Franchising: Join the burger boom

Written by Kim Shiffman

Harvey’s (Cara Operations Ltd.)

Head office: Concord, Ont.

Line of business: Fast-food restaurant

Founded: 1959

Canadian locations: 260 (151 are franchises)

Approximate launch cost: $450,000 to $650,000

Royalties: 5% of gross sales plus 4% for a marketing fund

Ehab Masad used to be a banker. Keith Scott was a chiropractor with his own health centre. Mo Khamis owned and ran an independent restaurant. Today, all three are Harvey’s franchisees €” and they say it’s the best job they’ve ever had.

Harvey’s, the Canadian burger chain most familiar to Ontarians, is in major expansion mode. Its owner, Concord, Ont.-based Cara Operations Ltd., has concluded there’s still plenty of room in many parts of Canada for new Harvey’s outlets, and plans to grow the chain from 260 to 400 locations over the next five years. For the right franchisee, it’s a meaty opportunity.

That’s because even the thousands of existing burger joints haven’t saturated the market. “If you look at the major players, same-store sales keep going up,” says John Woodburn, president of CJ Woodburn & Associates, a Burlington, Ont.-based franchise consultancy. According to NPD Group Inc., a Toronto-based market research firm, sales at burger quick-service restaurants (QSRs) grew by 4% in the year that ended Feb. 28, 2010, over the year before €” versus a 2% decline for non-burger QSRs.

Burger chains’ success is partly attributable to Canadians’ increasingly busy lifestyles and growing tendency to eat on the run, says George Heos, Cara’s vice-president of development. And well-known chains are poised to outrun independent burger joints because of the younger generation’s attraction to brands. “From clothes to restaurants, branding is everything to kids now,” says Heos. “Young people are not as willing to accept things that aren’t branded.”

Harvey’s expansion plans include markets big and small. Most will be in Quebec, which has fewer than 50 Harvey’s, as well as in Manitoba, Saskatchewan and B.C. Many small towns in those provinces are underserved by burger chains, says Heos. In big cities, he’s confident Harvey’s will stand out from rivals because its brand is clearly differentiated; its marketing stresses that its burgers, unlike those at McDonald’s and Wendy’s, are made fresh and garnished to each customer’s specifications.
Besides a proven concept, Harvey’s offers franchisees a comprehensive 10-week training program and marketing support such as advertising, promotions and in-store merchandising materials. What’s more, with Cara’s depth of experience €” it’s one of Canada’s largest restaurant companies, with well-known brands such as Swiss Chalet and Kelsey’s €” franchisees can draw on its scale and expertise in marketing, real estate and product development. They also enjoy prompt support, says Masad, who owns two Harvey’s franchises in Ontario, in Alliston and Wasaga Beach: “When someone from head office says they’ll be here on Wednesday to resolve my issue, they’ll be here Wednesday and the issue will be resolved.”

Joining the Harvey’s network requires $450,000 to $650,000, including a $25,000 franchise fee. That’s more affordable than McDonald’s, where the average price in Ontario is $1.2 million, and full-service restaurants such as Swiss Chalet, which are often triple the size and have more expensive equipment. Revenue at the average Harvey’s outlet is about $1 million, says Heos.

In a prospective Harvey’s franchisee, Cara looks first for a history of success. “Maybe you’ve owned other businesses or done well in the corporate world,” says Heos. Equally important, he says, is a genuine passion for serving others.

Human-resources management is the most difficult part of the job. Heos says many QSRs suffer from high employee turnover because workers tend to be younger and more transient. “A dictatorial leadership style leads to huge turnover,” says Newmarket, Ont. franchisee Scott. “From my cashier to my [hamburger] garnisher, everyone has some level of ownership over the things they are responsible for.” His outlet boasts just 15% turnover in a sector in which 150% isn’t uncommon.
Another success factor: location. The most profitable outlets usually have drive-through windows. These yield 25% to 45% of sales while reducing costs (drive-through customers don’t dirty the tables or use the washroom), but aren’t feasible if space is too tight or the municipality bans them.

Potential franchisees must also carefully research local demographics. Scott says his sales to South Asian customers dropped immediately when Cara took fish off the menu. Indeed, says Woodburn, “If you’re in a Muslim area and don’t have halal burgers, you have a problem.”

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