Sunday, January 19, 2020 Why it only costs $10k to ‘own’ a Chick-fil-A franchise The chicken chain is known for having the lowest entry cost of any major fast-food franchise — but there’s a catch. BYZACHARY CROCKETT In America, the majority of fast-food restaurants aren’t owned by the corporation itself, but by franchisees — individuals who pay for the right to use a brand name. Instead of buying and developing new properties with their own money, most national chains (franchisors) will allow a party or individual (franchisee) to front the development bill and take a stab at ownership in exchange for a cut of the sales. Many people dream of buying a fast-food franchise of their own, but few can afford it. All told, it might cost a franchisee upwards of $2m to develop, build, and buy the right to open a McDonald’s or a KFC. Many chains won’t even look at your application unless you have a net worth of $1m and $500k in readily spendable cash sitting around. But there’s an exception to this: A franchise at Chick-fil-A — one of America’s oldest, largest, and most profitable chains — can be yours for just$10k. Before we get into how this is even remotely possible, let’s first take a step back and look at the economics of a traditional fast-food franchise deal. How much does it cost to buy a fast-food franchise? To better understand the capital required to acquire and launch a fast-food franchise,The Hustlespoke with more than a dozen franchise owners and analyzed data fromfranchise disclosure documentsfiled by 22 of the largest domestic chains. For starters, it’s a feat just toqualifyto buy a fast-food franchise from one of the big players -- a franchisee has to beprettttttt-y pretttttt-ywealthy. The average chain we looked at requires an applicant to have aminimum net worth of $1m($500k of which is liquid). Burger chains and chicken chains appear to have the highest barrier to entry: To launch a Wendy’s, you need to have at least $5m in the bank, with $2m in liquid assets. $4.2m per store, Chick-fil-A’s average revenue is the highest of any fast-food chain in America, dwarfing both direct competitors (KFC; $1.2m) and bigger brands (McDonald’s; $2.8m). That’s especially impressive considering that all Chick-fil-A restaurants areclosedon Sunday. Based on these figures, Chick-fil-A’s 15% royalty alone (not including its 50% cut of profits) might work out to around $600k per store, per year. (And remember: It still owns the property and equipment.) This set-up can also work out to be a pretty sweet deal for Chick-fil-A’s franchisees. That is, if you can land the job. A lower acceptance rate than Stanford According to Chick-fil-A,60k peopleapply to be operators every year — and only~80are selected. With a0.13% acceptance rate, it’s harder to become a Chick-fil-A franchisee than it is to get into Stanford University (4.8%), get a job at Google (0.23%), or even become a special agent for the Secret Service (1%). Christian values” also doesn’t hurt an applicant’s chances). “You run every aspect of the restaurant six days a week,” says Jeremiah Cillpam, a Chick-fil-A franchise owner in Los Angeles. In return for 60-hour work-weeks, an operator might take home 5-7% of revenue (around$150-$250kper year). But from an investment perspective, certain things about being a Chick-fil-A franchisee aren’t so enticing: They don’t own the restaurant or equipment (everything belongs to corporate). They don’t have any equity stake in the business. In most cases, they aren’t permitted to “own” multiple locations. They aren’t permitted to run any other business. In essence, Chick-fil-A operators aren’t truly business owners — or even franchisees in the traditional sense. “When people start a business, they want flexibility and real ownership,” says Kenny Rose, CEO ofSemfia, a firm that educates people on franchise investing. “But as a Chick-fil-A franchisee, you’re basically just working a traditional management job.” “A war for pennies” Outside of FDD forms, financials on fast-food franchises are shrouded in mystery. Under FTC regulations, franchisors aren’t permitted to throw around earnings claims and franchisees are often hesitant to share their profit margins and ROI. According to the annual reports of publically-traded fast-food chains, margins for franchised restaurants are usually razor-thin, ranging from less than 1% (Pizza Hut) up to 13% (KFC). This can be especially true at enormous chains like McDonald’s, where overhead caneat into profitsfaster than the Hamburglar. Franchise Business Reviewfound that 51% of food franchisees earn less than $50k per year and only around 7% take in $250k. “As a fast-food franchise owner, you’re often fighting a war for pennies,” says Rose. “Food is the most competitive industry known to man: It has the highest investment level of any industry, the highest failure rate, and the lowest margins.” At Chick-fil-A, some of these risks are mitigated by a low initial investment, booming sales, and good margins — but this comes at the expense of true ownership.
I don't know if they still do it, but I remember about 20 years or so ago, 7-11 used to let people buy franchises for $25k and they bought the land and building and everything too. A lot of people in Nevada were getting in on that because they would put slot machines in the stores and make $100k per year just off the slots. Didn't matter if the business made money or not which is why you would see a 7-11 on every corner in places like las vegas.
The allure of franchising is to get ownership in a business. The reason why McD abd KFC require so much money is because you will truly own that business and be responsible financially. Chik Fil A seems to be more of a fake set up to make you feel like you own but you are basically and enployee with some profit sharing benefits. Chik found a way to franchise without giving away hardly anything..smart.