Branch out into retail and wellness for a fast track to profit, advises FranSmart’s Dan Rowe – franchising’s premier trendspotter and predictor of the next big thing.
Over the last 30 years, I’ve taken 10 different concepts to more than 100 locations nationally and internationally. I’ve seen every curveball and every trend in the industry – and I know how to find a winner.
The last few decades have seen franchising mature into an excellent model for entrepreneurs who want to buy in to a proven system. According to the International Franchise Association’s 2023 Franchising Economic Outlook, franchising continues to grow despite a challenging economic climate. By the end of 2023, the IFA forecasts that there will be 805,000 individual franchised units in the United States, providing roughly 8.7 million jobs to Americans. The market and demand for quality franchise concepts is strong.
I built my reputation franchising major household names in restaurants like Five Guys, QDOBA Mexican Eats, and The Halal Guys. I love feeding people, which is why I’ve been in restaurant franchising for so long. But during the pandemic, when food concepts were shut down, I was introduced to two non-food franchises that we started working with at Fransmart – PayMore, a resell electronics franchise, and GLO30, a facial skincare studio. They’re both growing faster than any other brand I’ve ever worked on.
I’ll always be involved in restaurants – that’s where my heart is. However, it’s worth exploring why retail and wellness franchises pose such a strong opportunity for franchisees.
Let me ask you a question – how many Five Guys locations are there in the Dallas, TX area? A quick search on their website shows 13 locations. Do you know how many Great Clips locations are in Dallas and Fort Worth, TX? About 100.
Great Clips has nearly four times the locations in one of the highest target cities in the country because big markets can support more retail and personal care locations than they can support restaurants. The ability to scale a franchise in these spaces should absolutely be at the forefront of any potential franchisee’s planning for the future.
Franchisees are making the move to diversify with retail and personal care brands because they can grow their territories into massive footprints. The best restaurant franchisees are smart – they go where the growth is. You could love selling cheeseburgers, but if you’re losing money and can’t grow your territory, you’re going to lose that love of selling burgers fast. Franchisors need to keep in mind that scalable models attract the best franchisees. Ideally, you want each franchisee to grow to 10 or more units, so how do you create an environment that keeps them wanting to open more locations? Once a franchisee stops thinking about growing, they’re already shrinking.
Remember, the only reason to get into franchising is to increase your wealth and create an asset by growing a territory of locations as big and as fast as you can. Retail and personal care franchises are supported well by their communities and they’re super scalable.
Lower cost, higher sales
Think about the amount of equipment it takes to equip a quality kitchen. Ovens, cooktops, refrigeration, specialty equipment – the build-out costs get out of control fast. Maintenance over time is another cost killer. The labor can be intensive, and that requires larger staff and larger payrolls.
Retail franchises, like PayMore, have unbelievably simple buildouts. You’re only looking at the cost of some cabinetry, computers, and some signage and boom, you’re done. For experienced franchisees, these kinds of build-out plans are a breath of fresh air.
The lack of a need for kitchen space also means that retail and personal care franchises usually require less square footage to operate. GLO30 has three locations listed in the Item 19 of their 2023 FDD document – their flagship in Bethesda is 2,000 square feet, their location at the popular Wharf community in DC is 1,000 square feet, and their downtown Washington DC location is only 500 square feet. Smartly planned retail and personal care franchises allow franchisees to do a lot more with a lot less.
Retail and personal care franchises offer unique opportunities for business models that restaurants can’t compete with. GLO30 uses a subscription model – meaning their loyal community of customers pay once a month for their highly specialized, highly customized facial treatment. GLO30 is able to forecast exactly how much they’re going to bring in each month. Every appointment is set weeks in advance, which allows them to optimize labor to the exact needs of the location. No guessing on when rushes will happen, no overspending on labor and materials. They’ve got it down to a science, and it allows their margins to be huge.
For restaurant brands to compete moving forward, they’re going to have to be smarter about their footprints and buildouts. Take Schmackary’s for example, Broadway’s official cookie, and our latest dessert concept at Fransmart. Last year, they achieved just over $2 million in sales out of 600 square feet of space. That’s nearly three times the sales per square foot of a Five Guys location. That’s the kind of success it’s going to take to compete against other restaurant and food franchises in a competitive market.
It’d be one thing if the affordable buildouts and the unique models were all that retail franchises had on restaurants, but the truth is that the ROI is usually much faster. This should matter to franchisors more than just about anything else. Faster ROI means more money to invest in growth, and growth is the name of the game.
The EBITDA numbers for GLO30 and PayMore dwarf most restaurant brands out there. Check the FDD documents for both brands – you’ll be shocked at how much revenue they create out of such small footprints.
Let’s use GLO30 as an example. According to their 2023 FDD, their EBITDA after royalties and marketing at their Bethesda location was $807,254.63. The FDD also lists their start-up costs in the range of $291,500 – $649,000. Using the high end of the start-up costs range, that $807,254.63 in EBITDA is a 124 per cent return on investment in JUST ONE YEAR. That’s practically unheard of in the franchising industry.
It can’t be stated enough how important it is to franchise a brand that offers this kind of ROI opportunity. A quick return on ROI allows you to blitzscale, a growth strategy where a franchisee takes the profits from one location and invests that into the opening of their next location. The following year, you repeat the process and go from two to four locations. The year after that, from four to eight. Blitzscaling is all about maximizing the value of your compounding returns. High ROI retail and personal care franchises offer better opportunities to implement this strategy that smart franchisees have been using to grow huge territories fast.
In a post-pandemic world, finding qualified labor for franchise locations is going to prove increasingly challenging, especially as the number of franchising locations in the United States continues to grow. The key to the next generation of franchises is going to be developing concepts that not only require less labor, but employ business models that allow you to take excellent care of your employees so they won’t want to work anywhere else.
Think about the restaurant model – the labor requirement is crazy. In the average QSR, you need front of house staff, food runners, kitchen staff, management… the list goes on. The average PayMore doesn’t need more than six total employees to run effectively. I’m not talking about six per shift, either – I mean six in total, as an average shift may only require two employees in the store. Obviously, this keeps labor costs low, but more importantly, franchisees don’t have to search nearly as hard to find reliable members of their team. The brand is also only open for limited hours on Saturday and closed on Sunday, which provides employees with a massive work-life balance benefit that’s practically impossible to find in restaurants.
GLO30’s model emphasizes taking care of their staff – it’s a crucial part of their business. Since their subscription model allows them to calibrate their labor perfectly, they have zero overstaffing problems. This allows them to provide benefits and pay into their employees’ 401k accounts. Why would any quality help want to work anywhere else? Models like these will continue to attract the most talented workers in the labor pool, which will keep these franchises thriving for the long haul.
Quicker to open
For franchisees with experience in launching restaurants, opening a retail location is a walk in the park. Imagine the amount of money and work that goes into most restaurants. The equipment is expensive. Running gas lines, extra electrical wiring, and plumbing is a logistical nightmare. Permitting takes forever. With retail and personal care franchises, you’re open in weeks, not months.
Restaurants can be competitive too, but you must be creative about the food you’re offering and how it’s prepared. Take our brand JARS by Fabio Viviani for example. They make beautiful, delicious single serve desserts that require no hoods, no vents, and no grease traps in their prep areas. Their overheads and build-out times are comparable to a retail location, but with the multiple revenue streams restaurant operators enjoy from food concepts. Taffer’s Tavern, the full-service restaurant concept from Bar Rescue star Jon Taffer, utilizes a partnership with Cuisine Solutions to prepare all their food sous vide, eliminating the need for gas and expensive equipment in their kitchens. These are the special concepts that restaurant franchisors will have to create over the coming years to compete with the build-out costs of retail franchises.
Why retail and personal care franchises are attracting serious investors
- 1. Grow a big territory – communities offer more support to retail and personal care brands, giving franchisees a better chance of growing a big territory.
- 2. Big revenue at an affordable cost – restaurant franchises can’t offer the kind of affordable buildouts and creative business planning that retail and personal care franchises do.
- 3. Get your money back FAST – the only goal in franchising is to grow your wealth, and that means capitalizing on brands with quick ROI. Retail and personal care franchises have models that allow franchisees to put compounded returns towards accelerated growth.
- 4. A cleaner labor model – quality talent gravitates to the businesses that value them. The grueling environment and razor-sharp margins in restaurants make it difficult to do that, while retail and personal care brands offer perks that can’t be matched in restaurants.
- 5. Faster revenue thanks to faster openings – getting locations open as soon as possible allows you to capitalize on buzz and get franchisees to make money fast. The lesser overhead in build-outs make this commonplace in retail and personal care franchises.