Being given the chance to run your own catering business for an investment of just £5,000 sounds almost too good to be true. Yet this is what Domino's Pizza is offering store managers who want to become franchisees but cannot raise the £100,000 capital required.
The company says the offer is based on the success of a similar scheme in the USA, and should enable the company to expand faster and give opportunities to managers who might otherwise not be able to make the move. But there are a number of factors which need to be borne in mind by prospective lessees, the term used by Domino's to describe people taking up the new scheme.
First is the requirement to hand over 25% of annual turnover to the company. This means paying £50,000 a year on a property with a turnover of £200,000, made up of £20,000 in management and advertising levies and £30,000 to cover the annual rent and the cost to Domino's Pizza of setting up the business.
Usually, the franchisee would have to raise about £100,000 and then have to pay £20,000 in management and advertising levies, plus rent on top of that. Costs faced by lessees under this new scheme are similar to those faced by franchisees who borrow all or most of the money needed to set themselves up in business.
The home delivery pizza market is highly competitive and the failure rate is relatively high. It is therefore unlikely that many lessees would be able to make enough money to open a second or third store as full franchisees, as the company claims.
It is more likely that lessees will struggle to make a living. Faced with a battle for survival, they may then resort to unhealthy practices such as the one recently exposed at Burger King.
Such a scenario sounds gloomy. The counter argument is that this new initiative might help Domino's expand from 100 to 240 UK stores by 1998. But if Domino's does achieve its target, what will be the cost to its franchisees and their staff?
A recent study of pizza home delivery franchises by Stuart Price and the Pizza and Pasta Association revealed that franchising tended to benefit the franchise or more than the franchisee and that the latter frequently have rising debts and low or negative equity.
The message for any potential franchisee or lessee is do your sums carefully, seek professional advice and talk to established operators before making a move you could live to regret.