My previous post attracted some comments that inferred that I’d been unfair to BF, especially in comparison to my more positive comments about Xero. I thought it only fair to clarify.
At the end of the day I have more faith in Xero as a business than BF. While arguably Xero is a higher risk play (given competition and the speed their industry moves at), in terms of potential I believe it is bigger than BF. That belief tempers my comments about the two businesses.
Anyway – back to talking about BF….
My thoughts are reinforced by an interesting article in the latest Entrepreneur magazine which profiled David Page from the Clapham House Group. CHG is a shell company that acquired small or mid sized restaurant chains that have significant room for expansion. It then puts in place the connections to build the scale. They already own four chains and are growing those fairly rapidly.
Some interesting points from the CHG business model;
- Chains are built through funding and not franchising
- The property is key – with commercial leases running red hot it’s imperative to play prospective landlords off against one another in order to drive down fixed overheads as much as possible
- Restaurant chain success is a direct result of a clever concept and rapid growth
And this last point is interesting when viewed in relation to BF. Their IPO was less successful than otherwise hoped and the principals had to invest significantly of their own funds to meet the minimum cap rate. Their model is to franchise – franchising will only create x percentage of revenue that the stores turn over (and I guess it’s around 5% or so???). So the $15million will only get them so far. In order to scale quickly they need credibility, my belief is that in any market one needs a number of proven and successful stores to build that credibility.
Perhaps they could use the $15mill to build a series of stores in Australia and roll out franchising thereafter but I’m just not sure how viable this is given the time constraints and the competition in the marketplace.
The low uptake of their IPO, while in part attributable to the way it was done, can perhaps also be blamed on the belief or otherwise that the marketplace has of their business model.
It is interesting to note that Burger Wisconsin, an 18 years/25 store veteran, announced international expansion plans over a year ago. Thus far these plans have not eventuated and the reasons for this are fundamental to the ability or otherwise of BF to scale internationally.