History of franchising
One of the earliest forms of the modern franchising model in the United States can be traced back to 1901. In that year Coca Cola franchised its first bottling plant. Fast forward to 1940, a time when Dairy Queen began offering franchises to expand the reach and scale of their innovative soft serve ice cream. In 1941 Dairy Queen had just ten locations. By the end of the decade, they had expanded to over 2,600 locations around the United States. Today Dairy Queen has over 7,000 locations in thirty countries worldwide and is currently ranked 42nd on the Entrepreneur 2021 Franchise 500 Ranking.
In 1952 the McDonald brothers decided to franchise their first restaurant. This move proved successful as the company was able to IPO in 1965 at USD $30 a share. The brand boasts a record of making over 75 burgers a second, equating to over two billion burgers a year. Such an achievement would not have been possible without franchising.
To date the cost of setting up a McDonald’s franchise is greater than most restaurateurs can afford. McDonald’s, for example, requires the franchisee to have at least half a million dollars in unlevered capital, and pay service fees and rent charges to McDonald’s that are both percentages of sales revenue. In addition, franchisees need to invest to ensure that they abide by specific criteria for in store look & feel and company branding.
However, the digitization of the F&B sector over the years, and the increasing demand for new concepts has enabled the rapid teleportation of brands across borders, and paved the way for the emergence of the next generation of restaurant franchising.
What is virtual franchising?
Virtual franchising is an innovative approach to franchising that does away with the need for physical storefronts. Instead, it connects content creators such as restaurants and virtual brands to cloud kitchens or micro cloud kitchens with underutilized capacity to service new or underserved markets.
Before virtual franchising, restaurant brands had to set up brick-and-mortar stores and fly around the world to train and audit the franchisees. This required significant capital and human resources, which restricted small businesses from the franchising industry. Franchisors had to rely on the integrity of the franchisee to maintain the brand's service quality and report accurate revenue numbers for profit sharing.
With virtual franchising, relatively new brands can scale rapidly and reduce the risk associated with capital intensive brick and mortar locations. Instead, franchisees can focus on servicing imported delivery-only brands which leverage much of the same ingredients, equipment and supply chain of their existing operations. This makes it easy for big and small businesses alike to benefit from the franchise industry at a low cost.
An excellent example of this is popular YouTuber Mr. Beast, who announced that he was launching three hundred restaurant franchises overnight.
How to franchise your restaurant brand virtually
Virtual franchising exploded during the Covid-19 pandemic as restaurants had to adapt to fielding online orders, and servicing multiple delivery-only brands to make up for loss of revenue from dine-in. While the pandemic accelerated the trend, globalization and the unification of consumer consumption for new food trends through social media channels means that similar demands need to be met, regardless of if a customer is in San Francisco or Amsterdam to Dubai and Tokyo.
Here are some guidelines for how to get started on your journey to virtually franchise your brand.
1. Curate a menu that is optimized for delivery
It is imperative that you build a menu with well-researched items and offers. Every big franchise started with a great menu. And since your virtual brand doesn't have to invest in setting up branded locations, you can afford to spend more time and resources to curate a bestselling menu that is optimized for delivery. Some of the guidelines to follow when setting up your menu include:
- Keep it simple, don’t overwhelm the customer (and your franchisee) with too many options
- Offer popular meals
- Identify the right price point for your meals
- Make sure the selected menu items travel well
- Create an appealing brand identity around your menu
2. Develop a training model for brand SOPs
It is essential that you develop a training model for the cloud and micro cloud kitchens to learn how to cook, package and present your meals. This step is significant as it reduces the burden on the franchisor to travel and train the cooks in person. It also helps you match your brand’s taste and service quality (consistency) across different locations.
While there are platforms that can help you get your training materials across to your cloud kitchen partners, they cannot do much about the quality of your materials. Make sure to include specifics like which equipment to use for what process and any other specific instructions that are needed. You may also include relevant materials like videos and ingredient sheets to ease the cloud kitchen’s process of adopting your menu. The less complicated the virtual training process is, the easier it is for your virtual franchise to scale.
3. Decide which markets you want to target
It is imperative that you have a market strategy in place before you begin looking for cloud kitchens to partner with. Do some research to find out which markets have an appetite for your brand’s offering. Engage with food aggregators who have greater visibility on demands and gaps for cuisines across various locations. Leverage cloud kitchen management platforms like grubtech to connect you to underutilized kitchens within the global network.
4. Engage operators and select one (or more) to service your brand
Speak to a number of operators; develop a deep understanding their existing operations and ways of working. Inquire about their health and safety standards. Assess online reviews of brands they currently operate, and their existing marketing activities. Learn more about their processes for ensuring quality and consistency, and gain a better understanding of their supply chain.
Once you’ve narrowed down your options to your selected franchisee(s), execute a franchise agreement, and begin training.
5. Find the best management platform for you
In the past, monitoring the performance of franchisees was always a manual process, heavily dependent on the integrity of reports submitted by franchisees, and spot checks conducted by franchisors.
Cloud kitchen management platforms like grubtech on the other hand, not only help you scale your brand effectively, but also empower you to monitor the performance of franchisees through access to sales and operations data in real time. Such unparalleled transparency enables you to calculate your share of the profits, identify issues or trends early on and make necessary adjustments accordingly.
Benefits of virtual franchising
With virtual franchising, franchisors can enjoy several benefits like:
- Accessing new (passive) revenue streams
- Expanding geographical presence seamlessly
- Cost effectively testing the appetite of new markets
- Growing brand visibility at a low cost
- Reduced burden to manage various outlets and branches
The risks of virtual franchising
As great as virtual franchising is, there are some risk involved. Here are some for you to consider:
- It is hard to maintain the quality and consistency of your products in all your locations
- You are bound to the franchisee’s management style and ability to motivate their employees
- Your brand is liable for any mistakes made by the cloud kitchen operators
- Your brand’s success in each location is heavily dependent on the marketing and sales efforts you put in at that location.
Schedule a Demo with grubtech today to learn more on how you can grow your virtual brand.