When it comes to franchising in today’s economy with its new-normal lending constraints, restaurant chains are opting for larger, more experienced partners while eschewing mom-and-pop bids.
Even McDonald’s Corp., which several decades ago regularly took chances on the new single-location entrepreneurs, is now only interviewing people with $500,000 in their own cash and other assets.
DineEquity Inc., which has been refranchising its Applebee’s chain for the past few years, recently sold another 66 company-owned locations to its largest franchisee, Apple American Group, in part because the franchisee group agreed to accelerate the remodeling plan of those New England locations to be completed by the end of 2012. Apple American Group received a “strategic growth investment” from Goldman Sachs Capital Partners for the deal.
With banks tight on lending in this economy, smaller franchisees not only struggle to secure the opening costs, but are also more likely to have trouble keeping up with remodeling and technology innovation. Professional franchising companies that operate multiple restaurant brands already are less likely to leave a black mark on the brand by failing.