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Foodservice 101

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WebFoodservice brands make up 36% of Canada’s franchise universe and this number is growing. The reason is simple suggests Doug Fisher, President FHG International, a Toronto-based consultancy that specializes in foodservice and franchise brands. “People trust franchise operations to deliver on their promises and they know what to expect from the menu and the service,” he says. “This bodes well for businesses in the convenience and gas channel where consumers may have shied away from in-store menus in the past.”

According to Fisher, foodservice franchises and c-stores are a match made in heaven. Both QSR (Quick Service Restaurants) and c-stores are all about convenience and speed of service, with each offering unique skill sets that compliment operations. “Anything that requires cooking is difficult. Franchises offer expertise that take out the challenges.

Franchises also offer collateral benefits to a c-store brand just by association. When you team with a well-known foodservice brand there is a halo effect that speaks loudly to customers about quality, value, and service, especially with independent operators who seek to make a bigger market statement. There is greater value for an operator to have a small footprint Second Cup than just serving Second Cup coffee,” he says, noting that operators can expect to invest in the $100,000 to $250,000 range for a kiosk foodservice franchise. Indeed, this is money well spent with a small footprint Tim Horton’s example delivering between $750,000 to $1million in annual sales of just coffee and pastry items. Consider as well that 63.2% of Canada’s foodservice business occurs at a branded operation and the country’s $26.4 billion QSR sector is trending upward by 4.1% (NPD).

It’s reasoning such as this that had operator Jonathan Samson, look closely at brands with which to team at his new location in Trois Riviére, QC. The new site in the city’s Place le Marchand features a Beau Soir depanneur, a four pump Petro-Canada forecourt and a twin unit car wash as well as a 2,187 sq. ft. standalone A&W. A major marquee with 850 locations from Victoria to St. John’s, A&W is already present alongside 55 Petro-Canada’s across the country. And, the foodservice brand is building 30 new sites each year with 15% of locations in C&G. A&W Canada Director of Real Estate Gas & Convenience, Richard Williams, notes that in-store footprints range from 1,100 square feet up to 2,100 square feet. “It’s really a 1+1=3 type of scenario,” he says, pointing out that A&W customers come in for a burger while Petro-Canada customers drop in for gas. “Together there is more business for the c-store with foodservice and petroleum customers taking the opportunity to make purchases of items such as lottery tickets and tobacco from the retail store.”

Samson agrees. The proximity of the Place le Marchand convenience power site to a local industrial park means a lot of car and truck traffic. Drivers stop for gas, and may need a quick meal or snack or something to drink. “The nearby community of Pointe-du-Lac is expanding and commuters drive through our area to get to work,” says Samson. “There is also multiplex construction around us.”

Francois Beaudry Vice President Beaudry & Cadrin, the Quebec-based parent of Depanneurs Beau-Soir, a chain of 140 locations across the province, sees the teaming of foodservice as a complement to a total service package where people have more choices with the result being greater sales overall. “As projects are more expensive, it makes sense to offer more services to increase profitability,” he says.

According to Karen Weldman, Vice President New Business Development, Express Division at MTY, a Montreal-based master franchisor with more than 30 foodservice brands under its umbrella, you don’t have to be big to be profitable.

“C-stores need only 480 square feet and about $150,000 to invest to get into a full day part foodservice business that consists of a Country Style premium freshly ground coffee, baked goods, breakfast and smoothie program and fresh made MR.SUB sub sandwich offer,” she says.

“C-stores can create a point of difference by actually operating a professionally presented hot beverage and baked goods program rather than just offering a coffee program,” says Weldman. Here she points out that coffee often represents an emotional purchase for customers who seek out positive experiences amid stressful days. “Brands offer tag-on messages that add much to the entire retail experience,” she says, commenting that c-store customers have more trust in brands because they routinely deliver better service execution than you might find along a standard hot beverage counter. “Coffee is just a starting point, but it’s a place for stores to establish quality and good will. Customers that come in for a coffee often leave with other items like a lottery tickets. This makes a perfect collaboration with both the c-store and the foodservice brand working to create the maximum market exposure. Increased sales are the result.”

Leading by Example

Montreal-based Edward Khediguian, Senior Vice President Franchise, GE Capital reports an average spend on a QSR franchise runs between $500,000 to $1.2 million. Franchisees looking at a single unit operation should expect to have 30% to 40% cash before borrowing and they should:

  • Have an agreement in place before coming to the market for funds
  • Have control over the site
  • Have historical experience in the sector
  • Have a financial statement that is current and professionally prepared

What are the costs to get involved? Here are some examples from Canada’s leading brand players:

Yum! Brands: The world’s largest foodservice company in terms of system units KFC, Pizza Hut, Taco Bell

Pizza Hut Express

  • Initial Cost: $6,150 (USD)
  • Royalty Fees: 10%
  • Fees: Incremental Units (6% Royalties, 2% Advertising Fee)
  • Average Build Cost (excluding leasehold improvements): approximately $97,000.00

MTY Group: 40 brands including Mr. Sub, Country Style, Taco Time, TCBY, and Cultures

Country Style Express

  • Initial Cost: $30,000 to $180,000
  • Royalty Fees: 4.5%
  • Franchise Fee: $5,000 to $12,500

A&W

  • 850 locations in Canada
  • Turnkey costs in a leased site 1,500 sq. ft. – 1900 sq. ft.: $850,000 to $950,000
  • Franchise Fee: $55,000 (20-year term)
  • Royalty Fee: 2.5%
  • Marketing contributions: 2.5% to national ad fund and 1% for local advertising

Pizza Pizza

  • Initial Cost: 30% down payment
  • Royalty Fees: 6%
  • Advertising: 6%
  • Franchise Fees: $30,000
  • Average cost of development: $250,000 to $350,000

Little Caesars

  • Initial Cost: Averages $125,000 to $350,000 depending on type of concept
  • Royalty Fees: 6% royalty fees, 4% marketing
  • Franchise Fee: $20,000 first store (included in initial cost) $15,000 each additional store
  • Development costs for build: Included in initial cost