6 of the Worst Franchises to Open As A Business Owner
Also known as a chain, if a store has multiple locations spanning different cities, it’s probably part of a franchise system. There are approximately 759,240 franchise establishments in the United States, which employ over eight million Americans. This makes them hard to ignore when considering investment opportunities.
So, how do you spot a valuable franchise investment opportunity? Knowing the worst franchises to buy is a great first step. That way, you can make a financial decision that will set you up for future success.
What Makes A Franchise One of The “Worst” Options?
If you buy into a franchise business, you’re agreeing to follow an existing business model. Pricing, marketing, and business functions should be established to eliminate any guesswork on the part of the prospective franchisees. As the franchise owner, you’ll need to follow the company code of conduct and rules very closely.
With this in mind, the worst franchise brands to own are those with weak internal and external functionality. If you open a franchise through a company that isn’t successful, you’re setting yourself up to fail as the owner.
In addition, remember that your branch won’t succeed simply because the larger chain of businesses is lucrative. Before opening a franchise, conduct research and contact an existing owner to learn about their experience.
Worst Franchises With Low Initial Investment
Buying into a franchise costs around $10,000 or less to millions of dollars. However, the average cost lands around $50,000 to $200,000. Don’t be dazzled by franchises that offer low initial investments, as there could be greater costs down the line.
Without much to differentiate it from other donut shops, Donut Connection offers lackluster products and copycat branding to franchise investors. With the majority of its storefronts on the East Coast, Donut Connection is a limited franchise in terms of brand recognition. This makes it difficult to open a location in other parts of the U.S.
As of 2016, Donut Connection had an initial franchise fee of around $500, with total investments ranging from $34,770 to $95,643.
2. American Express Travel
In the age of the Internet, everyone with a computer can be their own travel agent. Per the Bureau of Labor Statistics, travel agent employment is expected to drop six percent from 2018 to 2028. Travel agents that focus on specific destinations or niche travel have the best chances for a lucrative business. This doesn’t apply to a generic travel chain like American Express Travel.
The buy in for Cruise Planners/American Express Travel is $10,995, making it an extremely low initial investment opportunity. However, that price only covers the initial fee and doesn’t account for the time it’ll take to attract clients.
In addition, you’ll need to invest in any additional staff needed. Hiring the right people can be crucial to your success. Overall, American Express Travel probably isn’t worth your time.
Worst Franchises With Medium Initial Investment
In the tiered levels of franchise investments, the middle level initial investments can still be hundreds of thousands of dollars. Make sure these investments are worth your time and money before proceeding. Although a larger upfront cost implies larger returns down the line, they can become more draining than low-level initial investments.
Despite their recent branding and technological updates, Blimpie exists in a market dominated by major corporations like Subway and Jimmy Johns. This makes competition extremely high, and raises the risk of your overall investment. While Blimpie boasts having a “dedicated customer base,” convenience food stores typically compete for the lowest prices.
To open a traditional Blimpie franchise, you’ll need $139,780 to $404,700 including the franchise fee and estimated startup costs.
2. Country Hearth Inn
The profitability of hotels is contingent on the location, time of year, consumer demographic, and local competition. While it might seem like an interesting investment opportunity to start a Country Hearth Inn, consider the company’s “budget” reputation. How long will it take for you to repay your substantial investment while charging low-end prices and getting minimal return? If you live in an area with numerous hotels, ask yourself how and why your Country Hearth Inn would attract patrons.
In addition, the hotel industry has declined in the past few years with the rise of AirBnb. In 2014, the company took nearly four percent of business from hotels, per the U.S. Bureau of Labor Statistics. As consumers are increasingly interested in lodging with a home aesthetic, AirBnb is taking business from the hotel industry.
Worst Franchises With High Initial Investment
A higher initial investment equates to increased stake in your company. Therefore the higher the risk of failure. With any level of investment in a franchise, you should conduct research and meet with a financial advisor before moving forward. This is especially true with high initial investment franchises.
1. Godfather’s Pizza
You’ve probably heard of Godfather’s Pizza due to their namesake, “The Godfather” movie. According to a study comparing the number of U.S. pizzerias, in 2018 the franchise was down 75,243 from 2017.
If you’re planning on starting a pizza franchise, you should compare different brands first. Godfather’s pizza might not be the right choice when compared to other franchise options like Domino’s, Pizza Hut, and Papa John’s.
Godfather’s Pizza offers three different pricing models for franchises:
- Traditional Model
- $25,000 initial fee and six percent continuing fee = $457,200 to $835,500 total investment
- Express Model
- $7,500 initial fee and six percent continuing fee = $119,600 to $331,000 total investment
- Delivery/Carryout Model
- $15,000 initial fee and six percent continuing fee = $264,700 to $552,000 total investment
Part of the Red Lion Hospitality Organization, GuestHouse’s focuses on making their customers feel at home while at their hotel. Similar to Country Hearth Inn, GuestHouse is a hotel service that competes against AirBnb. In fact, it has even more competition with AirBnb because it strives to create a home aesthetic.
Self-described as an “upper-economy and lower mid-scale brand,” GuestHouse calculates corporation fees by number of rooms in a location. GuestHouse sits in a tricky place in the hospitality industry as it’s above economy but below luxury class. Because of this, their target market is close to the same audience that AirBnB targets.
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How to Choose the Right Franchise Opportunity
Once you decide to open a franchise instead of starting a business, it’s all about finding the right one. Consider the industry you want to open a franchise in. Then, weigh the local competition and greater state of the industry to decide if it’s worthwhile. Keep in mind, if you don’t see other parts of the chain succeeding, your branch likely won’t succeed either.
How to Finance Your Franchise
Unless you have a substantial personal savings account, it can be difficult to afford opening a franchise. When funding your new business, consider the timeline of your terms and conditions in comparison to when you’ll start turning a profit. Compare small business loans to make sure you’re getting the best rates and terms for your circumstance.
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Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author's alone, and have not been reviewed, approved, or otherwise endorsed by any of these entities.