Best Franchises To Start With Low Investment – Chick-fil-A receives over 40,000 applicants each year. Chick-fil-A franchise fee as low as $10,000; seems like a good investment at first glance. But there are strict Chick-fil-A franchise requirements and a lengthy approval process, resulting in an acceptance rate of less than one percent. The franchise fee is not the only cost. So how much does it cost to open a Chick-fil-A franchise, and is it worth it in the long run? Here are some reasons why franchising is such a hot commodity and why it might be a less-than-affordable option.
Chick-fil-A has been rated “Best Chicken Sandwich” by several food blogs year after year. Where does the company stand in terms of investment value and what are the franchise requirements for Chick-fil-A? This is where things get a little confusing.
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Chick-fil-A’s initial franchise fee is only $10,000. This is relatively low, as the industry average for franchises like Taco Bell and McDonald’s is upwards of $40,000. But when you compare Taco Bell or McDonalds to Chick-fil-A, you’re not comparing apples to apples. Chick-fil-A’s franchise fee is so low because the company wants to retain ownership of the franchise and make all purchasing decisions (more on that below). The initial investment is within the industry average and ranges from $265,000 to $2.2 million.
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The average Chick-fil-A restaurant generates $5.3 million in annual gross sales. That’s amazing since close competitor Popeye’s averages $1.5 million a year. franchise location and quick service restaurant (QSR) industry leader McDonald’s earned an average of $2.7 million. That said, gross sales and net profit are two very different things, and profit margins in the QSR sector are very, very thin—often 5 to 10 percent even for the best operators. Franchise Business Review’s latest study on food franchising found that the typical food and beverage franchisee takes home an average annual income of $120,000 – and our top-rated food franchises average 15 to 20 percent more than that. Although Chick-fil-A does not release any operator revenue figures, Franchise Business Review estimates that the average restaurateur earns a very respectable income in the $150,000 range.
If you’re interested in a business that essentially runs itself and wants minimal involvement in the background operations, Chick-fil-A is for you. The franchisor takes care of most of the dirty work: choosing a location, buying real estate, financing the construction and acquiring the necessary equipment. The franchisor also covers accounting, service and customer relations, maintenance and marketing supervision.
There is little risk, which is every businessman’s dream come true. Chick-fil-A’s operator (franchisee) retention rate has been 96 percent over 50 years. Many Chick-fil-A franchisees love what they do and strive to make sure their employees are happy, too. Lynnae Schneller, who owns the Tacoma, Wash., location, says Chick-fil-A has “brought our family and community together in a new way.”
There are many reasons why a franchise might not be the right choice: you don’t agree with their policies and morals, you don’t like the product, and the list goes on. However, the information below can create serious obstacles for potential Chick-fil-A franchisees. Don’t let that put you off though, as there are plenty of other options on the market these days (which we’ll cover later in the article!).
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While this may be the case with some franchises, most offer the option of having multiple locations. Chick-fil-A does not, allowing only one franchisee per unit. This can mean lower profits as you are limited to just one location.
The company wants its franchisees to be completely hands-on and dedicated only to their Chick-fil-A franchise. In other words, if you are a serial entrepreneur: this is not the right franchise for you. They do not give a clear rationale for this, but one can conclude that the company is not interested in creating conglomerates and values quality over quantity.
Much has been written about the culture of the Chick-fil-A franchise. Closing these restaurants on Sundays is just the beginning. The company has a long history based on conservative, religious values. Some people find this appealing and one of Chick-fil-A’s greatest assets as a company. While others would rather be part of a more open, accepting culture. Company culture and values are clearly important when considering franchise investments.
It’s no secret that getting a Chick-fil-A franchise is difficult; even Environmental Protection Agency chief Scott Pruitt couldn’t get one for his wife Marilyn. According to an article in The Washington Post, Chick-fil-A takes on only 100-115 franchisees each year out of 40,000 franchisees. This means that only 0.25 percent of applicants will be selected (your children’s chances of getting into Harvard will be better!). Furthermore, they will not select franchisees who:
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Chick-fil-A has one of the lowest investment requirements in the QSR industry, but that’s because as one of their operators, you don’t actually own the business. In most cases, Chick-fil-A owns the land, building and equipment that they lease to their operators. It really is more like renting than owning a home. When your franchise agreement with Chick-fil-A ends, you own nothing — a deal-breaker for many entrepreneurs.
“Chick-fil-A is a very different franchise animal,” said Eric Stites, founder and CEO of Franchise Business Review. “Of course it’s cheap to get in, but it’s also almost impossible and you don’t own a business that turns Chick-fil-A into a business. For many people, the choice to go into business is to build long-term wealth. equity… to build valuable assets that you can eventually sell or to pass on to your family. That’s not the case with the Chick-fil-A franchise opportunity.”
If you find that Chick-fil-A isn’t the right franchise choice for you, here are some great alternatives that you can find in our list of top food franchises.
Named the best food franchise by Franchise Business Review for the past eight years, Checkers and Rally’s has satisfied franchisees and unparalleled support. The franchise fee is $30,000 and the initial investment is between $593,000 and $820,000. Their Franchise Disclosure Document (FDD) describes a 62.2 percent return on investment on average annual sales of $1,028,053, and veterans don’t have to pay a franchise fee.
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This fast food chain has long been an American favorite for both food and franchise opportunities. The fee to open a Wendy’s franchise is $40,000 per unit (they call it the “Technical Assistance Fee”) with the option to own more than one unit. Estimated initial investment ranges from $2 million to $3.6 million and annual revenue per unit averages $1,600,525, based on 2018 franchise disclosures. Beyond profitability, the placement options are endless: airports, entertainment venues, and even hospitals.
Donato’s Pizza is a force to be reckoned with, averaging over $1 million in net sales annually and over $2 million annually for their top restaurants. They have a total of 160 franchise locations across the country and continue to grow! The initial investment for a Donatos franchise ranges from $375,000 to $699,900 and the franchise fee is an industry average of $30,000.
East Coast Wings and Grill is not a quick service establishment. Compared to other industries, the investment is favorable. The total initial investment for an East Coast Wings and Grill franchise ranges from $658,875 to $1,133,502, which is quite low compared to similar restaurants (for example, Buffalo Wild Wings has a minimum initial investment of $1,997,700). The franchise fee is $40,000 and average net sales (per unit) in 2017 were $1,573,714 with a net profit margin of 15 percent.
The food and beverage franchise segment offers potential franchisees many viable opportunities, many of which are profitable and manageable. Chick-fil-A is a very desirable franchise to own, and while it may be the right choice for some, it’s definitely not for everyone. We hope we’ve made your decision a little easier, and if you’d like to learn more about the food and beverage segment, check out our list of top food franchises.
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