Roll Em Up’s franchisee lawsuit highlights the challenges with the franchise business. | Photo by Lisa Jennings.
This is from the weekly restaurant finance newsletter The Bottom Line. To get this in your inbox every Monday morning, click here.
My colleague Lisa Jennings wrote about a lawsuit by franchisees of the small Roll Em Up Taquitos brand, which includes a laundry list of accusations that effectively suggest it’s a bad franchisees. The franchisor, as is common, said the franchisees were bad operators.
We’ve heard this a lot. A franchisor has problems. Franchisees complain or file lawsuits. And the franchisor blames it on the operators.
There are, of course, plenty of bad franchisors and bad franchisees. But the real problem in franchising is the pressure on new brands to sign up franchisees quickly, so they can generate enough revenue from royalties to fund various support mechanisms for those franchise brands.
Many franchised brands are started with only a single location—or none!—and then they aggressively sign new franchisees to get the brand off the ground and start generating royalty income. To be effective and profitable, they need a lot of franchisees operating restaurants and paying royalties and marketing.
That leads to compromises. Brands will sign up weak franchisees with no experience, simply because they have a few bucks and a reckless willingness to buy into an unproven concept using debt.
Sometimes this works, the brand gets some momentum and then when they grow popular they solidify their franchise selection process. We’ve spoken with multiple experienced franchisees who complain about their brands’ early-stage generation of poor operators.
But franchisors get themselves into these positions by pushing so quickly into franchising and then signing up these inexperienced operators in the first place. Many would be better off not franchising at all until they have more locations under their belts so they can be more patient and selective. Or maybe they shouldn’t get into the franchising business in the first place.
This week’s financial news
So I don’t think third-party delivery is good for restaurants at all.
The data with this story on consumer restaurant spending just floored me. Americans are spending more as a percentage of their retail spending than ever before. So why aren’t more restaurants profiting from this?
McDonald’s new drink menu is coming. And that should about solidify the specialty beverage trend as a long-term format.
I really think that Domino’s focus on carryout the past 15 years might be the real reason it’s in a far better position than its delivery-focused rivals.
My colleague Alicia Kelso debuted her new marketing column this week and looked at Chili’s newest campaign.
I had entirely too much fun screwing around with Starbucks’ new ChatGPT app. And now Little Caesars has one, too.
Jack in the Box is in a real fight to keep its Washington state locations open.
Jersey Mike’s doing Jersey Mike’s things.
Number of the week
As a percentage of total retail spending, Americans’ restaurant spending has increased to 13.6% from 9% this century.
Quote of the week
“AJP is trying to use a threat to close the restaurants to force JIB to abandon its attempt to require AJP to pay its marketing fees.” -Jack in the Box, in a request for a temporary restraining order to keep a franchisee in Washington from closing 38 restaurants after it was terminated for not paying $1.4 million in marketing fees.
On the blog
I wrote about third-party delivery, McDonald’s beverages and consumers’ restaurant spending. Check out all my blog posts at The Bottom Line.
On the podcasts
On A Deeper Dive I spoke with Kilwins CEO Brian Britton on the chain’s life under private equity. On The Week in Restaurants we talked AI, pizza, Jersey Mike’s and prices.
For questions, comments or story ideas, send me an email at jonathan.maze@informa.com. And follow me on Twitter at @jonathanmaze. And also LinkedIn. And TikTok.
