Is the cost of food and supplies less when you own a franchise because of their buying power, or the same, or even more because of kick-backs from suppliers?
The franchise I am looking at shows cost of goods to be from 34% – 38%.
This sounds a little high to me. Is this what the norm is in this industry?
It all depends on the menu and prices. If you’re evaluating a potential franchise purchase, the food cost percentage is the last thing you should be worried about. Percentages don’t equal profit.
You should be concentrating more on the average profit and investment, how large the investment is, how fast that profit will earn back your investment, and whether that profit makes the investment worth your time.
Franchises do normally have increased buying power. Whether that results in a lower food cost percentage depends on the pricing, not the purchasing.
There is no “norm” for the industry. Some operations make a profit with 45% food costs, some need to be under 20%. Achieving either one doesn’t mean either will even make a profit. The profit is made with the money that is left over AFTER you pay for the food. While operating efficiently, and not wasting product is important to profit, the importance of running a particular food cost percentage is grossly overstated in the restaurant business.
A franchise has very limited potential to purchase their own goods. This in return means buying their food supplies strictly from the franchise Company and accepting their terms !
If you try and buy food items from another distributor to lower your food cost, you break the agreement and could be fined or enter into a litigation situation with the Franchise Company.
The answer to the question is 35 to 45% and sometimes higher could be a normal food cost in a Franchised Unit……