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Lecture Introduction to the hospitality industry (8th Edition): Chapter 5 - Clayton W. Barrows, Tom Powers, Dennis R. Reynolds

Chapter 5 - Restaurant industry organization: chain, independent, or franchise? In this chapter students will be able to: Compare insights from various scholarly articles, prepare a clear and well organized literature review, make a case for your purpose statement and research questions, take notes in a manner useful to conducting a literature review. | Restaurant Industry Organization: Chain, Independent, or Franchise? Chapter 5 Copyright © 2010 by John Wiley & Sons, Inc. All Rights Reserved RESTAURANT INDUSTRY ORGANIZATION This chapter will focus on restaurant company organization—that is, how companies are organized This is important to know because there are significant differences between chains (corporate), independents, and franchises Currently, the industry growth is being driven by chains so we will start with them CHAINS Chains have strengths in seven areas: Marketing and brand recognition Site selection Access to capital Purchasing economies Centrally administered control and information systems New product development and Human resource development CHAINS Marketing and Brand Recognition Chains are able to achieve a high level of brand recognition by keeping their messages simple, large marketing budgets and the additive effect (repeating the message) The large cost of the marketing a national company is spread among a large number of units CHAINS Site Selection Expertise Much of a restaurant’s success is owed to choosing the proper site It has become much more competitive to identify suitable sites Choices are based upon a thorough examination of the feasibility of the site CHAINS Access to Capital This can be a challenge because of the rising costs of opening a restaurant coupled with lenders’ view that the restaurant business is risky Options include loans from banks, friends and family, personal savings, limited investors, “going public” CHAINS Purchasing Economies The power of purchasing large quantities for distribution among different locations or entering into a contract with a company for multiple individual purchases When one considers that food is a primary expense, the savings of 1% – 2% can be significant CHAINS Control and Information Systems Chains can also afford to purchase expensive systems with the justification that the cost will be spread across multiple units Contrast this with the challenge of an individual operator purchasing a system beyond his or her means CHAINS New Product Development This is only becoming more important as competition increases Large chains can afford to staff and equip development kitchens CHAINS Human Resource Program Development Again, the cost of recruiting, hiring, training, and developing is spread across multiple units Also, human resource expertise can be centralized There can also be disadvantages CHAINS Largely as a result these strengths, chain domination (as measured by market share) has grown over the last several years The top 100 chains alone generate over 50% of all restaurant sales This domination has increased from just 33% in 1975 ADVANTAGES AND DISADVANTAGES Advantages, disadvantages for franchisees Advantages and disadvantages for franchisors