Franchising Can Be Right or Risky for Restaurant Concepts, Attorney Writes

Certain restaurateurs should think carefully about the potential pitfalls of this popular expansion model, writes LeClairRyan franchise attorney Tom Pitegoff, in the new issue of Food & Drink.

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Be honest and look within. If you get the feeling your concept is a late-to-the-party imitator, think twice about franchising—at least until you can truly carve out a viable niche in the market

New York, NY (PRWEB) March 24, 2014

Budding restaurateurs might assume franchising is always the best way to expand. But in the spring 2014 issue of Food & Drink magazine, LeClairRyan attorney Tom Pitegoff outlines circumstances in which this popular model can be a poor strategic choice.

“A fine restaurant is not easily cloned,” writes the veteran franchise attorney, who is based in the national law firm’s New York City office. “After all, a chef who enjoys developing creative dishes is not likely to be interested in mass production. If the restaurant’s format cannot be easily described in an operating manual and taught in a training program, why bother to franchise?”

In the column—“Expanding Smart: Is franchising right for your restaurant concept?”—Pitegoff draws on years of experience in advising restaurant clients of all types and sizes. As he notes in the column, the franchise model can offer restaurateurs plenty of upside, but it works better for some concepts than for others. “The key is to conduct a careful analysis that takes into account the potential risks and rewards for your specific business,” the attorney writes.

In addition to being both successful and replicable, the concept must clearly distinguish itself from the competition. “A strong brand identity is more than just a trademark: It includes the look and feel of the shop, the culture of the business and the distinct characteristics of the products or services offered,” Pitegoff writes. “Be honest and look within. If you get the feeling your concept is a late-to-the-party imitator, think twice about franchising—at least until you can truly carve out a viable niche in the market.”

Pitegoff also drills into the dynamics of growth and what might be thought of as the grey area between franchise and non-franchise concepts. Starbucks grew through an IPO, he notes, while Dunkin’ Donuts grew through franchising. “At first glance, they appear to be quite different,” the attorney writes. “On closer analysis, though, these distinctions break down.”

Indeed, Starbucks has entered into franchise-like arrangements with others to operate some of its stores. “These and other arrangements with third-party owners are done through exemptions to the franchise laws, requiring legal monitoring to ensure that none of the deals crosses the line and triggers legal requirements for registration or disclosure,” Pitegoff notes. “Dunkin’ Donuts thrives under the franchise model, while enjoying a burst of growth thanks to a private equity investment.”

The column also examines some of the challenges inherent to the franchise model, including the need to deal with non-compliant franchisees. “Franchise owners can take steps to maintain their direct connection to the brand’s loyal customers,” he writes. “To monitor the public’s pulse, for example, many franchisors maintain some company-owned locations even as they track the performance of their franchised locations by extensively surveying customers.” But balance is the key: Independent franchise owners have an incentive to succeed, which can help the overall brand be successful; franchisees also know their local markets and are quick to let the franchisor know precisely what works, Pitegoff writes.

The bottom line is that franchising has advantages and disadvantages. “Before pursuing this path, it is important to carefully consider your business model and personal preferences,” Pitegoff writes. “If, in the end, you choose to franchise, there are many successful people who went before you. Study their stories and learn from both their successes and their missteps.”

About LeClairRyan
As a trusted advisor, LeClairRyan provides business counsel and client representation in corporate law and litigation. In this role, the firm applies its knowledge, insight and skill to help clients achieve their business objectives while managing and minimizing their legal risks, difficulties and expenses. With offices in California, Connecticut, Massachusetts, Michigan, New Jersey, New York, Pennsylvania, Virginia and Washington, D.C., the firm has approximately 350 attorneys representing a wide variety of clients throughout the nation. For more information about LeClairRyan, visit http://www.leclairryan.com.

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Press Contacts: At Parness & Associates Public Relations, Marty Gitlin, (631) 765-8519, mgitlin(at)parnesspr(dot)com, or Bill Parness, (732) 290-0121, bparness(at)parnesspr(dot)com.


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