There’s nothing better than a good burger, except maybe a restaurant that has a wide variety of delicious burgers to choose from. Fuddruckers has been around a long time and they keep customers coming back for more with their signature hamburgers and other tasty fare to choose from.
Claiming to have The World’s Greatest Hamburgers, Fuddruckers is a family-friendly, fast-casual dining experience with locations all over the continent, as well as Central and South America. They’ve got nearly 40 years of experience under their belt and have devoted all of that time to crafting some of the best-tasting burgers Americans have ever had the pleasure of eating.
They are a franchised brand who have embarked on a journey to bring their food to every corner of the United States and are looking for more investors to help them reach that goal.
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Four Decades of Fuddruckers
Fuddruckers was first founded in 1979 by Phillip J. Romano. It was called Freddie Fuddruckers and was located inside of an old bank that had been renovated into a restaurant. Romano started the restaurant because he felt that Americans deserved a better burger, and he was determined to give it to them.
Based on the concept of freshness, Romano designed his restaurant to provide fresh beef that is ground on site, as well as buns that are baked in the restaurant kitchen throughout the day. His philosophy was that a better burger also meant a better bun, and what’s better than a bun fresh from the oven?
In 1988, Romano left Fuddruckers to focus on his next project, Romano’s Macaroni Grill.
The brand went through several ownership changes after Romano, and eventually landed in the hands of Magic Brands. In 2008, it was announced that Magic Brands was filing for Chapter 11 bankruptcy and would be selling the Fuddruckers chain, once again. Several locations, most of which were located in the metropolitan area of Washington, D.C., would close at that time.
At auction, Fuddruckers was purchased from Magic Brands by Luby’s for an estimated $63 million. In an attempt to rebound the brand from the hardships incurred during the Great Recession of 2008, Luby’s made big plans to expand the brand and revamp its offerings.
In 2014, in an attempt to expand their market, Luby’s opened the first Fuddruckers Deluxe location in Newport News, Virginia. The location consisted of a sit-down, casual dining atmosphere, complete with wait staff and a full bar, but missing the signature produce and fixings bar of their counter service locations. The restaurant would be permanently closed by 2018, putting an end to Fuddruckers’ foray into casual dining.
Despite the issues of the past, Fuddruckers remains a presence in the United States and other countries around the world. With over 180 franchised locations globally, Fuddruckers continues to delight patrons with their signature burgers and fun, friendly atmosphere.
Joining the Fuddruckers Team
Applying to be a Fuddruckers franchisee begins like most other franchise application processes. The franchisor will ask for some basic information regarding the candidate, including previous business experience, and location desired.
Fuddruckers is intent on growing their brand with the best and brightest franchisees, so those applicants that can bring substantial previous business experience to the table will be looked upon most favorably.
The restaurant business is fickle and a successful location needs a strong leader at the helm to help navigate the ups and downs of the industry. While any previous experience is a plus, those who have their experience in the food service industry will likely score more points in this step of the process.
The location in which the applicant is seeking to open their restaurant is also important for a few reasons. First, it needs to be in an area in which Fuddruckers is currently open to franchising. Because of legal reasons, as well as not infringing upon current franchisees’ business, only certain areas will be available. If Fuddruckers does not have the legal approval to open a franchise location in the state the applicant is requesting, or if there is already a franchise location in that territory, the candidate may be asked to choose another area, or rescind their application altogether.
Applicants must also be able to demonstrate significant financial ability. Fuddruckers does not offer financing assistance to its franchisees, so the applicant has to have the capital to fund the opening and launching of the location.
Fuddruckers sells their franchise licenses for a fee of $35,000 per location, and expects each restaurant to cost about $400,000 in additional start up fees to open.
In addition to having the start up capital on hand, Fuddruckers also looks for a satisfactory credit history in the applicant. This will help them to determine if the applicant has the financial responsibility to handle the operation of a restaurant and manage the funds appropriately.
Previous business experience, along with a good credit history, help Fuddruckers to determine the ability of the applicant to make good financial decisions. With a high-volume restaurant, there is a lot of cash flow and having the know-how to handle that cash appropriately will put the owner in a better position to keep the restaurant afloat. Mismanagement of funds can kill a business quicker than almost anything else.
Those who meet the qualifications that Fuddruckers is seeking in their newest franchisees will be invited to sign license agreements. Once that agreement is signed, the process of finding the location and beginning construction can commence, putting the new franchisee on the road to restaurant ownership.
Sustaining a Successful Location
Many parts go into maintaining a successful restaurant. The goal is to keep customers coming in and buying food, but there are several steps that must be accomplished to make that happen.
Hiring and properly training staff are key to this aspect. Having a strong staff that has been properly trained in the ways of Fuddruckers will ensure that each customer has the best experience that they expect when coming into a Fuddruckers location.
Following food preparation standards, and operating at the highest level of customer service will do more for the restaurant than any marketing ever could. Fuddruckers assists with training the franchisee so that they can, in turn, train their staff to properly run the restaurant. Fans of the chain expect their food to taste the way they remember, and having cooks who are well-versed in Fuddruckers’ policies are key to keeping that continuity between locations. Ongoing training and support is how the franchisor does their part to ensure this.
For the ongoing support and the brand recognition that comes with owning a Fuddruckers, the franchisee will need to pay fees to the franchisor throughout the life of the license. These will include royalty and marketing fees.
Royalty fees are pretty standard across all franchise opportunities. Franchisors need to make money off of each location, and they collect it by charging royalties. Fuddruckers charges their royalty fees at a rate of 5 percent of gross sales for each restaurant location operated by the franchisee. If the franchisee happens to own and operate six or more locations, they will be charged 4 percent of gross sales for each location, starting with the sixth. The 5 percent fee will still apply to the first five restaurants.
The advertising fees help Fuddruckers to recoup their cost for all marketing materials produced by them. They charge each location 0.25 percent of gross sales.
When comparing Fuddruckers’ ongoing fees to similar franchise opportunities, Fuddruckers comes in at a lower price. The average for similar franchises is 6 percent of gross sales in royalties, and 2 percent in advertising fees.
One area in which Fuddruckers has a higher expectancy than most of their competitors, is the length of their franchise agreements. The average franchise license agreement period is 10 years, but for Fuddruckers, it is 20 years. This long license period could be both a blessing and a curse to the franchisee.
A long license period means that the franchisee gets more bang for their license fee buck. Because most franchisors charge a renewal fee each time the license period ends, Fuddruckers franchisees will have to pay this fee less often than if they had gone with a competitor, which can result in savings, depending on the renewal rate.
The downside to a long license period is the fact that both parties are locked in to this agreement. Failure to complete the full license period could place the franchisee in breach of contract, resulting in monetary damages being owed to the franchisor. To prevent this, it’s imperative that the franchisee fully read the agreement before signing, making sure they are comfortable with fulfilling the requirements of the agreement for 20 years.
Franchisees who are wary of such a long commitment may decide that Fuddruckers is not the right choice for their franchise endeavor.
Franchising Performance Review
Part of any franchising analysis should include a thorough understanding of the performance of current franchised locations. Knowing how well, or how poor, current locations are fairing can make or break a decision regarding purchasing a license.
With over 180 locations worldwide, Fuddruckers has a mid-size presence in the fast-casual industry. Their numbers have fluctuated quite a bit over the last 10 years, making it difficult to pin down exactly how well they are doing. The fact that they are consistently losing locations, of course, points to issues within their system, but they have also rebounded nicely.
For an entrepreneur, seeing a net franchise growth rate that bounces between positive and negative can be confusing. Are they growing or not? The short answer is no.
With a net franchise growth rate that fluctuates the way that Fuddruckers’ does, it’s hard to ignore the drops into the negative. Even when bouncing back with a positive rate a few years later, it does not negate the fact that they are losing locations, only to replace them with new ones.
It points to a positive attitude and optimism on the part of Fuddruckers, because no matter how many locations they lose, they aren’t giving up. The problem is that they continue to lose them. Opening new locations is great, but it means nothing if they will close after a short time.
Deciding on Fuddruckers
The cost of a Fuddruckers franchise on the lower end of the average for a fast-casual restaurant. This can be very appealing to potential franchisees, especially when considering how lucrative fast-casual restaurants have the potential to be.
The problem with Fuddruckers is their unreliability. They have experienced several ups and downs over the life of their business, especially in the last 10 years. With the severity of their fluctuation, they present themselves as ambitious, but unsustainable.
A franchisee, especially one who is willing to sign a 20-year contract, is usually expecting their restaurant to last a long time and remain profitable. Fuddruckers is unable to guarantee this. They have lost and gained so many locations in such a short amount of time, that no location is safe.
Whatever the issues are within their system, they are scaring off potential franchisees with their inability to maintain solid numbers. A franchise doesn’t have to have explosive growth to be a viable option, but they do need to be able to support the number of restaurants that they currently have in operation.
When their growth rate spikes back up into the positive, it shows their commitment to the brand and that they are still striving to make it work. However, it never seems to last long before they’ve lost enough locations drop them back into the negative. For a franchisee, this can be terrifying.
It takes a lot of money to get a location off the ground, and if that location is going to crash and burn in the first five years, it could cost the franchisee everything.
The recommendation for a potential Fuddruckers franchisee would be to wait. Watch their trends and see how long they can remain stable. If they appear to get their problems worked out and can maintain a solid location count for a couple of years, it may be a sign that they have rebounded and are able to support more locations. If they continue to fluctuate, it’s probably a sign of bad things on the horizon.
Fuddruckers just isn’t ready to take on more franchisees yet. It’s best to put this one on the shelf and revisit in a few years.