Ethnic food makes up a very large industry in the United States. With the great melting pot of our population, Americans have the unique opportunity to experience several different types of cuisines every day.
Asian food is especially popular in America. Yoshinoya, a Japanese food franchise, has been making a name for themselves in this country since 1979 and they are not ready to hang up their hats just yet.
Yoshinoya is currently undergoing a complete rebranding and they are looking for new franchisees to bring onboard and help them take their new venture even more successful.
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Yoshinoya’s Storied History
Yoshinoya may be one of the oldest restaurant chains operating in the United States. They first opened in the Nihonbashi Fish Market in Chuoko Tokyo, Japan in 1899. More than a century later, and they are still going strong with locations in Japan, China, the United States, and the Philippines.
Eikichi Matsuda opened the first Yoshinoya restaurant at the fish market to feed the hungry fishermen who often did not have the time to prepare themselves a hot meal. Very quickly, the fishermen and and the locals were falling in love with the food and keeping Yoshinoya very busy.
After 24 years in business, the restaurant was destroyed by the Great Kanto Earthquake of 1923. Not to be discouraged by the loss, they opened a new restaurant in Tsukiji.
By 1977, Yoshinoya would reach 100 restaurants in Japan. Two years later, they would open their first U.S. location in Los Angeles, California.
With their worldwide expansion, Yoshinoya has been able to open over 3,000 restaurants around the globe. They are currently in the process of rebranding all of those stores to the Yoshinoya Japanese Kitchen name.
With the rebranding and the restructuring of many of their locations, they have been able to rebound from a five-year period of low sales. Since 2013, their sales have been trending upward and outperforming the industry by a sizeable gap.
Becoming Part of the Yoshinoya Team
Franchising has been the way that Yoshinoya has been able to expand to such great heights around the world. Even though their presence in the United States is still on the small side, they are working toward expanding that and making their name even more known throughout the country.
To be considered for a Yoshinoya franchise license, the interested party must first contact Yoshinoya and express their interest. From there, they will be asked to fill out an application to allow the franchisor to better gauge their qualifications and level of interest.
Yoshinoya is looking for franchisors who have successful previous business experience, especially in the quick service restaurant industry. This type of experience tells the franchisor that the applicant has the skills necessary to navigate the industry and produce successful results, which is exactly what the franchisor is looking for.
On top of successful experience, the applicant will also have to demonstrate an ability to afford the costs associated with purchasing and opening a Yoshinoya location.
The franchise license will cost $27,500 to purchase. On top of that, there are additional costs associated with opening the location. The new owner will be responsible for finding and acquiring real estate to house the restaurant, along with any construction costs that are associated with bringing the restaurant to fruition.
When the restaurant is constructed, there will need to be equipment and furnishings purchased to outfit it. It will need computers and point of sale systems, kitchen appliances and seating for guests. It will also need a staff, who will require training prior to the restaurant opening. To account for all of these expenses, Yoshinoya estimates that it will take between $272,000 and $2,086,000 to launch a Yoshinoya Japanese Kitchen restaurant in the United States.
Yoshinoya is open to working with franchisees who will need to finance a portion of these costs. They do not require the entire amount in liquid cash to begin the process. However, even those that plan to finance will have to have a down payment available to even secure the financing. This is where the financial strength comes in.
Even with the liquid cash on hand, it is also desirable to Yoshinoya to have a respectable credit history. This shows the franchisor that the applicant can be trusted with money and that they will make sound financial decisions. Running a high volume restaurant results in a lot of cash flow and the franchisor likes to be sure that the franchisee will know what to do with that cash. Knowing where to spend and where to cut back will help the restaurant continue to flourish for many years to come.
Yoshinoya’s Expectations and Provisions
Potential franchisees should be examining all angles of a franchise opportunity before signing any paperwork. This business agreement is legally binding, and often for long periods of time. Knowing exactly what will be provided and what will be expected is paramount to a successful business relationship with any franchisor.
Yoshinoya’s initial franchise license period is 10 years. That is an entire decade of adhering to the expectations set forth in the contract. The contract is also renewable, every five years. If both parties are satisfied with the state of the relationship when that expiration date rolls around, they can opt to renew it. Yoshinoya also reserves the right to charge a fee for the renewal.
Over the course of that contract period, both parties will be required to hold up their end of the bargain.
The franchisee will be responsible for following all of the rules and guidelines as expected by the franchisor. This means following recipe standards, keeping restaurants clean, meeting production standards and providing exceptional customer service.
The franchisee is also responsible for paying all of their ongoing fees on time and in full.
Yoshinoya charges each franchised location a royalty fee of 4 percent of gross sales. This is how they make their money off each franchise location. As far as royalty rates are concerned, Yoshinoya has one of the lower rates in franchising. The national average is 6 percent.
Yoshinoya also charges advertising fees to its franchisees, and, unfortunately, they are not as low as the royalty fees. The national average for advertising fees among franchisors is 2 percent of gross sales. Yoshinoya charges an incredibly high rate of 5 percent. It’s very rare to see advertising rates that account for a higher percentage than the royalty fees.
Oftentimes, it works out that a higher royalty or lower advertising fee makes little difference as the two figures end up averaging out. That is not the case with Yoshinoya. Their low royalty fees do not make up for their higher advertising fees. When figured together, a Yoshinoya franchisee will pay approximately 1 percent of their gross total sales more than the average franchisee for a different company.
It may not sound like a lot, but when considering that many of these quick service restaurants are high volume, and the 10-year license period, that 1 percent can add up to some large sums of money pretty quickly.
Because Yoshinoya charges more for their ongoing fees, it would be expected that they provide more than the average franchisor. That is simply not the case. In fact, they appear to offer less in the way of provisions than most other franchise opportunities.
They provide no form of training, whether it be classroom or on the job. Without these trainings, the franchisees are expected to jump in with both feet and just know how to run the location. That’s pretty unrealistic.
They also don’t provide computer and technology support. This is one of the most basic forms of support a franchisor can offer, yet Yoshinoya does not do it.
Without any sort of training or support from the franchisor, it can be extremely difficult for the franchisee to get their location off the ground. Even after that, adhering to standards becomes hard because the franchisee never got a full explanation of what is expected of them. The franchisor is really setting their franchisees up for failure with their current structure.
Yoshinoya’s Lackluster Numbers
It’s already been established that Yoshinoya is not great at providing support to their franchisees. There is more to a franchise opportunity than just what is offered by the franchisor, though, and that would be the business aspect of the agreement.
Analyzing a franchise agreement for profitability can be tricky because many chains do not publish actual reports of earnings. To determine the potential of franchise, other factors must be looked at.
The growth rate of the franchise is usually a good indicator of its potential for success, because it shows the system sustaining itself and allowing for the addition of more locations.
Yoshinoya has been franchising in the United States since 2008. During those 10 years, they have only managed to grow their location count to 22. While their total worldwide count is over 3,000, something seems to be lacking with their U.S. locations.
Perhaps it’s the lack of support offered to their franchisees that drives away potential investors. When entrepreneurs are willing to sink a lot of money into a venture, it’s usually because they are getting something substantial in return. With low location counts, it’s hard to say how profitable a Yoshinoya location would be, and they don’t offer the benefits that most franchisors do. Uncertain profits and lackluster benefits are turn offs for most savvy business people.
International success does not always translate well to U.S. growth. While that can’t be denied, it shouldn’t be written off as the reason for Yoshinoya’s less than impressive showing. There are plenty of ways that Yoshinoya could boost their sales in America and attract more franchisees, they seem to not be interested, though.
If they are comfortable with small numbers and not worried about boosting them, they seem to be doing a fine job of maintaining the locations that they have. Their turnover rate lingers around 8 percent, which is not surprising with a location count this small.
That is good news for anyone who is interested in a Yoshinoya franchise license. Even if they are not willing to offer training, or concerned with growing their American numbers, they are at least sustainable.
Yes or No to Yoshinoya?
Each entrepreneur is different. It’s impossible to say what is good or bad across the board. Yoshinoya is probably as close as it gets to having an assessment that fits everyone: it’s just not a good value.
Their higher than average fees are enough to make most investors walk away in the first place, but after learning that those higher fees actually result in less offerings by the franchisor, it becomes clear that there is little to no value in this franchise opportunity.
Adding their lack of value to the fact that there aren’t even enough American locations operating to be able to solidly determine whether or not the chain is profitable makes it an even easier choice.
Buying a franchise license is a big investment and not something that should be taken lightly. Yoshinoya just doesn’t bring enough to the table to justify putting up that amount of cash. Their lackluster performance in the American market, as well as their meager offerings to each franchisee make them more of a liability than an investment.
There are some entrepreneurs out there that may do well with this kind of structure, but it’s doubtful that there are very many. The whole purpose of purchasing a franchise license is to get the benefits of guidance and structure from the franchisor, as well as the brand recognition. Yoshinoya has none of that.
For the same amount of money and roughly the same benefits in return, a stand alone business could be opened. At least with that business endeavor, the owner wouldn’t have to pay anyone royalty fees.
Yoshinoya is best avoided at this time. If they haven’t gotten their act together enough to offer a real, valuable opportunity after 10 years of franchising in the U.S., they probably never will.