Franchising is a popular method for expanding business. Through a licensing relationship a franchisor, or business owner, essentially sells a franchisee the rights to open a new business location. For instance, the Burger King franchise has many franchise locations, all of which were sold to various franchisees across the country. Once the Burger King franchise finds a new franchisee, the franchisee is granted the right to build their own location using preexisting systems, regulations, etc.
Franchising is an attractive business model for anyone new (or not) to the industry. Unlike an independent business, which requires growing from the ground up, a franchise comes with a pre-established, and usually successful, operational system. Through extensive training programs, franchisees learn all the ropes behind the business, eliminating the daunting trial and error process. Not to mention, a franchise comes with brand recognition is built right in.
FRANCHISING IS AN ATTRACTIVE BUSINESS MODEL FOR ANYONE NEW TO THE INDUSTRY.
Anyone looking to purchase a franchise will be given a Franchise Disclosure Document (FDD). It’s imperative that any franchisee fully understand the components and contents in any business’ FDD. Consisting of 23 different parts, the FDD, a legally mandated document, outlines different key pieces of information involved in franchise purchase. For instance, a Franchise Disclosure Document tells the interested franchisee more about the total fees and costs associated with purchasing the franchise of their choice.
The overall intention of the document is transparency. Both the company and franchisee need to be on the same wavelength in order for the purchase and future management of the business to run smoothly. Click here to see a more in-depth description and analysis of the Franchise Disclosure Document.
Franchising Since 1953
Daniel Schwartz, Chief Executive Officer of Restaurant Brands International, Inc.
Matt Dunnigan, Chief Financial Officer of Restaurant Brands International, Inc.
Jill Granat, General Counsel of Restaurant Brands International, Inc.
Chris Finazzo, Regional President, North America.
Fernando Machedo, Global Chief Marketing Officer.
Renato Rossi, Head of Marketing, North America.
Michael Hancock, Head of U.S. Field Operations.
The standard franchise fee for a standard 20-year Franchise Agreement term is $50,000. The term, however, may be shorter for non-traditional restaurants. The franchisor also notes that the franchise fee is prorated for terms of different duration.
The Burger King franchise offers programs under which they lower the standard franchise fee. However, these programs may be discontinued at any point.
Real Estate Leases
In the instance that BKC previously owns or leases the land upon which the new restaurant is expected to be built, the franchisor may lease or sublease the location. However, BKC generally does not offer any direct or indirect financing to franchisees.
BKC may provide financing for certain types of transactions. On a case-by-case basis, BKC may offer to finance the purchase of a pre-existing Burger King location or the conversion of a non-Burger King restaurant to a franchised restaurant. The franchisor may also provide some type of financing to minority franchisees. However, there are no specified programs for these financing agreements.
Training and Assistance
Before the new restaurant can open, the prospective franchisee must complete BKC’s training program. The program consists of an In-Restaurant Training, which is held in various locations that are authorized as training locations. Additionally, BKC provides a Franchisee Orientation course, which all franchisees must attend before opening or acquiring a Restaurant. Any franchisee that fails to attend the course may be declared in default of the Franchise Agreement.
Training materials may be in written, electronic, or other forms, such as manuals, workbooks, videos, and interactive computer training. The franchisee is responsible for all training costs, which includes lodging and transportation to and from training program locations.
BKC may require additional training for individual owners or Managing Directors of new restaurant locations in order to implement current standards and procedures. The franchisor also may require periodic workshops or seminars for employees in management positions.
The franchisee is obligated to hire or train employees and determine wages. The franchisee must also implement an employee training program that aligns with the current standards established by BKC.
Location of the Burger King franchise
The Franchise Agreement grants the franchisee the right to operate a Burger King restaurant only at a specific location. The agreement does not grant any type of protected territory or customer base specifically. However, there is a Target Reservation Agreement, which specifies one or more Target Areas where the franchisee may search for a restaurant site.
The franchisee does not have the right to prevent the development of other restaurants in any area, even if it may pose competition. Furthermore, the restaurant may not be relocated without BKC’s written approval.
Experienced franchisees may receive area development agreements, which contain strict development schedules for multiple restaurant sites.
Term of Agreement and Renewal
The typical length of a franchise term is 20 years for a freestanding restaurant. This term may be shorter for non-traditional restaurants.
Franchisees have no right of renewal. There is the option to obtain a successor Franchise Agreement of up to 20 years if the franchisee acts in compliance with the Franchise Agreement and all other agreements with BKC.
Restrictions on What the Franchisee May Sell
The franchisor (BKC) has established standards for most of the goods or services used within the development and operation of Burger King. The specifications set up by the franchisor are in place to assure the quality and consistency of the goods and services.
The new restaurant location must be constructed and operated in accordance with the franchisor’s specifications. This includes all fixtures, signage, decor, supplies, food, beverages, and other technology. In most cases, the products used in the Burger King restaurant must be acquired from BKC’s approved suppliers or distributors.
Approved distributors must also meet required specifications and maintain certain standards for all products sold and displayed at the restaurant. These suppliers must also participate in quality assurance programs, which meet the standards BKC establishes.
If the franchisee wishes to propose a new supplier, BKC will consider the need for a new distributor. In certain cases, the franchisor may consider the supplier necessary, in which case BKC would move forward with evaluation and review of the supplier. Typically, this evaluation process lasts anywhere from 90 to 160 days and may take longer. At any point, BKC is at liberty to reject a proposed supplier. The franchisor may also terminate any approvals or pending approvals of distributors.
BKC outlines a number of obligations under the Franchise and other agreements, which any prospective franchisee must fulfill. These obligations include site selection, site development, initial/ongoing training, fee payment, compliance with standards/policies, insurance, among many others. Most of the franchisee obligations are explained in further detail within the FDD or Franchise Agreement.
At the end of 2017, Burger King had a total of 7,226 outlets, 7,076 of which were franchise locations.