In the Franchise World there are Good Investments and then there’s Fast Food

Kenny Rose
Sep 5, 2018 · 3 min read

By Kenny Rose, Founder and CEO at Semfia. Originally published on Quora.

“McDonald Drive Thru logo street signage” by a befendo on Unsplash

I love when I get calls from people who say they want to buy a McDonald’s or Taco Bell.

I ask why.

I see lines around the block and I want to make a lot of money.

There are over 3,000 different franchises in 100 different industries, why food?

When it comes to franchising that’s typically the only industry they think of.

At over half a trillion dollars a year, franchising makes up 5% of the US GDP. They’re 401(k) eligible as an investment or a way to start your own business but the average American knows nothing about them other than fast food.

In reality, like all food businesses, you’re looking at a big boom or bust.

There are a lot of inherent dangers when it comes to food franchises that investors don’t think about.

They’re Expensive

As soon as you add a kitchen to your business investment, you can expect to spend half a million dollars at least. For a fast food location and a brand that’s already very big, your budget is most likely to go past a million.

Instead of buying one fast food franchises, I’d buy multiple locations of a service business. This way you can build a scalable empire and spread your risk.

No Availability

You’re not the first one to think about this. Depending how long a food concept you’re looking at has been around, you could be the 1,000th person in that city alone to ask. Typically once one location is open near you you’re probably already too late to find availability because someone bought the rights to the rest of the area.

You have to research and get expert help to find a good concept that will be a profitable long term investment. I can’t tell you how many people almost bought a McDonald’s 30 years ago (sure). They were right there with me when I almost bought bitcoin when they cost pennies each.

Hindsight is 20/20 but realistic investments require due diligence.

Thin Margins

On top of the high cost to get in, food is the most competitive industry out there and a dollar or two difference in cost can make or break you.

Service based industries like hair care, auto, or fitness on the other hand have extremely high margins.

Competition & Marketing

If you’re going to go into business for yourself whether its full time or as an investment, why in the world would you go to the most competitive industry known to man. Be prepared to have a lot of ongoing marketing expenses to stay relevant. The failure rate for food franchises is far above other industries.

So yes you can make a lot of money with a food franchise but in reality the likelihood is not high.

Your time and money is better off invested in franchises that are not food related.

By Kenny Rose, Founder and CEO at Semfia. Originally published on Quora.

Featured on ABC, the Amazon Best Seller “More Than Just French Fries,” and guest speaker for organizations such as the Small Business Administration, SBDC, SCORE.

Kenny Rose

Written by

Founder & CEO of Semfia - Invest Locally with Portfolio Franchises

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