Benefits of Emerging Franchises vs. Established Franchises
By: Jack Findaro
With our years of combined experience working in and with the franchise industry, Visa Franchise acts as the trusted advisor to many clients looking to invest in the best E-2 visa business or EB-5 visa business. Many clients want to know all about established or legacy franchises as well as the emerging franchise concepts. This article examines and compares emerging franchises and established franchises, in addition to, a range of benefits that emerging franchises tend to have over the legacy brands.
Factors to Consider Before Investing in a Franchise
At Visa Franchise we are routinely engaged by clients looking for analysis and advice on which franchise investment is best suited for them, especially those clients looking to move to the U.S. by investing in an E-2 visa business or EB-5 visa business that enables them and their family to attain visas to live and work in the U.S. Our philosophy at Visa Franchise is that every client is unique, which is why we do a client-specific search and analysis that is unique to the individual client and their family. Just because a franchise business might be well-suited to one client and their family does not necessarily mean that it is the best investment option for another client and their family. The reasons behind this are many, but some of the major factors that help drive the search and analysis include: chosen industry, investment level, level of involvement in the business, location of the business, professional experience, English proficiency, among various other factors. Visa Franchise takes into consideration these factors and others before presenting our clients with the franchise businesses that we believe best match their profile and give them the best chance for success.
Interest in Established Franchises
As the trusted advisor to foreign nationals looking to move to the U.S. through franchise investments, our clients generally start the initial conversation with questions regarding well-established brands, specifically in the food industry like McDonalds, Burger King, Subway, etc. We also are asked about non-franchises like Starbucks (note: Starbucks does not franchise in the U.S.). The principle reason behind their interest in established franchises stems from the belief that they are less risky investments. Many people naturally assume that the longer a franchise has been around, the less chance there is of the business failing, however, this is not necessarily the case. We plan to provide some specific examples of well-known and established franchises that eventually failed due to a changing market. While Visa Franchise does recommend some specific well-established franchises depending on the profile of the client, emerging franchises tend to be better matches for our clients for a variety of reasons.
Eligible as an E-2 Visa Business or EB-5 Visa Business
Knowing whether a franchise is open to accepting foreign nationals looking to invest in the business and become franchisees is the single most important factor for individuals who are looking to move to the U.S. through an E-2 or EB-5 investor visa. Visa Franchise has analyzed hundreds of franchises over the years, and we have found that roughly 30% of franchises do not accept foreign nationals / non-green card holders who are looking to move to the U.S. through a business investment. Many of the franchises that do not accept foreign nationals / non-green card holders are some of the more established and well-known franchises such as Dunkin Donuts, Subway and Jimmy John’s. Individuals that are looking to invest in a franchise that qualifies as an E-2 visa business or EB-5 visa business tend to spend a lot of time and money looking at franchises that are not available investment options for them as foreign nationals. One of the most valuable and time-saving services that Visa Franchise performs is to present clients with franchise opportunities that are open and available to foreign nationals looking to attain an investor visa and become a franchisee through investing in a business. At Visa Franchise we have found that many lesser well-known but great emerging franchise concepts are more than happy to work with foreign nationals looking to invest in their concept and become franchisees.
Changing Economic Market
A big reason why emerging franchises and brands are created is due to market demand. At Visa Franchise we frequently consult with our clients about how the U.S. economy is one of the most dynamic, innovative, fast-paced, and competitive in the world. Depending on the industry, consumer tastes change and new business models are established. Companies and individuals that perceive these changes either adapt their business model to the new market or create a new business to match the market’s need. I have seen firsthand from my experience working at one of the world’s largest franchises, Burger King (now part of Restaurant Brands International), just how hard it is to adapt a large franchise system to a changing market. All of this impacts the perceived risk level of a franchise investment. A good question to consider is the following, is a franchise that was established 50 years ago with over 1000 units necessarily less risky than a franchise operating in industry that was established 2 years ago with 10 units? As presented in the article by Entrepreneur Magazine, Why These 3 Once Thriving Franchises Have Fallen on Hard Times, many legacy brands have failed or have many stores closing. Some examples include:
- Sbarro, pizzeria, has been opened for 60+ years but filed for Chapter 11 bankruptcy protection in March, 2014. This marked the second bankruptcy filing in less than 3 years for Sbarro. It announced plans to close 192 of its almost 800 units.
- RadioShack, the U.S. electronics store had 4,000 company-owned and franchise units in 2014 and now has less than 1,800. It has failed to keep its relevance as technology changes and firms like Amazon.com continue to be more popular.
- Quizno’s, the U.S. based Sandwich shop, had roughly 5,000 U.S. stores. Today that number is down to less than 1000! This can partly be attributed to Quizno’s supply-chain markup structure. Most restaurant franchises negotiate with vendors on behalf of their franchisees, who in turn buy products like meat and bread directly from the third parties. Quizno’s, however, buys products from vendors, then sells the food to franchisees at a markup! Visa Franchise views this practice as a BIG RED FLAG when researching potential franchises.
Some people might believe the franchise that has been established for a longer time is less risky, though one can easily make the argument that in the current market the new franchise is better suited for success. While it might be difficult for someone unfamiliar with the specific industry or market to figure out which emerging franchises are less risky than established franchises, at Visa Franchise this is a key and integral part of the service that we perform for our clients. Our goal at the end of the day is to find the best franchise that is the most well-suited for our client’s individual profile.
More Support from Emerging Franchisor
The strong support that a franchisor offers their franchisees is a major factor in mitigating the risk of business failure for new franchisees. This is especially important for foreign nationals who often times are unfamiliar with the U.S. market landscape and are moving to the U.S. by investing in a franchise business that qualifies for their E-2 visa or EB-5 visa. This support includes but is not limited to: training, location selection, development, hiring, vendor relationships, marketing, and operational support. As one can see, the franchisor is available to help in practically every facet of the business. While established franchises might have a lot of resources, they also must attend to the needs of many franchisees that might be located all over the U.S. Through my years of experience at Burger King I saw the measurable and meaningful results a franchisor can achieve from focusing on the operations of a franchisee with over 100 restaurants as opposed to a franchisee with only a single restaurant. When an emerging franchise has many less franchisees to attend to, their senior executive team can devote more time, energy, and individual attention to each franchisee and thus help to increase the chances for a successful business.
The location and territory where a franchise business can be located is another very important factor that must be considered when analyzing which franchise is best for an individual looking to become a franchisee. In franchising, franchisors typically grant exclusive territories or areas to franchisees. They do this to ensure that the franchisees are not competing against one another. An advantage that emerging franchises have over long-established franchises (like Subway) is that emerging franchises have much more territory available for their franchisees to open their business and develop. Most established franchises with hundreds franchisees have very little territory in popular locations, such as Florida, California, and Texas. This greatly limits the location options a new franchisee has if they decide to go with an established franchisor, therefore, this is one of the more significant advantages that emerging franchises have over established franchises.
Multiple Unit Development Requirements
In general, the more units that a franchise has, the more likely they are to prefer to work with fewer franchisees that have many units each instead of many franchisees that have few units each. From my experience at Burger King and from what I have seen in the franchise market, many franchisors actively seek out franchisees who can develop entire cities, states, or even countries. Franchisors prefer this because it saves them time and resources by just having to focus on fewer franchisees. For this reason, many of the well-known established franchisors, especially in the food industry, stipulate that their franchisees develop a minimum number of units within the first years of becoming a franchisee in the system. This makes joining those types of established franchises prohibitively expensive for many individuals who are just looking to own and operate one unit before deciding whether they would like to develop additional units. Emerging franchises, on the other hand, typically never have multiple unit development requirements unless the franchisee seeks to develop a whole area or city. This is a great benefit to the franchisees so that they can develop, operate, and expand at their own pace if they choose to for a much lower investment level.
More Independence and Freedom
When one makes an investment in a franchise and becomes a franchisee, he is essentially purchasing the right to use that established brand and business model to make a profit. This is a positive factor for the investor, or franchisee in this case, as it allows him to own and operate a business model and brand that have already been proven in the market. When selling a franchise to a franchisee, franchisors have a number of requirements related to the operations of the franchisee, the look and feel of the store, what products and services may be offered, as well as additional aspects of the franchise location. While this benefits the overall franchise by protecting the brand and establishing a standard experience for the customer, it might inhibit franchisees that have a more entrepreneurial mindset and would like to offer additional products or services. Again, emerging franchises more so than established franchises tend to be more open to allowing their franchisees to experiment a little in terms of offering other products and services that they believe will improve their business. This is especially important for individuals who choose to franchise that have a more entrepreneurial mindset but are not comfortable taking the big risk of starting their own independent company in an unfamiliar market.
Less Stringent Requirements for New Franchisees
Every franchise has its own requirements that new franchisees must meet before they are permitted to join the franchise and operate a unit of their own. Established franchises, most notably franchises that operate in the food industry or hotel industry, have stringent requirement on the types of franchisees they permit to join the franchise. The most common requirement that franchisors impose is related to the number of years of experience that the potential franchisee has working in that same industry. To provide an example, many well-known and established franchises that operate in the food industry or hotel industry require that their franchisees have at least 5 years of experience working in that industry. This greatly limits the number of potential options an investor has when looking at potential franchises they would like to invest in. Emerging franchises, on the other hand, tend to be much less stringent in terms of requirements related to industry experience. For individuals new to franchising in an industry where they have no prior experience, they have many more options when they are open to investing in an emerging franchise.
Visa Franchise Portfolio
Both emerging franchises and established franchises present many good options for investment opportunities. Visa Franchise actively searches for the best franchise opportunity for our clients, particularly those that are interested in investing in E-2 visa businesses and EB-5 visa businesses. Additionally, the Visa Franchise portfolio covers a wide range of industries and sectors in order to be able to provide our clients with options in the industry they choose. Some example industries include, food services, property management, health and wellness, and cleaning services, among many others. Regardless of whether a franchise is emerging or established, Visa Franchise always seeks the best investment opportunities for our clients.
Who is Visa Franchise?
Visa Franchise guides investors in identifying and analyzing the best investment opportunities tailored to their specific objectives. The focus of the firm is on franchises that qualify for the E-21 and EB-5 visas2. Visa Franchise is the trusted advisor of clients from all over the world when it comes to helping them find the business opportunity that best meets their investment and immigration goals. Visa Franchise takes into consideration their capability, experience, and size of investment to ensure that they choose the best possible option for their unique, individual situation. Visa Franchise is based in Miami, Florida with a second office in Orlando, Florida.
If you are interested in owning a franchise please reach out to firstname.lastname@example.org or call us at +1-305-454-7744
About the Author:
Jack Findaro is the Product Development Director at Visa Franchise. He and his team focus on the research, analysis, due diligence, and ongoing relationships for the different franchises and businesses in Visa Franchise’s portfolio. Before Visa Franchise, Jack worked at Miami-based global franchise company Restaurant Brands International, parent company of global iconic brands such as Burger King, Tim Hortons, and Popeyes. He worked within various departments, including Global Finance, Investor Relations, and Global Development. His experience at Restaurant Brands International has enabled Visa Franchise to provide deep insights to their foreign national clients, many of whom are interested in investing in a franchise in order to obtain their investor visa for themselves and their family.
Note: Visa Franchise does not make any financial performance representations other than provided by franchisors
(1) E-2 Treaty Investor Visa allows a national of a “treaty country” – a country with which the U.S. maintains a treaty of commerce and navigation – to reside in the U.S. when investing a substantial amount of capital in a U.S. business (generally >$150,000)
(2) EB-5 visa requires at least a $500,000 investment in a U.S. business that creates at least ten (10) jobs for U.S. citizens or green card holders in the first two (2) years. Investors may either start their own businesses as active investors or invest in designated Regional Centers as passive investors