F&B Joint Venture vs Franchise Model — Which Works Better?
First Published: 7 Feb 2021
Last Updated: 21 Mar 2021
Over the years, our clients have been telling us that they would like to franchise their business in 3 years’ time when they have at least 5 outlets onwards. Does this ring true for you too?
Franchisee Model
If so, we would like you to answer a few questions:
- Does franchising still work?
- Is the franchise model an outdated concept?
- Would you pay hundreds of thousands just to inherit someone else’s concept?
- Would an on-going royalty payment eat into your profit?
- Is it worthwhile in the end?
Think about these questions and look deeper into a franchise agreement and you would probably find the answer to your question.
Joint Ventures: 60/40
Allow us to formally introduce you to a new era of F&B ventures — Co-Owned Joint Ventures or what we call 60/40.
So what is 60/40 all about?
Imagine this. 2 partners (let’s call them Gill and Bill) come together.
Gill is good in food and is already successful in his own F&B business. Bill is really good at figures and operation. These two people reach an agreement together and decided to do something as a team.
Instead of creating a franchise model out of a current successful business, they decide to go into a joint venture.
So what are the mechanics of 60/40?
- Gill will plan and design the entire menu, ingredients supply, cooking SOP, sourcing of Chefs and service staff.
- Bill will look into COGS, Payroll, Cash Flow Analysis, Profit Projection, scheduling, etc.
- Bill and Gill will start an outlet together, run it till it turns a profit, normally towards the second year. Tip: That’s why rental agreements are always 3 years in duration.
- Into their second year, Bill & Gill will find a co-Investor (Jill) to run this outlet. Bill and Gill will then retain a 40% stake in this outlet whilst overseeing the food quality, consistency, and backend central kitchen supply to this outlet. While Jill will manage to day to day, retaining 60% of the profits.
- In the third year, they will then spearhead a new outlet and repeat the process over again.
This concept has proven to be successful as the incoming investor will not need to pay a franchise fee nor worry about the business failing as the original owners have a vested interest to maintain its success.
Conclusion
Joint ventures ensure that all parties involved have a losing stake if the business does not perform. And so, everyone involved would do their best in order to have the business succeed.
As compared to the franchise model, the franchiser would have made their profits from the initial agreement and during renewal periods. Whether your business succeeds, the franchiser has already made a profit and would have a lower incentive to ensure success, as their alternative is to locate a new franchisee as compared to the parties involved in a joint venture.
We Know F&B and Have Your Interest in Mind
Signed up for a franchise? Starting a joint venture? Found a mall you want to enter? Let us know and we’ll be pleased to help you! We have a team of real estate relationship managers, business consultants, interior design consultants, marketing consultants, fulfillment consultants and much more to assist you in any queries you may have.
Getting into a mall requires a process and it starts with your concept. Got a great idea for the mall? Talk to us and we can make it happen for you by recommending suitable malls and spaces for your needs. We know the in and out of Malls and will be with you every step of the way!
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