Advantages To Buying A Big-Name Franchise

Entrepreneur:

1. Capital. This is simultaneously the greatest asset and the greatest obstacle to starting a business in this economy.

“If the brand is established and you can show net profits, the banks will lend money, even in this environment,” Grewal says. “Even now, people are getting funds and buying and opening new stores.”

2. Purchasing Power. Forget stocking up at Costco. Subway purchases food, forks, knives, etc., for its more than 29,000 stores.

“That quantity gives you the advantage over someone who owns, say, five stores,” Grewal says. “And those savings are passed on to franchisees.”

That’s particularly crucial in a food-related business, as food inflation puts more restaurants on the edge.

“We have purchasing co-ops run by franchisees, with locked contracts,” Grewal says. “Prices have gone up, but not as much as they have with other [restaurants].”

3. Competition. “In downturns, the brands with the strongest financial positions and reputations are more in demand,” Grewal says, pointing out that even being the No. 2 brand in a category may not be enough to survive in a tough economy.

4. Marketing. Subway dominated this year with its well-timed “$5 footlong” promotion. Grewal says it was an idea some entrepreneurial-minded franchisees started in their local market–the corporate advertising board got wind of it and took it system wide, and now “the numbers are mind-boggling.”

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