Growing up, I was fortunate enough to visit other countries. One of the things my family and I loved to do was trying out different fast-food restaurants, especially the ones we saw on television and in the movies. This was in the 1970s; the Philippines only had Shakey’s Pizza, which I thought at the time was a local franchise.
I remember staying in London, and the tour guide recommended Fish and Chips for lunch. I told my mother that we should eat at Wimpy’s Hamburgers instead. When we experience great food, the taste usually lingers for as long as the memory itself remains. I cannot remember if I enjoyed the burger, but I definitely treasured the experience.
The first time I had KFC, which was then sold as Kentucky Fried Chicken, was at the house of my Uncle Johnny in Detroit, Michigan. At the time, I felt KFC was the greatest thing on earth. The taste was unbelievable! The chicken drumsticks were thicker than my nine-year-old forearm. And the gravy was manna from heaven. I remember asking my Uncle if I could bring home the bucket as a souvenir.
When McDonald’s finally landed in the Philippines in the 1980s, it was such a huge spectacle. My father came home from work earlier than usual and drove us to McDonald’s restaurant in Greenhills. The place was packed and it took awhile for my father to find a table for seven. I was not particularly fond of the hamburger. Tropical Hut was my favorite at the time, and the French fries, especially the sundaes made a lasting impression. A few months later, McDonald’s opened a store in Makati, which was close to home.
The arrival of McDonald’s started a rivalry with our own hamburger flag carrier, Jollibee. As high school students in the 1980s, my classmates and I would routinely make the trek to the Jollibee outlet at Virra Mall. We enjoyed Jollibee hamburger. It was juicy with a peppery aftertaste that is strongly accented with unmistakable flavor of onions. It captured the taste of the Filipinos; a lesson I would learn later in life.
By the time I started working in 1991, I had my sights firmly set on eventually owning a fast-food franchise from the United States. My father had commissioned project studies done on various US fast-food franchises in 1994, while I was attending several seminars conducted by the Philippine Franchise Association or PFA. We had communicated with several franchises including Subway, Krispy Kreme, and Ben and Jerry’s Ice Cream from the US and Second Cup Coffee from Canada.
In 1996, we finally decided on a slightly known hamburger and chicken franchise from Jacksonville, Florida, which found its way among top 50 US fast-food franchises in that year. Flamers Burgers and Chicken served American-sized hamburgers that were freshly grilled over volcanic rocks. I had not tasted Flamers Burger before; it was recommended by a friend of mine who frequented an outlet at White Plains, New York.
In 1997, I flew to Jacksonville, Florida, and met the principals behind Flamers Burgers. They took me to a Flamers outlet for lunch and asked me to pick from their menu. Flamers had five specialty burgers, but I opted for the plain hamburger. I wanted to know how the patty tasted. I felt that a restaurant that uses flavorings on its patty must be hiding the quality of the product.
On first bite, I remember thinking if it was a burger or a steak sandwich. Beef is flavorful because it is marbled meat, which means fat resides within the tissue and as any chef would tell you, “fat is flavor.” But Flamers is made from lean, grass-fed beef. The fat drippings would fall on the volcanic rocks and flavor the patty with its own smoke. And the burger was so juicy because it was grilled-to-order. Nothing at Flamers was premade.
Size, taste, and the grilled-to-order concept equated to a unique value offering in the growing Philippine fast-food industry. Flamers was a no-brainer. We had to get this in the Philippines.
In 1998, we opened our first Flamers Burgers and Chicken franchise at the 3rd floor of the Festival Supermall. Ten years later, that outlet closed down as well as the three other outlets we had put up. Along the way, we lost money, and assets were sold to keep the business running. Our family never recovered those losses.
My point in sharing this story is not to discourage you from owning a fast-food franchise. Rather, this story is shared so you can learn from my mistakes. My experience is just one among the minorities that did not succeed in the fast-food business. There are those that continue to thrive to this day. Economic indicators reveal that conditions are ideal to sustain fast-food businesses.
According to 2013 statistics from Euromonitor International, fast food continued to outperform all other categories in the Philippines’ consumer food service industry. This trend is expected to continue with the growth of the Philippine economy and the rise of the Philippines’ Business Processing Outsourcing or BPO sector, which generated gross receipts of US$14 Billion in 2014. BPO operations oftentimes cover a 24/7 schedule, which have increased demand for delivery service and 24-hour fast-food outlets.
Hence, owning a fast-food business may not be a bad idea. But from my experience, here are a few things that you should consider before you decide to own a franchise.
10 Questions You Need to Answer before Owning a Food Franchise in the Philippines
1. “Why do I want a fast-food franchise?”
Just because you love to eat doesn’t mean you should get a food franchise. Running a food business requires superhuman dedication. As the owner, you must be involved in all facets of the business, including having to deal with rude, abrasive customers. You have to work during Sundays and holidays especially Christmas and New Year’s Day. You may have to compromise special days with your loved ones. Are you up for that?
2. “What franchise should I get?”
When you do research, don’t just focus on the top 10 franchises because chances are they are already here. Read the history of your prospective franchise. Study its concept and assess if the franchise will be accepted here. One of the best concepts I’ve read is from Chick-Fil-A. Their main product is chicken, which is among the top selling fast-food items in the Philippines. Chick-Fil-A supplanted KFC as the top chicken brand in the US. It is run by devout Christians who are aligned with the religious convictions of Filipinos. However, being run by devout Christians also presents a problem because Chick-Fil-A does not allow their stores to operate on Sundays, which is the highest grossing day for sales in the food business.
3. “How do I get in touch with the franchise?”
You can visit their website and send them an inquiry through the “Contact Us” subpage. I will go the extra route and send them a professionally written letter of intent through regular mail. You should also check if the franchise has a regional manager in Asia, such as Carl’s Jr. and Subway. In my experience, 100% of the franchises I contacted responded. If the response is promising, always invite them to a Skype call or another online meeting platform.
4. “What should I ask from the franchise?”
The standard questions include the following:
- How much is the franchise fee?
- How much are the royalties?
- Do you contribute to local marketing programs?
- Do you provide the proprietary formulas or can we source locally?
- How long is the training program?
- Where will the training be conducted?
- Who comes up with the restaurant design?
- Can we develop our own recipes?
Generally, the initial call intends to determine if both parties will be a good fit. Do not hesitate to clear your mind of any concern. One of the questions I ask to the franchise representative is if the company has been involved in any form of criminal liability. They cannot hide these issues because once you’ve been approved, they will give you a franchise program that has been approved by the US Federal Trade Commission or US FTC. This requires all franchises to divulge all pending cases.
5. “How will I know if the franchise will be viable in the Philippines?”
Conduct a project study, which should include the following:
- Market study — to determine demand; includes surveys, foot traffic count, research on trends
- Marketing study — to determine marketing strategies
- Feasibility study — to determine viability; includes projected income statement and projected cash flow
Identifying your target market is highly important to determine your positioning strategies. The target market guides your pricing. If your product is a premium hamburger, that is, lean and imported meat, you should not position this product in fast food because its cost alone requires pricing double or triple that of the typical fast food burger. Moreover, your target market determines your menu mix. Always maintain a core menu, which includes a main signature item followed by complimentary dishes.
Word of caution: Please keep in mind that these are all projections and are used as reference points in making the decision. Some franchise owners get caught up in the viability of the franchise because of the projected returns. The food business industry has so many variables to consider, such as taste and preferences. What you see is not always what you get!
6. “Where should I locate my first franchise?”
People will always tell you to open at this mall or that mall. I say, “Malls are overrated.” Some malls compute the cost of rent for fast food at 35% of their projected sales per month. Think about that for a minute. It’s their projection, not yours. Second, at 35% you only have 15% left to allocate for labor, utilities, and most of all, the dreaded FOOD COST. Labor and utilities cover 20% and 10%, respectively, and on average, food cost accounts for 50% of your gross revenues!
Do the math: 50 + 35 + 20 + 10= 115%. Where did your net income go? Not only you have zero income, but also you end up with 15% delayed obligations. Moreover, don’t be misled with the volume of people in a mall. The studies we conducted showed that a popular mall in Mandaluyong only has a sale per square meter average of Php75. Remember, people have different reasons for going to a mall, and not all of them will purchase. While location is important, you need to find a place that offers flexible rent options.
7. “How do I set up my franchise?”
Once you have your location all signed up, get all the necessary business permits and licenses. Then set up your back office: accounting, human resources (HR), purchasing, and information technology. Accounting will create the flow of reporting, HR will amass the candidates and will focus on building the website and social media accounts. Once you have your back office set up, qualify the architect and contractor for the restaurants. Ask purchasing to qualify prospective suppliers and vendors for food materials, equipment, packaging, utensils, dining ware, and kitchen tools, among others. As the business owner, you have to be involved in all areas.
8. “Whom should I get to work with in my restaurant?”
Again, people will tell you to “pirate” experienced managers from the established restaurants. Again I say, “Experience is overrated.” The first batch of managers I hired all came from the biggest franchises in the Philippines. We even paid for our first store manager’s training and accommodations at Boston, Massachusetts. But they all underperformed miserably. The problem with experienced managers is that they are set in their ways and are resistant to change. Hire people who are willing to unlearn what they already know and who can openly adapt to your concept. Then, build a core group of managers coming from within the ranks. Having a career and conducting succession planning within your organization will inspire your people to improve their work.
9. “What are the biggest problems in a restaurant business?”
If I were to identify three, these would be as follows:
- Food Cost — This is the largest cost component and the basis of your pricing. The food cost of fast-food restaurants averages 50% to keep prices affordable. Fast food has low profit margins and relies with volume to generate income. Casual and fine dining restaurants typically have food cost of 25% to 30%; that is, profit margins are high, but customer turnover is low.
- Workforce — The food business is labor intensive, and you should be prepared to handle people with diverse social and cultural nuances and varying degrees of competencies.
- Sustaining Sales — In general, the sales in the first few months exceed expectation then begins to taper off by the sixth month, especially if there is new competition.
10. “How do I improve sales?”
When you launch a food business, your focus should be only on one thing: Serve the greatest, best-tasting product my customers will ever taste. It is understandable if service is not good during the first few days because you are still in dry run mode. However, the product must be perfect. In food business, first impressions do last. Moreover, you can build your patronage through word-of-mouth marketing.
Then, work toward fine-tuning your service. Doing so takes time because you need to scrutinize your people and select the best, right-fit talent on which your business will be established. Once you can equate the quality of your product with your service, you should be on your way to a stable business.
From then on, you should conduct consistent marketing activities via traditional local marketing and digital marketing strategies.
Food business will continue to thrive in the years ahead because its demand corresponds with the continual strengthening of the Philippine economy. Despite my unsuccessful tenure into fast food, I still entertain proposals from interested parties as well as harbor my own ideas to throw my hat back in the arena.
But of course, under different conditions and with different results!