A member of the catering equipment market got to feel the wrath of the Dragons’ Den panel firsthand after going on the hit BBC show in search of a £100,000 investment in his business.
Dominic Ricciardi, owner of refurbished catering equipment supplier Caterquip, was shown pitching his idea for franchising his existing business on last night’s episode.
Ricciardi — whose franchise plans were first revealed here by Catering Insight back in February — told the Dragons: “In last three or four years I realised there was a large gap in the market, so we are looking to roll out a franchise proposition across the UK. Each franchisee will have a territory of around about 3,500 customers and each customer we estimate will spend about £5,000 on their catering equipment. That’s an average of around £17.5m, per territory, of value of customer spend.”
Ricciardi said current customers included Corus Hotels, McDonald’s and Marks & Spencers, and confirmed he was looking for a £100,000 investment in return for 10% equity in the new business, which essentially becomes a franchisor.
Ricciadi revealed to the would-be investors that his secondhand catering equipment business made a net profit of £170,000 on sales of £1m last year.
However, things quickly went downhill after Ricciardi told Deborah Meaden that should Caterquip sell all the regional territories, the enquiries that come through its office would eventually be filtered down to the franchises anyway.
“I have opened a can of worms there that I wasn’t expecting to open,” she retorted. “So it is going to be a separate business that is still completely integrated in the original one. If it works with my money then you phase out your existing business and if it doesn’t work then it is actually ok because you have ringfenced your £170,000? I am not going to ask any more questions because I am fascinated to see if any of these other Dragons can see any attractive point in that whatsoever.”
Fellow Dragon Theo Paphitis was also unconvinced, branding the investment opportunity “ridiculous”. He barked: “Sometimes in life, after you have been in business for a very long period of time, you have a gut instinct, and when somebody offers you 10% of a new business with all the risk in it you automatically put the barriers up and think negatively of that opportunity.”
Ricciardi said he planned to sell franchise licences for £41,000 a time, with franchisees charged a management fee equal to 8% of turnover, as well as a 2% marketing fee.
Duncan Bannatyne, whose business interests include hotels, health clubs and spas, argued that there was no incentive for a potential franchisee to invest as Ricciardi was only offering a service that people could set up themselves.
“I have got over 60 kitchens and when one of my facilities requires secondhand equipment they use a local person that comes in and does all that,” said Bannatyne. “Why would they want to buy a franchise? They can just set up and just start doing it.”
Ricciardi said that as well as secondhand equipment, franchisees would be providing new catering equipment, sundries, chemical supplies and oil filtration products.
But while none of the Dragons agreed to put any cash in, Meaden had at least cooled down by the end of the exchange to offer some words of encouragement: “My advice to you is if you are right about this, be your own first franchisee. The only thing that would convince me to hand you my money would because you could say to me, ‘I have done it’. A track record is a whole different ball game.”
Ricciardi’s encounter with the Dragons certainly hasn’t put him off pursuing his franchise plans, however. In fact, since the programme was recorded he has sold his first territory in Plymouth, a second franchisee is close to opening in Cardiff and plans are afoot for a third in Norfolk.