The 6 Signs of Weak Restaurant Franchisors

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The Burger King going public transaction this week marked not only another organizational odyssey point for that storied brand--the fourth since 2002, and reminded us what's going in the restaurant franchising space.

A 1000 unit development plan for China and a 500 development plan for Russia were just announced as part of the Burger King pre-going public marketing.

This is somewhat reminiscent of the 1960s and 1970s era of US restaurant development, where big swaths of the country were sold off to area developers, and not all chains took the effort required to build and sustain the necessary brand and systemic business foundation.

On June 19, 2012, Hedgeye Risk Management, a Wall Street research firm, sponsored an experts call in forum focused on the quality of restaurant franchising. Hedgeye outlined six red flag indicators of weak restaurant franchisors, as reproduced below.

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The common denominator to all of the reg flags are: dysfunctional ownership, corporate and store level economics system problems.

It's said that potential franchisees are sophisticated investors, but here is food for thought during the due diligence phase before your next investment.

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