E Why Is Restaurant CapEx Spending Assistance To Franchisees On The Upswing?

There are several actions required of both franchisors and franchisees to make these business issues work for all.

First, the franchisor must take the lead to timely source and test lower cost remodels and new store footprints. They are the brand steward and are responsible contractually to define brand standards. Many franchisors are slow to prioritize this, often prioritizing central national marketing expense, share buybacks and debt service requirements. The size, look and location of the remodeled restaurant is critical. A capital investment such as building and locating a new store is costly. If the wrong site is picked, it is almost impossible to reverse the effect of that missed opportunity" 

Additionally, better scorekeeping is necessary. Much greater visibility to fully loaded (i.e., with capital spending and debt costs fully allocated) franchise store economics is required. Some franchisees don’t report their capital spending and capital spending data; some franchisors are afraid to know and pretend they don’t have that data. Tracking EBITDAR or EBITDA is of only so much use if the CAPEX and debt service costs can’t be seen. 

Finally, franchisees need to ask and document their needs and wants in an organized way. Through either franchisee associations or via brand advisory councils, organized requests and backup needs to be presented. There is strength in numbers—some franchisors prefer to deal with individual franchisees head to head to avoid group pressure.

[1]Some franchise brands have implemented a small fee on loyalty and digital transactions sales to fund this outlay. Dominos and Subway are examples.

[2]Investor’s Business Daily, Q4 MCD Earnings call discussion, January 30 2018

[3]Nation’s Restaurant News, May 3 2017. In 2015, YUM noted it invested $180M for KFC requirements.

[4]https://investors.grubhub.com, February 8 2018.

[5]Restaurant Business Online, July 28 2018

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Disclosure: The author has no positions in any stocks mentioned.

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