2 ms·
Another issue is the misperception of franchisees as fat cats. Our owner had five franchises; each cost over $2M back in the 80's. The average annual sales were
by greedo 12y ago
Another issue is the misperception of franchisees as fat cats. Our owner had five franchises; each cost over $2M back in the 80's. The average annual sales were around 1-2 million, and he would net around 10%. So he invests $10M to make $750K a year before taxes. That's 7.5% return. Not exactly AAPLesque.
So if you increase his labor costs from 20% to 30%, you just wiped out his return. If you double it to 40% like a $15 increase would do, then he's got to either automate or cut to the bone.
And yes I realize I'm conflating figures from the 80s to today, but the percentages still hold.
- Mikeb85 12y agoSounds like he overpaid for the franchises themselves. That's just called a bad investment. I'd generally expect a restaurant to do twice as much in sales (or more) in a year compared to the initial cost, and be able to recuperate the initial investment in 5-10 years (one of the more recent restaurateurs I worked for paid back his investors in 3 years, and has a second location 5 years in). But even using his sub-par numbers, $750K a year since the 80's means he's already recuperated his costs and made some serious profits since. What more does he expect? He could close them all tomorrow and be ahead. If anything, this anecdote does show just how greedy some people are.
- greedo 12y agoThe franchise business is just wacky really. The parent corporation owns the land you use, so they become real estate tycoons, and they can cause huge headaches to franchisees who don't play ball with their latest initiatives. It's really hard to compare them to regular restaurants though. I'm not sure if it's much different in Canada, as I've lost touch with a cousin who owned some White Spots in BC when I was a kid.