Lenny's Sub Shop
Grand Canyon University
Introduction: Deciding whether or not to go into business is a very complicated decision. Each year, thousands of entrepreneurs are faced with this difficult decision. Because of the risk and the amount of work involved in starting a new business, many new business owners choose franchising as an alternative to starting a new business.
Although the success rate for franchise-owned businesses is better than the success rate for many independent businesses, there is no formula to guarantee success. One of the biggest mistakes you can make is to be in a hurry to get into business. That's why it's important to look at all of the costs and requirements for going into business. If a person is concerned about the risk involved in a new, independent business venture, then franchising may be the best business option for them. In this paper I will look at a franchise opportunity and decide if this is a risk worth taking.
It has been said that the majority of restaurants go out of business in the first two years of their existence. Some people even believe that the figures are as high as ninety percent. The NBC reality TV show called The Restaurant has helped spread this myth by stating that nine out of ten restaurants do not survive. If one was to believe these myths it would cause many people to think twice about starting a restaurant. The truth is that the number is much closer to the normal business failure rate. The rate of failures in the restaurant business is more in the fifty to sixty percentile. (Miller, April 2007). Knowing that excessively high failure rate is a myth makes my decision to choose a restaurant as my franchise opportunity a much easier one.
The Franchise I choose is called Lenny's Sub Shop; this franchise is fairly young and is still affordable for the average business entrepreneur. Lenny's Sub Shop began in Memphis Tennessee in 1998 as a fresh sandwich shop and deli. They serve authentic Philly Cheesestakes as well as slicing all the of the deli meats and cheeses fresh to order. It is these things that help differ them from other places such as Subway and Quizno's.
In the last twelve years the franchise has spread to cover most of the southern states and has moved as far west as Colorado. By choosing this franchise I am investing in a newer concept that has a very strong foundation. I feel the risks are not that high because the franchise has already established itself in the market. Because the franchise is somewhat new and have not been established west of Colorado the entry costs are still somewhat low and affordable.
Although I feel it is affordable as franchises go, there are still substantial start up costs involved. As with all franchise endeavors the first cost to consider is the actual franchise fee. In some more established companies this can be six or seven figures. The franchise fee for Lenny's is $25,000. Considering the established name and support provided by the company I feel this is a very reasonable figure.
The franchise fee is just the first of many costs that are required in starting a new franchise. The most important decision you have is the actual site selection. The company will provide a new owner a selection of areas which are have not been claimed by other franchisees. The area I am looking to establish my location in is Colorado Springs. This is time of the project when most of the start up costs are needed. Once an actual site has been chosen, a lease will have to be negotiated. Once you have acquired the site construction can begin.
This is an area that the company will provide much needed support. The company will provide assistance in the actual designing of the restaurant as well as support in the actual construction phase of the project. The lease, construction and equipment purchase will run approximately $120,000. This can be taken care of by having enough liquid capital but most people use financing backed by collateral or their net worth. When construction is completed the actual product must be purchased from the company. These costs can run up around $25,000. This makes the minimum investment for this endeavor to be $170,000. (2010)
In order for a franchise to be successful you must have adequate support from the company. The support given by the Lenny's company is substantial. They will provide all of the training material needed for you to operate your restaurant. Once your business is open the company still supports you by advertising and a significant public relations department. The company is also able to purchase their products at a lower cost because of their volume and deals they have with their suppliers. (Lenny's Sub Shop, 2010)
After paying the company its required royalty and marketing fees, 6% of weekly gross sales for royalty and a 2% of weekly gross sales for marketing, the expectation is that I will have an estimated 25% profit margin.
Conclusion: Although there is a lot of expected costs and profits in this paper I feel that if I had the proper funding and could find a suitable location, I would risk the endeavor.
(2010). . . Retrieved 19 Nov. 2010, from www.franchiseopportunities.com
Lenny's Sub Shop (2010). . Retrieved 19 Nov. 2010, from www.lennys.com
Miller, K. (April 2007). The Restaurant Failure Myth. Retrieved 19 Nov. 2010, from www.businessweek.com