News Column

Franchising: The Waiting Game

September 2001

By Vivienne Heines, HISPANIC BUSINESS® magazine

Rubio’s Baja Grill began in 1983 as a simple fish taco stand in San Diego.
Rubio’s Baja Grill began in 1983 as a simple fish taco stand in San Diego.

Businesses considering franchising should first concentrate on establishing a solid base of operations.

By the time the owners of Rubio's Baja Grill decided to franchise their restaurant, they already owned 135 stores and had been in business for 18
years.

While the San Diego–based restaurant chain's case is unique, amassing a solid base of operations can help ensure a franchise's success, according to the International Franchise Association (IFA), based in Washington, D.C.

"Probably the most important admonition is to walk before you run," says IFA president Don DeBolt. He recommends that business owners wait for at least one to three years before offering franchise rights to others.

"Don't start franchising until you can demonstrate that your business is replicable, and until you can teach it to others and still deliver the quality you want," he says.

Businesses must be able to offer franchisees such kinds of support as help in selecting a location, hiring and training employees, and establishing a supply line, as well as providing marketing aid. Typically, franchisees pay a one-time fee of as much as $40,000, then pay ongoing royalties of 3 percent to 6 percent of monthly revenues for training and advertising.

In the United States, franchises span 75 industries, ranging from daycare
to dry cleaning and postal services. With more than 320,000 franchised businesses, U.S. franchise revenues are an estimated $1 trillion annually – nearly half of all retail sales nationwide, according to IFA statistics.

Rubio's Baja Grill, which opted to franchise last year, was founded as a simple fish taco stand in 1983 by the father of president and CEO Ralph Rubio.

Today, the company's restaurants, which are located in California,
Colorado, Arizona, Nevada, and Utah, offer what is described as "quick casual" Mexican fare. Customers order at a counter, as in a fast-food restaurant, but the cuisine is fresher, healthier, and of higher quality than typical fast-food meals, say Rubio's representatives.

"We built up a very strong base of customer operations first, then looked at franchising to grow nationwide, beyond our West Coast operations," says John Ramsay, vice-president of franchising operations. "Our primary concern was making sure we had all the systems in place and that the concept was at a stage where it was ready to be replicated."

Rubio's has training teams that provide support for franchisees. In fact,
employees were so enthusiastic about helping the first franchise get started that Mr. Ramsay received 90 applications for the six initial training positions.

"The real key to success in franchising is having high-quality support and personnel," he says.

At Rubio's, franchisees adopt a uniform look, menu, and operating system as well as employee training, marketing strategy, and computer technology. A standard cash register system analyzes electronic data nightly and e-mails it to the manager in the morning. Such analyses might include food/cost comparisons, information about best-selling items, or data about overportioning or underportioning, according to Mr. Ramsay.

Mr. DeBolt advises small businesses that are considering taking the franchising plunge to keep the concept simple.

"The simpler the business is, the better chance it has of succeeding as a franchise," he says. "Another point is to be sure you have something proprietary, something desirable or unique. Do you have special seasoning or a special cookie batter?"

Among the most successful franchises in recent decades are hotels,
especially those with extended-stay suites, and elder care facilities. Other popular franchises are those that offer services for busy, two-income households, such as residential cleaning, renovation, and repair services.

If you decide to buy into a franchise, Mr. DeBolt says, you should plan to
support yourself for a year or two without relying on the newly opened
business. He also encourages all potential franchisees to obtain a list of
current and former franchise owners and call them to discuss their
experiences.

"We always suggest that you call at least 15 to 20 people on that list. Ask them when they could start paying themselves enough of a salary to make it worthwhile, if they received enough training and support, and – the most important question of all – if they would do it again."



Source: HISPANIC BUSINESS magazine


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