.
For this year’s Best Franchise Deals, QSR gathered a panel of franchise experts to review performance, potential, and how brands handled the relationships and rigors accentuated by COVID.
“When helping to identify strong franchise investments to include in this list, we based our decisions on strong franchisee economics with favorable payback periods—looked at AUVs, startup costs, and estimated margins,” says Patrick Galleher, managing partner of Boxwood Partners.
And there’s a wide range of elements to consider in a post-pandemic landscape.
“The best restaurant franchise investment would be a sustainable and timeless concept with strong systems and processes to support growth,” says Diana Park-Alford, national sales manager at digital marketing company RevLocal. “I would be wary of concepts that are too fad-driven or that appear targeted at too specific an audience. Now more than ever, the fundamentals of culture and finance matter—is the mission and culture of your concept strong enough to attract and retain great team members? And will your financials support healthy operations without razor thin margins? A great restaurant franchise investment will be able to check all of these boxes.”
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“As much as things have changed, so much remains the same—many of the same brands who were built/prepared for growth and prosperity before the pandemic are the ones who are reaping the rewards as we emerge from it,” adds Graham Chapman, VP of account services at 919 Marketing. “These are the companies with relatable brands, craveable food, and visionary executive leaders. Of course, modern-day candidates need to review the FDD/item 19, validate what they’re hearing with active franchisees, and ensure the numbers make sense. But none of that matters if the brand, the food, and/or the leadership team is uninspiring.”
So while the global health crisis shifted everything, much of what made restaurants tick hasn’t moved as much you might think. You could carry that mindset over to franchising as well.
Brands that backed operators, gave them incentives to expand, and provided a working model to generate profit, outlasted the steepest challenges. “Today’s restaurant consumer is seeking fresh food and fresh ideas. As an investment, I’d look for great branding, a focus on food quality, a bright and fun environment, and strong operational support,” says Dave Pazgan, founder of ZorForum, a peer group organization exclusively for leaders of growing franchise networks.
“There are several criteria to consider when investing in a restaurant franchise,” continues Stan Friedman, president of FRM Solutions, an acronym that stands for Franchise Relationship Management, and the host of the Franchise Today podcast. “Some of these are subjective, i.e. your past experience, your net worth and liquidity, and/or your access to capital. However, some criteria are fundamental. Chief among these, in today’s post-COVID world, would include investing in brands that have committed to technology both in the front and back of the house—those that have clearly demonstrated their trustworthiness, as can be attested to, by how they navigated through the pandemic, internally as well as with their franchisees, their front-line teams and consumers.
As always, brands with strong unit-level economics on both the top and bottom lines, that
also possess desirable sales to investment ratios [average of at least 2:1] Lastly, brands possessing a strong culture of ‘people first,’ brands that walk the talk, and properly manage well aligned expectations.”
Alex Oswiecinski, founder of lead generation company Prospect Direct, kept it simple when describing what makes a good target today. “A restaurant concept that produces higher than average cash flow, is fun to run, and can scale to multi-unit ownership.”
Here are this year’s 17 Best Franchise Deals for 2021.
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Note: This year’s list was chosen and deliberated on by an expert panel of franchise experts. It included: Mary Ann O’Connell, president of FranWise; Patrick Galleher, managing partner, Boxwood Partners; Alex Oswiecinski, CEO/founder, Prospect Direct; Diana Park-Alford, national sales manager, RevLocal; Stan Friedman, president, FRM Solutions and host of the Franchise Today podcast; Graham Chapman, VP account services, 919 Marketing; Dave Pazgan, founder, ZorForum; and Andy Lapin, partner and real estate attorney at Robbins, Salomon & Patt, Ltd.