Depending on whether you are seriously contemplating about starting your independent restaurant or investing in a franchise, risks and rewards can vary. Start-up responsibilities, creativity, monetary resources, and experience are serious considerations before making what is one of the most important business decisions. Thoroughly studying the market, knowing the type of food services, and learning about people’s dining preferences can and should heavily weigh in your decisions which can ultimately determine the best path of success for you.
Restaurants are broken down into two major categories: chain restaurants and independent restaurants. Owners of independent restaurants typically operate one or two restaurants in a small radius in which they manage themselves. Chain restaurants are known as corporate restaurants comprising a board of owners that are founded throughout an entire region. Each of these types of restaurants has their own pros and cons which can help you decide which option is best for you. That is why learning the difference between chain and independent restaurants is crucial.
Operating and managing in chain restaurants are ideal for restaurateurs who don’t have a lot of experience nor the resources to start own their own business. Characteristics that such owners possess are:
- Personal Wealth
Most franchisors are required to have a certain amount of startup capital that needs to come from personal, non-borrowed funds. If you want to open a new Burger King restaurant, for instance, you need to lay down at least 40% down payment which must come from non-borrowed personal resources.
- Team Player
Owners of franchises tend to have training, marketing and management systems set up in place which influence the success of their restaurant brands. Competent and dedicated staff will follow the guidelines of improving the brand name.
- Lack of Food Service Knowledge
In some cases, little knowledge of the food industry can serve to the strengths of the potential chain operator. This lack of knowledge allows him/her to mold the franchise to fit the restaurant brand perfectly.
- Former Corporate Managers
Many downsized and even retired corporate managers are perfectly suited to operate chain restaurants as they bring years of management experience with them to these franchises. They mostly have grown tired of the rat-race associated with corporations and want a change of scenery.
One of the common misconceptions people have of chain restaurants is that they completely dominate the food industry. The fact of the matter is that both chain and independent restaurants have advantages and disadvantages over each other. While these advantages in chain restaurants include recognition in the market, greater advertising clout, more sophisticated systems development, and purchasing supplies at a heavy discount, independent/family owned restaurants are relatively easy to open. All you really need is a couple thousand dollars, strong understanding of the restaurant business itself and motivation for success.
The chief advantage for independent restaurant owners is that they have free range over designing their restaurant layout, devising their own concepts and marketing strategies, developing their own menus and decor , etc. Unless there is a dramatic change in our habits, preferences, goals and tastes, there are plenty of opportunities for independent restaurants in specific locations.
A recent finding by Pentallect Inc. shows that family/independent restaurants are outperforming chains in foot traffic and revenue growth. The report indicates a shift in historical patterns when chains were driving growth across the restaurant industry. Pentallect further estimates $210 billion of sales among independent and small chain restaurants in 2016 whereas larger chains have witnessed sales of $312 billion in the same year. However, Pentallect anticipates an annual growth of revenue by 4 to 5 percent among independent restaurants from 2017 to 2020. That is double the 3 percent of revenue growth expected for chains! This report has significant implications sales agencies, distributors and manufacturers considering that independent restaurants represent more than half the sales in the food service industry. Independent owners receive this as good news but it gives chain operators a glimpse of the challenges they will soon face.
Likewise, Yelp Analysis has confirmed the veracity of this report after using their data stores to review ratings in both independent and chain services. They suggest that the shift of performance is due to consumer perceptions of restaurants. The data further showed a rise in family owned restaurants over the last 5 years in contrast to the notable decline in ratings among franchises by 16% between the years 2012 and 2017. While chain restaurants around the globe are increasingly serving to fastidious diners, independent fast food, casual and family owned businesses continue to see an upward spike in average ratings, improving by 7% in the last 5 years.
Not too long ago, growth in revenue and performance among chains has outpaced independent food services. But in a short matter of time, independent restaurants have caught up with franchises and are now leading them. Consumers are more selective in what they order and how much they are willing to spend. They reward venues that provide a dining experience and ambiance they would expect anywhere else. Independent concepts are in vogue which is partially a result of urbanization.
Location is a factor and metropolitan areas seem more ideal for independent owners to establish their restaurant business. People, but millennials in particular, are moving downtown into more gentrifying neighborhoods thus frequenting local establishments. Owners are learning more about their dining habits and are striving to keep up with the latest food trends to better serve them.
Additionally, independent restaurants are much more likely to be rated highly for being community oriented and offering personalized service which most consumers appreciate. They are also far more likely to be perceived as sharing customer values by offering quality food and delivering better service. Delivery, however, nearly closed the gap between chain ratings among independent and chains. Chains triumph over independent restaurants when it comes to technology, social media, and providing convenient locations.
Restaurants constantly open and close. Trends and ideas are evolving. A person’s dining habits and preferences are changing. Some independent restaurants will merge into small chains and large corporations will eventually buy them out. Especially once these chains begin to display growth and popularity. Or they will be eligible for financial benefits which will be used towards expanding their restaurants. There are risk factors and each must be carefully considered. Franchises and independent restaurants can provide you with a profitable business endeavor. You need to know your strengths and limitations. Set your goals and review the pros and cons to determine whether you are better suited for independent ownership or becoming a franchisee.