Cafe Bar Deli - Are franchising - Investment Appraisal Needed

Bizgno

Hi all

Looking at the Cafe Bar Deli franchise concept at the minute. O'Briens sandwich bar is their franchise partner int his new joint venture. None the less it's a new franchise. Jay has been operating CBD dince 2001 and now has decided to expand thro franchising?

Looking for people's thoughts regarding concept, food, atmosphere etc.
Its been marketed as a replacement meal away from home for busy people including families who are short on time and wnat good nutricious food, served quickly at reasonable cost.

The idea is to move people away from seeing dining out as a treat, but an affordable hassle free way of eating that's affordable enough to become a frequent occurence.

Needs to be 100 seater plus, startup costs €800k for new fitout & €400k for refurb, usual royalty fee of 8-10% turnover thereafter..

From observation I feel their George St establishment has a high table turnover rate 4-5 times on an eveing.

Expect 60% to account for food & wage costs, & 20% for overheads. Expecting 20% margin.

Could this concept work in a surburban town? To appraise this opportunity properly what sort of questions should I be asking of myself and the franchisor?

Bandara

where are you calculating 60% for food and wages costs and 20% for overheads from?

I have to say that statement sounds bizarre to me (i'm not havig a go at you, just being honest)

Have you ever operated a resturant before???

Regarding the 20% Margin, what are you retaining?

Bizgno

The percentages quoted are figures supplied by cafe bar deli. If they are aspirational tell me. I'd welcome feedback from people experienced in the industry to guide me here.

What are the industry norms?

Bandara

this is just my own opinion on it but its a very high investment for a no guarantee brand. Your going to need to put it in a very high rent location for it to work (their list of putting one in Donaghmeade/tallaght etc is pure stupidy and will not survive).

Stephens green would be a wonderful location especially with the 5 new resturants opening there in the coming year, CBD will do very well in a high resturant populated area imo as the tourists and off the cuff eaters will go to the area to eat, read all the menus and the CBD pricing and casual style of dining will get them in ahead of the €30 main course locations.

Outside of that it is a huge risk to put it anywhere other than prime, the brands food offering is going to be too tightly controlled, the money requested is too high, the staff costs are too high at about 35% by their figures - this is idiot cooking at the most base level, any real skill is not required, I can't see food costs being any more than 25-30%

The margin of 20% is complete bullsh!t, absolute fantasy land stuff. I would suggest that CBD are being deliberately vague in the info they are feeding you with the best case scenario being hyped up beyond belief. The restuarant trade is a hard hard business, other than city center or shopping center locations I can't justify paying a franchise fee, a huge fit out cost, having everything dictated to you by what is essentially a bog standard concept.

No one in Tallaght, Glasnevin, Malahide, Leopardstown etc etc is going to go to a local resturant because its a CBD, they'll go to try it out and if its good they'll come back, if your "Marios Italian Eatery" (MIE - franchises now available for a pack of bourbon creams and a bottle of TK American Soda- email me for an application form), or Cafe Bar Deli is not going to make a damn bit of difference in a neighbourhood environment.

The final HUGE issue is the comapny you'll be dealing with, O'Briens are a shockingly badly operated nightmare.

lol, sorry to be a downer, but you did ask !

Bizgno

Let's say you were able to find a prime location (no. 1 tourist town), a property requiring only refurb work. Your capital cost then drops by 50% to €400k according to CBD.

Are these figures reasonable by the way for fitting out a unit from scratch (€800k) & refurb (400k)?

Would the juice be worth the sueeze then? What's the industry norm as regard margin? 5-10%???

Why do you think they are franchising the concept? they'll only make money if the franchisees are successful. And as they have no franchisees as yet they can't afford any failures if the roll out is to succeed. So I would think they'd be very hands on with the first few franchises.

I'd agree with you in that it's a lot of money for an unknown franchise, but if set up costs are comparable to setting up a restuarant on my own, and I have the management backup & systems etc is it not less risky? or do you see it as no less risky then a start-up?

Cyrus

i would avoid the franchise route, if you want to set up a restaurant on that type of concept, do, but do it yourself.

most people with o'briens sandwich bars dont do that well out of it, the costs and percentage to o'briens is too much imo

Heisenberg.

This post has been deleted.

Cyrus

im chastising the o'briens model,

also cafe bar deli, at the moment, isnt a franchise worth paying for imo

if the OP thinks there is merit in the ethos and business plan he can just do the same thing himself

LegacyUser

With no personal experience in the restaurant industry, I personally feel that I don't see why Cafe Bar Deli can charge that much for a franchise...

What have they done to warrant that?

Bandara

Cyrus wrote: »

i would avoid the franchise route, if you want to set up a restaurant on that type of concept, do, but do it yourself.

most people with o'briens sandwich bars dont do that well out of it, the costs and percentage to o'briens is too much imo

Agreed, O'Briens is a far too expensive and way down the list of franchises available of that type imo, i personnaly feel the quality of their ingredients are sub standard to the price they charge, and that the feedback customers give also..

Bizgno wrote: »

Let's say you were able to find a prime location (no. 1 tourist town), a property requiring only refurb work. Your capital cost then drops by 50% to €400k according to CBD.

Are these figures reasonable by the way for fitting out a unit from scratch (€800k) & refurb (400k)?

Would the juice be worth the sueeze then? What's the industry norm as regard margin? 5-10%???

Why do you think they are franchising the concept? they'll only make money if the franchisees are successful. And as they have no franchisees as yet they can't afford any failures if the roll out is to succeed. So I would think they'd be very hands on with the first few franchises.

I'd agree with you in that it's a lot of money for an unknown franchise, but if set up costs are comparable to setting up a restuarant on my own, and I have the management backup & systems etc is it not less risky? or do you see it as no less risky then a start-up?

Bizgno

I'd be very wary of assuming you will receive any assistance from the Franchise company, they will advise etc on the fit out (all biased int heir favour - they are salespeople after all) but the day your site opens you are ON YOUR OWN. Please do be under any illusions otherwise. They day to day is not of any interest to them, you buy into the concept and its your to run or ruin. I've several different franchises and my first one nearly lost me my hoem as I thought i would be handheld and supported while learning about the business, I was very wrong, and was very lucky to survive it.

AlphaMale 3OO

if being asked when applying for a franchise how much capital you have available, what is the best answer? I would have easy enough access to a few hundred grand (if I want it) but I'm not sure how to play my hand in relation to the question.

Bandara

forbesii wrote: »

if being asked when applying for a franchise how much capital you have available, what is the best answer? I would have easy enough access to a few hundred grand (if I want it) but I'm not sure how to play my hand in relation to the question.

I would always just ignore the question Forbesii, I'm never putting down anything like my finances, bank details, mortgage details etc to some sales company that is trying to get people to open resturants, the guys that compile these application forms are a tad overwhelmed by their own importance.

fill in the form, say financing is not an issue and that your not disclosing your life story at the stage where you are merely forwarding an expression of interest in a project that you may or may not decide is something you wish to setup business in.

My thinking is always if you decide not to proceed your bank a/cs financial details, property details, home address mortgage accounts etc etc etc are all in a completely unsecure filing cabinet somewhere, its not on at all imo.

People get kidnapped on the basis of such information !

AlphaMale 3OO

Hammertime wrote: »

I would always just ignore the question Forbesii, I'm never putting down anything like my finances, bank details, mortgage details etc to some sales company that is trying to get people to open resturants, the guys that compile these application forms are a tad overwhelmed by their own importance.

fill in the form, say financing is not an issue and that your not disclosing your life story at the stage where you are merely forwarding an expression of interest in a project that you may or may not decide is something you wish to setup business in.

My thinking is always if you decide not to proceed your bank a/cs financial details, property details, home address mortgage accounts etc etc etc are all in a completely unsecure filing cabinet somewhere, its not on at all imo.

People get kidnapped on the basis of such information !

Thanks, I appreciate the advice. You seem to have a hell of a lot of experience.

RoryW

http://www.irishfranchiseassociation.com/docs/franchise%20Survey.pdf

Its from 2004 but this is what is said by Lemongrass in their promotional article

"The average profit margin in the restaurant business is 5%. We aim to give
our franchisees a margin of 10% after they have paid our fee."

How realistic is that for CBD ?
How have things changed since 2004 ? Costs up, revenue ??


From 2006 survey http://www.irishfranchiseassociation.com/docs/Survey_Franchising06.pdf

fintan

Could you not just copy the business model and do it yourself?

Save yourself the franchise fee

Bizgno

Thanks all

I did a bit of door stepping our bars/restaurants in the area over the last week or so, there are a lot of me-toos with similar menu fare and prices.

Feel CBD concept hasn't enuf built-in demand yet for people to seek it out directly when they are hungry.

Appreciated all the comments - my thinking has crsystallised somewhat as a result.

LegacyUser

Don't forget that 1 in 3 restaurants/cafes (I believe) fail in their first year...

*Lecturer told me this.

thecola

cheesedude wrote: »

Don't forget that 1 in 3 restaurants/cafes (I believe) fail in their first year...

*Lecturer told me this.

Just from passing-by perspective, I'd say that 2 out of 3 fail in first year and a half, unless they've some money laundring function. Otherwise I cannot justify constantly empty/half empty facilities that stay sort of open for long period of time.

Bandara

thecola wrote: »

Just from passing-by perspective, I'd say that 2 out of 3 fail in first year and a half, unless they've some money laundring function. Otherwise I cannot justify constantly empty/half empty facilities that stay sort of open for long period of time.

The reason they fail is people are opening them without understanding that they will lose a fortune in the first year (or even 18 months), these people have no financial backup and are under the impression the money coming in will keep them afloat and will keep the bank man nice and happy. It dont work like that though, I am involved in one of the top resturants in this country, in year one of trading we lost over €700k.

YellowSheep

I was heavily involved setting up the Lemongrass Franchise in all aspects, from setting the production kitchen to supply franchisees, to actually developing manual etc. and i opened 18 of same. i would just have a couple of points which haven't actually changed much today:

F&B Cost: 30% (depends if CBD tells you were and what to buy)
Labour Cost: 30% (depends if all training & manual is provided as you should not require expensive chefs)
But now comes the killer....RENT. I only can advise you not to go over 10% of your possible net turnover you can achieve as otherwise you will work for the landlord. It doesn't matter where your store is located high or back street.
Franchise Fee: Structure the fee, specially if it is their first franchise. if turnover X is below expectation you only pay X% if turnover is better as expected pay a little more. This way both parties win and learn. Franchising=Partnership.
Fit-Out Cost: In todays environment you can expect to pay about €195 per sqt" starting from shell & core. Refurbishments could be even more expensive.
Profits: In a good managed franchise the profits should be around 10%. If that is not achieved things are not working.
Don't forget you buy in a franchise because you pay them for they concept and to make them money. Don't rush in, but don't be a fool either by thinking that you could do it by yourself. I am not discouraging that either but unless you really know what you are doing or have a business partner who does its a dangerous game and business.

Hope the above helped a bit. Should you need more structured help give me a call. oliver

Oracle

fintan wrote: »

Could you not just copy the business model and do it yourself? Save yourself the franchise fee

I agree, franchising is just so much hype, hand holding and selling a dream. They're also selling the idea (like network/pyramid schemes) that their franchise is the "easy" way to get into the catering (or whatever) business. Their marketing suggests that you put their sign outside, and hey presto the customers come running. It's a fantasy, there's no such thing as an instant business. Building a business is only accomplished through hard graft and there's no short cuts. Save your money and open your own coffee shop/deli with an attractive fit-out and sign. You'll do just as well, and you'll keep your money in your pocket.

Just a word of unasked for advice; anything to do with catering is very hands-on, anyone that thinks otherwise is naive. If you are not prepared to wash floors, clean, cook/prepare food, greet, seat and serve people smiling, day and night, then don't bother.

Bizgno

Thanks Oliver - much appreciated.

Hamster007

Good morning all:

I have been reading the posts and replies on here about CBD, and the huge amount of money they are seeking to open a restuarant with no real name appeal. 800K seems like a huge amount of money. This is being backed by the founder of O'Brien's in a tie up with Jay B from CBD. It seems to me from looking at O'Brien's financials that they would appear to be in some trouble.

They have recently let their CEO go Mr. Nagle, and from what I understand the franchisee's are now seeking the removal of the CFO. Brody has come back to try to sort out the mess created by the very people he put in charge, but one would feel in this climate that maybe its more show than anything real.

This is a company according to their own accounts that over the past several years have spent an amazing 5 times more on legal bills than they have on R&D. Maybe its no wonder that the average T/O in their stores is down 30% plus yoy.

While franchising can certainly be a very good way to get into business this is one franchise that I would say clear of. The restaurant business is a very tough business at the best of times but being lumbered with 800K in debt from the outset, and then coupled with a very bland dated concept in CBD just seems like too much of an uphill battle for me.

Bandara

Hamster007 wrote: »

Good morning all:

I have been reading the posts and replies on here about CBD, and the huge amount of money they are seeking to open a restuarant with no real name appeal. 800K seems like a huge amount of money. This is being backed by the founder of O'Brien's in a tie up with Jay B from CBD. It seems to me from looking at O'Brien's financials that they would appear to be in some trouble.

They have recently let their CEO go Mr. Nagle, and from what I understand the franchisee's are now seeking the removal of the CFO. Brody has come back to try to sort out the mess created by the very people he put in charge, but one would feel in this climate that maybe its more show than anything real.

This is a company according to their own accounts that over the past several years have spent an amazing 5 times more on legal bills than they have on R&D. Maybe its no wonder that the average T/O in their stores is down 30% plus yoy.

While franchising can certainly be a very good way to get into business this is one franchise that I would say clear of. The restaurant business is a very tough business at the best of times but being lumbered with 800K in debt from the outset, and then coupled with a very bland dated concept in CBD just seems like too much of an uphill battle for me.

Strange first post, but anyway, whereas I don't agree with the value attached to the CBD franchises I find it very odd to hear of them described as dated.

In my opinion they are in fact superbly positioned to do well in the current economic climate. You have the Town Bar and Grills and the Brasserie 66's giving bogofs on their main courses midweek, whereas acrross the road CBD is packed to the gills.

I'd be of the opinion that the niche of simple to prepare, good standard consistant food for between 10 and 15 quid a head in a lively casual atmosphere is the place to be in todays eating out market, the days of a couple going out and spending €150 on a food and drink wednesday night out is gone, as can be seen by the reactions within the resturants that occupy this bracket, the wednesday night couples willness to spend has been reduced to closer to 60 euro which now equates a shared starter & 2 mains in a CBD style eaterie, followed by a few pints after in a pub come in around this figure.

Each to their own opinion of course.

Hamster007

Thanks for the reply.

Just to clarify I agree 100% that good food, good place and keen prices is certainly the way..I think it always has been, so I certainly have no issue with that.

I would strongly disagree however that CBD is the market leader in this space with the price of entry knocking at 800K, coupled with the fact that O'Briens will be handling the so called day to day operations when this company has clearly shown that its not up to the task of getting a sandwich bar to operate properly.

Good well run restaurants will do well, but its up to the owner to ensure that, and I certainly see no merit in handing 800K to messer's Burke and Sweeny, for in my opinion, and I stress, its just my opinion, a dated concept with no real appeal as a model to be franchised.

Have you looked at O'Briens financials...5 times more on legal bills than on R&D, surly the lifeblood of their business, CEO asked to leave, CFO is also going to be asked or told, an EGM called for this wednesday, HQ staff taking a 40% reduction in salaries...hardly a strong financial position to be as a potential business partner..just a thought!!

Bandara

I do agree with a lot of your saying hamster, but the influence of the mother company upon you if your running the franchise can be controlled. Once you have the site in good condition and professionally run and you pay your fees then they are irrelevant to you.

As an aside I know of someone currently who is trying to get financing from the bank for a Dublin based CBD, the banks are not keen on it at all, maybe thats due to the market but I'd say the 800k has something to do with it as well.