As a little kid with messy pigtails and thick glasses, I plopped into a booth at the Perkins Restaurant in Sioux Falls, South Dakota on many occasions. Located 50 miles from my little hometown of 2,143 people, my family found lots of excuses to stop by - hot coffee and dessert after piano recitals, early breakfast before our airplane flight, mid-day meals after doctor appointments. I don’t think I’ve ever been to Perkins without my family.
Restaurant Franchises Can Be Great Family Businesses. Per the 2018 Food Franchise Industry Report, food franchises account for 36% of restaurants and 48% of the annual financial output of the U.S. franchise industry. Consider, for example, CyHawk Hospitality, Inc., a family-run business led by President, Jim Rahfaldt and his two sons, Matt and Nick. Cy-Hawk Hospitality owns/operates over 17 Perkins across the Midwest, with more scheduled to open in 2019. While franchise businesses are not better insulated from failure than non-franchise businesses, under the right conditions, a family-run franchises may have a competitive edge over its non-family business competition. Not only does the ready-made transfer of ownership to a knowledgeable family member help maintain successful business plans, having a long-term strategy increases the likelihood of future success as well as the immediate.
Avoid Legal Mis-steps. As a franchisee, you do not receive the benefit of consumer-protection – a franchisee is considered to be a business. Moreover, the majority of state and federal jurisdictions reject the claim that fiduciary obligations arise from an ordinary franchisor-franchisee relationship. In other words, there are few special protections in place for the franchisee. So whether you, as franchisee, are executing your first agreement or your 20th, hire legal counsel to help you review and navigate the renewal periods – even though every once in a while you might get lucky. For example, in 2016, the Nebraska Supreme Court considered the matter of Donut Holdings, Inc. v. Risberg. The Court concluded that even though a franchise agreement had expired five years prior, and even though the parties had been operating thereafter under an apparent contractual relationship, because the franchisor sent to franchisee a letter regarding franchisee’s obligations upon termination, franchisor effectively terminated any implied contract. As a result, contract damages for franchisee's continued use of franchisor's donut mixes and trade dress after franchisee's receipt of the letter were denied.
Franchisee - Be Patient. Carefully Choose Your Location. Although Cy-Hawk Hospitality names many factors for its long-standing success, one of the keys to their success is careful site selection. According to Nick Rahfaldt, “Part of our success as Perkins franchisees has come from the painstaking research we do on site selection.” Rather than building too fast or in inopportune areas, the Rahfaldts recently waited “close to ten years for the perfect spot.” They also opened another new store in a strategic location between the Omaha airport and downtown. It looks like I’ve still got a great place for breakfast before my early morning flights.
No Franchise Can Rest On Its Laurels. While franchises need not reinvent themselves year after year, brand refreshing is a great way to maintain relevance, garner pubic attention, and pair food trends with the evolving tastes of the consumer. In other words, society’s food and beverage demands are changing, and any successful restaurant simply needs to keep up. The competition is right behind you. But – “keeping up” is not the same as agreeing in the franchise agreement to allow the franchisor the unfettered right to unilaterally change its trademark or make other changes. Franchisees need to be on the look-out for any unilateral rights in the original franchise agreement and negotiate modifications before signing on the dotted line.
And Last, Before I Sign Off, A Few More Tips [In One Long But Worth It Sentence] For Any Family Business: listen to your kids - you taught them well; partner up with a great real estate agent; take an online business class every once in a while – there’s more to learn; listen to podcasts on everything and then listen to podcasts on marketing; take a step back; lean forward; cast vision; get a business succession plan in place; don’t talk family business over Thanksgiving dinner; follow your own plan; bring in a neutral party to observe your business operations; sell – sell – sell; love your franchise brand; no debt; no debt (in case you missed it); occasionally bring pie home; have an aggressive growth but shrewd mindset; pay attention to your competition; talk to your lawyer – they represent and protect you; find and capitalize on the differentiator; be kind to your employees; no grudges against family business partners - forgive; follow the markets; ignore the markets; slow down; and be grateful – you’ve got the greatest job on earth – you just sold a big cookie to a kid with messy pigtails and thick glasses who survived her piano recital.
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