I have been around the fast-food industry longer than I care to admit. Years ago, I was talking to another lawyer who said, “You sure know a lot about the fast food industry. Why don’t you get into it yourself?” And I do know a lot about it — not just the law but how the business works. As John Hamburger at Restaurant Finance Monitor says, investing in or financing a restaurant business is for thrill seekers.
As a franchisee, you take a big leap of faith when you attach yourself to a brand. I have seen franchisees borrow as much as they can based on a brand’s cash valuation at the time. The more risk they take, the more opportunity they have. And they make it work at the top end of the brand’s value. But then the brand plummets for some reason beyond their control. Can they still make it work?
Whether I am this risk-averse because I’m a lawyer or a lawyer because I am this risk-averse, it is hard to imagine placing that much trust in a franchisor. For me, it comes down to how you want to live your life.
In the early 2000s, I was handling a workout for a huge Burger King franchisee with 98 stores. (That wouldn’t be considered huge anymore, but it was a big franchisee at the time.) We sat in a conference room with the president when he asked me a question: “Have you ever eaten at our restaurants?” An expletive crossed my mind as I considered what to say. Then I decided, I’ll just say it.
“I used to go to eat at your restaurants all the time,” I said. “But about a year ago, I ordered a Whopper and got handed a sandwich that was so disgusting that I threw it away and went somewhere else. The bun was all shriveled and soaked. It looked so unappetizing. I went back a month later and got the same thing. I’ve never been back since.”
Instead of being offended, he said, “God! I can’t tell you how many times I have heard that story!” Then, he gave me the backstory: The brand was trying to cut costs by switching to cheaper, lower-quality buns that didn’t taste as good. Franchisees could do nothing about it.
Then, somebody at corporate also decided they had to remake Burger King’s image. From headquarters came the order: “You must all put new blue roofs on your stores.” So, everybody had to spend $150,000– $200,000, money they absolutely did not have, to put a blue roof on their stores. It was one of those dumb corporate moves. Between the low-quality supplies and the ridiculous capital expenditure requirements, corporate drove a lot of franchisees down.
I knew the owner of those 98 stores. His name was Mike, and he was a savvy, talented guy—a former regional gasoline delivery sales manager. He made his initial cash in a bet with several customers who ran convenience stores that he could increase their gasoline sales if they gave him control. After multiple rounds of beer, Mike’s customers called his bluff, saying, “Show us how it’s done.” Mike’s game-changing move was to slash the price of cigarettes to the lowest in the state. Smokers flocked to his stores and gassed up their vehicles before they left. Mike’s gasoline sales surpassed even his own targets.
Never one to shy away from risk, Mike took that money, became a Burger King franchisee, and took on debt to grow. But even Mike couldn’t manage his way out of bad decisions at corporate.
However, for those of you who, like Mike, are far braver than I am, the fast-food industry can still be a rewarding venture. Success often comes down to choosing the right brand, understanding the risks, and adapting when corporate decisions don’t align with what works on the ground.
My advice? Do your research before you choose your brand, stay informed, negotiate wisely, and build strong relationships with your teams and communities. Investing in a brand means trusting the system, but the most successful owners don’t rely on blind faith — they take control where they can, innovate within the framework, and always keep an eye on the numbers.
And me? I’ll stick to the law.
