From building a Five Guys franchise empire during the 2008 recession to assessing how COVID-19 will change the fast-casual landscape, two food industry heavyweights discuss what they have learned from their unconventional paths into franchising.
Dan Rowe is the CEO and founder of Fransmart, the franchise development company responsible for the international growth of brands like Five Guys, Qdoba Mexican Grill and The Halal Guys.
Rick Fisher is the CEO of PSP Holdings, where he oversees its business development and capital investments group.
Early beginnings
Rick Fisher: When the dotcom bubble burst in 2000, my wife and I knew that we needed to find an investment that would replace one of our incomes. I worked in technology; I was worried about how another recession could bring a job loss, affecting my family. My neighbor, Dan Rowe, felt the same pressures.
Dan Rowe: I hadn’t planned financially for lean times. After that experience, I vowed to never be financially dependent on someone else ever again. I founded Fransmart to control my family’s financial future. Working for someone else is volatile, and the other shoe can always drop. My solution to both of our problems was a Five Guys franchise.
Rick Fisher: Through the 2008 recession, my wife and I built our franchise business into an empire. We continued to build out franchise locations, getting great deals with landlords and inexpensively converting existing restaurants into successful Five Guys franchises. Today, we own 10 Five Guys and nine Popeyes franchises with plans to open six or seven more Popeyes. Our franchises have more than replaced both of our incomes.
Lessons learned from the past two recessions
Dan Rowe: We’re once again in an economic crisis, like we were in 2000 and 2008. This time the crisis is also humanitarian. People are concerned about their health, their loved ones and their finances. Job loss is a real concern for families. Rick and I felt that same fear during the past two recessions, when we vowed to never depend on someone else to sign our paychecks.
No recession has ever ended us. Entrepreneurs should always have a plan in place for the inevitable downturn. Every year, and every decade, there are cycles. Be ready for them. The advice you always hear is ‘buy low, sell high’. Now is the perfect time to do that.
Rick Fisher: Between 11 and 30 per cent of restaurants will permanently close by the end of this crisis, creating a huge opportunity for franchisees. Landlords will have available restaurant spaces already built out, and a scarcity of tenants to lease them. Those spaces are perfect for a franchisee to negotiate great terms on leases and reskin those restaurants economically. Many landlords will build to suit, so use them.
Restaurant conversions save you about half the cost of a normal build-out. Great deals are available to convert existing spaces quickly and inexpensively, maximizing the return. We are taking only a 60-day hiatus from building. Afterward, we’re coming out with guns blazing to find great deals on six or seven new Popeyes locations. Landlords are offering better terms now than they were even a few weeks ago.
Dan Rowe: Interest rates are lower during and right after a crisis. Banks are looking for strong operators to offer great loan terms. Franchisees can get loans when no one else can because lenders consider the financial history of the franchise to extrapolate franchisee sales expectations. The government is willing to back loans to jumpstart the economy, and they will cut interest rates to accomplish it.
How COVID-19 will change the fast-casual landscape
Rick Fisher: Current franchisees should continue to bolster drive-thru, delivery, and curbside pickup. Going back to normal isn’t going to be the same old normal. We’ll see a continuation in all three of those areas. Curbside isn’t practical for every location, but where it is, you know customers are going to request it as an option. Guests are going to want to distance from strangers, take out some seating if you have dine-in. Put some seating outside in the warmer months if you can.
In the immediate months following this, some consumers will be cautious. Let your customers know your cleanliness precautions. If your employees are wearing masks and gloves, tell your customers. They want to know how often equipment is sanitized and hands washed. You should have a plan in place in the case that an employee contracts COVID-19. Your customers want to know how you’ll keep them and employees safe.
Paid sick days are now important to your workforce and the public. Customers didn’t care about the sick pay of food service workers are suddenly concerned that employees will continue to work, regardless of illness. Offering paid sick days isn’t possible for all employees, especially part-timers. It’s something to consider while the new normal sets in. The top priority is the people that keep your business in operation. Sick employees can’t take care of a customer or ensure food safety; sick customers can’t order food.
Why franchisees should keep a long-term mindset
Dan Rowe: The foodservice industry has two main problems: the over-saturation of restaurants and staffing shortages. Expected restaurant closures will essentially remove those barriers. We’re about to see an under-saturation and a widely available labor force followed by a boom in restaurant food sales. People cooped up at home are ready to eat something they didn’t have to cook.
Rick Fisher: I’m always asked: ‘Why a franchise instead of a sole proprietor restaurant?’ It’s a no-brainer. For the royalties, you get a turnkey business. The business has already streamlined, including branding, marketing, supply chain, legal, operations, policies and procedures. You’re buying their years of expertise and reputation. It can take years to build one location into a well-known landmark. With a franchise, it’s immediate.
Dan Rowe: Investing now isn’t for everyone, but there are always courageous entrepreneurs laying their money down. Take the right risk, and reap the reward. We’ve seen several downturns happen over the last few decades, and we always come back fighting into a booming economy. It’s going to happen this time, too. We’re already seeing signs of the U.S. stock market rising. Restaurant sales have trended up over the last few weeks, especially after the stimulus checks began depositing. The question is – when the boom happens, will you be in position to reap the reward?
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