IMPORTANT CONSIDERATIONS for RESTAURANT FRANCHISES

Beginning a new franchise can be extremely challenging, making the professional advice of a franchise lawyer invaluable.

Contact Neufeld Legal PC for franchising legal matters at 403-400-4092 / 905-616-8864 or Chris@NeufeldLegal.com

In contrast to many other franchised businesses, a restaurant franchise can prove to be a particularly challenging and demanding business enterprise that demands considerable training and effort to realize the brand consistency that is being sought from the franchisor, together with a heavy reliance upon employees who must be appropriately trained to facilitate a broad array of functions in furtherance of the restaurant franchise.

The distinctive operational and product focus of restaurant franchises are the most perceptible areas, which make restaurant franchises particularly more demanding than most other franchised businesses, including:

• Inventory: Perishable goods (food, ingredients) requiring extremely high turnover, refrigeration, and strict food safety standards.

• Operational Complexity: Highly complex, involving food preparation, cooking, immediate service, and multiple service models (dine-in, takeout, delivery, drive-thru).

• Consistency: Brand consistency is paramount and intensely difficult to maintain, as it involves replicating exact recipes, food quality, and service standards across all units.

• Regulations: Subject to strict and frequent health department inspections and local food safety/licensing laws, in addition to standard business regulations.

• Labour & Employment: High demand for labour in food preparation and service roles, often dealing with high employee turnover and a need for specific food-handling training.

Restaurant franchises face unique financial pressures related to their input and operational model:

A. High and Volatile Costs

• Food Costs (Cost of Goods Sold): Ingredient costs are one of the largest and most volatile expenses. Managing relationships with approved suppliers for consistency and leveraging bulk purchasing power for lower costs is critical.

• Real Estate/Build-out: The initial investment is often significantly higher than many other franchises due to the need for commercial kitchen equipment, specialized ventilation, and strict health-code-compliant build-outs.

B. Tight Profit Margins

• Restaurant profit margins are notoriously lower (often 5-10%) compared to many retail businesses. This makes efficient inventory management, minimizing food waste, and controlling labor costs absolutely critical to profitability.

C. Immediate and Widespread Reputation Risk

• A single lapse in a restaurant's food safety or quality can lead to immediate illness (e.g., foodborne outbreaks). Because all units share a brand, a problem at one location can instantly and severely damage the reputation of the entire franchise system, impacting sales system-wide.

D. Adaptation to Food Trends

• The food service industry is constantly influenced by changing consumer preferences, dietary trends (e.g., plant-based, gluten-free), and the rise of new dining technologies (e.g., third-party delivery apps, online ordering). Restaurant franchises must have systems for menu innovation and adaptation while adhering to franchise consistency standards.

Christopher Neufeld is a business lawyer knowledgeable in the rigors and challenges of the franchise business, together with the legal constructs that are critical to their effective operation. For experienced legal representation in starting, acquiring / selling, operating and managing a franchise, contact franchisee lawyer Christopher Neufeld at 403-400-4092 [Alberta], 905-616-8864 [Ontario] or Chris@NeufeldLegal.com.