Who wants to be a McMillionaire? Meet Britain’s hidden army of successful fast food owners

16/11/2015
The success of fast food giants lies with hundreds of restaurant entrepreneurs who often run mini-empires on a franchise basis
Akram Khan skipped university to work in a KFC store in Chingford as a teenager.

The 47-year-old now owns 14 KFC restaurants, mainly in north Wales and Shrewsbury, with plans to increase this to 20.
“When the opportunity to buy a franchise came up, I jumped at it. I like the structure of franchising – I haven’t got the confidence to open my own restaurant. This way, you have the autonomy of your own restaurant but you have access to expertise,” he says.
Khan first became a franchisee in 2002, when he bought a store in Chingford where he had been manager for the best part of a decade.
In 2006, he sold up and bought nine stores from a franchisee in north Wales who was retiring. He borrowed £3.6m to fund the purchase, but almost came unstuck when the credit crunch hit and his bank pulled out of lending another £500,000 needed to refurbish the stores.
In the end, he remortgaged his home and borrowed from friends to cover the costs.
The success of fast food giants doesn’t just lie in attractively priced comfort food, but with hundreds of restaurant entrepreneurs, many of whom often run mini-empires of outlets on a franchise basis.
Some of the biggest names on the high street use the franchise model, including KFC, McDonald’s, Costa Coffee and Starbucks.
Franchising allows companies to offload the set-up costs to store owners. In turn, franchisees, who are self-employed, benefit from a well-established name and access to ongoing support.
Four in five new franchises are profitable within two years, according to industry body the British Franchise Association (BFA). There are now more than 8,000 franchisee-owned outlets in the UK, a rise of 20pc since the recession.
Like Khan, some entrepreneurs can build up mini empires of franchises dotted around the country. For them, it can turn out to be a hugely lucrative venture.
His gamble has paid off handsomely as turnover at Gastronomy Foods, the company he set up to manage his business interests, is expected to be £15m this year.
Last year it was £12.6m with pre-tax profits of almost £440,000, most of which is reinvested in the business, according to accounts filed to Companies House. Khan also recently bought four Starbucks.
The biggest franchise operation in the UK is Subway, which has more than 2,000 units run on this basis.
Dairy Crest is number two, with 1,500 milk delivery businesses across the UK, followed by pub group Scottish & Newcastle at number three with 1,150 franchised units.
There have also been a number of high-end newcomers, including Pan Chai, a fine dining pan-Asian brand that made its name in Harrods Food Hall.
Rachel Shaw, who owns two Subway stores in Greater London, opened the first after 17 years working at McDonald’s head office. Shaw, who wanted more flexibility and to be her own boss, was attracted to Subway because she considered the brand a healthier alternative to other chains.
“It was quite scary taking the plunge. You have to invest a lot of money, and you pay for everything from uniforms to local marketing,” she says. The typical cost of opening a Subway store is £100,000, and 70pc of this can be covered by a bank loan.
Subway franchisees are usually responsible for finding suitable sites themselves, leasing them from private landlords.
Other companies have different rules. McDonald’s, for example, owns the freehold of all the properties where its UK sites are based.
Franchisees will take on a 20-year lease, paying rent and a service fee. Like other operators, its franchisees are responsible for all store refurbishments and buying kitchen equipment.
There are 152 McDonald’s franchisees across the country, operating 866 restaurants.
This accounts for 69pc of McDonald’s total 1,470, with the rest run by the company. Buying a McDonald’s restaurant typically costs between £150,000 and £400,000, and the buyer will need 25pc in cash, with the rest made up from a bank loan.
Bristol-based Mike Guerin, who operates 12 McDonald’s in the west of England, has been a franchisee for 23 years.
While McDonald’s sets strict guidelines on the food served, Guerin says owners are continuously consulted about changes to the menu.
He now sells fewer burgers and chips, and more wraps and salads. His company, Caspian Networks, employs around 950 people and had a turnover of £29m last year, with pre-tax profits of £741,000.
“The early years can be tough for franchisees. You have to invest a huge chunk of money and end up in a large amount of debt. Then there’s the challenge of keeping both staff and customers happy. But McDonald’s is a very good business partner. They’re very aware of the pressures and not in the business of failing franchisees,” he adds.
This commitment from individual owners is why many restaurant companies choose a franchise model if they have ambitious growth plans. They are more willing to “go the extra mile”, says the BFA.
Some large high street brands have reported as much as a 30pc rise in revenue when a company-owned outlet is converted to a franchised one.
Haitham Alani, who moved to the UK from Iraq in the 1990s and now owns 48 Domino’s Pizza outlets, says the biggest challenge is finding staff.
In affluent areas, it is hard to find people willing to work the unsociable hours. But he says more young people are considering catering and restaurant work as a career, adding that store managers can earn £50,000 a year.
“Many of our managers started either as pizza makers or answering the phones. Some have worked with me for over 20 years.
"We also get more university graduates now who see it as a career. They have to be good at dealing with customers and be able to work well under pressure,” he says.
“I hope to have 150 stores in 10 years’ time. My wife would be happy for me to retire, but I can’t see it.”

By:http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/11993677/Who-wants-to-be-a-McMillionaire-Meet-Britains-hidden-army-of-successful-fast-food-owners.html

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