What is a full service restaurant?
The United States Department of Commerce defines full service restaurants as “establishments primarily engaged in providing food services to patrons who order and are served while seated and pay after eating.” These establishments may provide takeout or delivery meals, sell alcoholic beverages, or present live entertainment. The term “full service” can encompass anything from a family-style eatery to an elegant restaurant; from casual dining to fine dining. Larger franchises within the industry include: Denny’s, Golden Corral, IHOP and Applebee’s.
Why is it a good time to invest?
Full service restaurants “were the first to feel the pinch and the last to feel the recovery,” according to Nima Samadi, senior analyst at IBISWorld, a market research organization. Current progress is incremental though steady and full service restaurant sales are expected to post a third consecutive year of sales growth even after adjusting for inflation.
As the economy continues to recover, the industry will benefit from lower unemployment and an increase in disposable income. According to the National Restaurant Association two of five consumers say they are not using restaurant services as often as they would like. As consumers return to their desired habits, full service restaurant franchises should benefit.
Along the same lines, there is optimism on the part of full service restaurant operators. More than 90 percent surveyed by the National Restaurant Association expect sales to remain flat or improve for 2013 when compared to 2012. This optimism is nonetheless tempered by expectations of little to no increase in profits due to certain operating costs—one of which is discussed below.
How will commodity costs impact the industry?
Commodity (raw food product) costs are of concern for all types of food franchises, but they are of special interest to full service food franchises. In fact, a quarter of full service operators surveyed by the National Restaurant Association said that food costs would be their top challenge for the year.
Typically, rising commodity costs would mean higher meal costs for consumers, yet overall economic instability leaves many franchise operators reluctant to raise prices, as they may have previously, to keep consumers satisfied. So what are franchises doing to lessen the impact of commodity costs on their bottom line? They’re getting creative. A few innovative ways that franchises are working around commodities concerns:
- Offering consumers limited time offers for menu items with less expensive ingredients
- Cooking more frequently and in smaller batches to reduce waste
- Buying different cuts of meat and collaborating with chefs to produce new dishes
The climate across the United States isn’t the only factor in the supply strain on these commodities. Over the past several years, growing middle class economies in India, China and other developing nations has led to a rise in the demand for food products, pulling some supply away from the U.S.
How is stronger consumer interest in healthy eating impacting the industry?
Since the 1950s, restaurant portion sizes have more than quadrupled. Over the same time period, probably with little coincidence, the rate of obesity in the United States has dramatically increased.
One of the most popular ways consumers are taking control of their diets is focusing on smaller serving sizes—perhaps with a psychological explanation. Many advocates of portion reduction maintain that consumers rely on visual cues when eating as much as—if not more than—physical ones. They also maintain that if portion sizes are reduced, consumption will naturally decrease.
As a result of this trend, numerous franchises have expanded their menus to include portion and calorie control options under branding such as “Fit Fare” and “Simple & Fit.” Applebee’s has even partnered with a well-known and respected name in diet control, Weight Watchers, by acquiring endorsements for a number of meal options.
Along with an increased focus on serving size, people are also becoming increasingly aware of the ingredients in their food, especially potential allergens.
There are several theories as to the cause, but one thing is clear: food allergies are on the rise in the United States. The UCLA Food and Drug Allergy Care Center estimates that as many as one-in-five Americans have an allergic condition.
The awareness of food allergens has led owners of restaurants in and out of the franchise industry to examine their menus, make adjustments, and introduce alternatives.
Franchises are accommodating concerned individuals by preparing gluten-free food on dedicated workstations away from other menu items, using one set of utensils per ingredient to prevent cross-contamination, and clearly listing common food allergens via ingredient checklists on the menu.
Choosing the Right Full Service Food Franchise for You
Important Note: The provisions and fees illustrated in this report are only the most common and not a complete listing. Please review the Franchise Disclosure Document (FDD) for all of the provisions and fees related to investing in a specific franchise.
There are several factors to consider when researching and evaluating potential franchises. Of those factors, we have chosen a couple to highlight below.
Variety of Options
What style of restaurant do you want to run? There are full service restaurants available in an assortment of food genres, themes, and styles. Full service restaurant franchises range from family-style buffets to sports bars to higher-end dining. Themed franchises that immerse customers into a specific atmosphere based on past trends or decorum can also be quite appealing.
Licenses and Permits
Franchisees are ultimately responsible for complying with all local, state and federal laws and regulations applicable to the operation of their restaurant, including health, sanitation, food and beverage handling, food preparation, waste disposal, smoking restrictions, and point-of-sale disclosures. A source of special concern for many full service franchisees is liquor licensing because a higher percentage of full service restaurant franchises offer alcohol for consumption when compared to limited service (fast food) restaurants. Requirements to obtain a liquor license vary from state to state. It is strongly recommended that prospective franchisees consult an advisor to determine all applicable laws and regulations for their locale.
How much is it to invest in a full service food franchise?
Investing in a full service restaurant franchise often requires greater personal and financial commitment than other food franchises. The investment can be separated into two parts: initial investment and ongoing fees.
Investment costs vary for different franchises depending on the particular business system and execution requirements. The following charts demonstrate, by comparison, initial costs associated with opening one of the 10 sample franchises presented.
Estimated Initial Investment Ranges for Sample Full Service Restaurant Franchises
FDD Profiles for Sample Full Service Restaurant Franchises
A special note when looking at initial investments: not all franchise systems include real estate costs in their overall estimates. It is therefore critically important that you read the FDD thoroughly to become familiar with estimates versus actual cost.
Throughout the length of the agreement there are costs for being a part of the franchisor’s business system.
These costs include items such as royalty fees, charges for technical support and marketing costs. The most common is the royalty fee, taken from overall revenue, with examples below for a list of sample franchises.
In addition to regularly assessed fees, other fees are charged on an “as needed” basis such as audit fees or costs for additional training. Prior to investing, prospective franchisees should do their research and carefully review a franchisor’s FDD for more detailed information on all systems, procedures and costs.