CHICK FIL A Franchise Startup Cost, Revenue and Profit Margin
Investing in a franchise has increasingly become attractive. Why is this so? It’s simply because franchises have a higher rate of success when compared with start-ups. We are going to focus on the Chick-fil-A franchise. This franchise opportunity has proven to be among the foremost fast food restaurant businesses in America.
Details about the Chick-Fil-A franchise model and every other information you need to know will be unveiled.
You need all the information you can find before venturing into this line of business. One of such is that you will be using the Chick-fil-A business model. This includes receiving the necessary training to follow its tradition of excellent management, access to its ongoing support and national advertising. You don’t need to have prior experience before owning a Chick-fil-A franchise. All required training will be provided by the franchisor.
You get to enjoy the independence of owning a small business while enjoying the immense benefits of a large business network. The Chick-fil-A franchise has ensured that the franchisee has a higher chance of success. This is clearer when compared to starting a similar business from scratch. One of several supports it has provided includes financing and ongoing support among others.
Is Chick-fil-A a Franchise?
The Chick-fil-A franchise is a private business with headquarters in Atlanta, Georgia. Its business activities are mainly in the restaurant industry. Founded by S. Truett Cathy, it was founded on May 23, 1946. It initially operated as Dwarf House before being renamed Chick-fil-A in 1967. This franchise has witnessed huge growth with over 2,200 locations. It posted revenue of US$8 billion in 2016.
With Dan T. Cathy as its CEO, and owned by the Cathy family, Chick-fil-A specializes mainly in chicken and sandwich dishes. This business serves the United States and Canada. In 2016, each Chick-fil-A restaurant earned an average of $4.8 million per restaurant. This has made it the most profitable fast-food restaurant, and a great investment to consider.
Important Things You Should Know
If you have an interest in owning a Chick-fil-A restaurant, there are important things you need to know. These include the following;
- The Chick-fil-A Franchise Wants More Control
What does this mean? It simply means that this franchise does not allow much flexibility with ownership like other fast-food restaurants. Its franchisees are called operators. This gives you a picture of the role it plays in the ownership and operational process. First off, the location of the restaurant is chosen by the company. The restaurant itself is owned by Chick-fil-A and not the franchisee (operator).
Because of the restriction on ownership, the franchisee (operator) cannot sell the location. Also, the operator cannot transfer ownership from one generation to the other. You are restricted from owning a single location. This can limit your level of profits. Hence if you are thinking of investing in this franchise, these are some limitations you will face.
- Becoming a Chick-fil-A Franchisee (Operator) is not Easy
According to AOL, Chick-fil-A receives a whopping 20,000 applications from prospective franchisees each year. Out of these applications, only a paltry 75 to 80 applications are considered. This makes it one of the most sought after investments in America. Are there some requirements you need to meet? Absolutely! The most important include;
- You must be result-oriented with a passion for growing a business.
- You should be ready to handle a full-time business opportunity. Chick-fil-A does not consider part-time ownership. This factor allows you to be fully immersed in running your outlet. It is not surprising that it has witnessed impressive growth.
- Business leadership is an important track record you must possess to be considered.
- You should be able to show proof of having an excellent capacity to manage your finances
- Finally, you are not expected to have a side business. This might seem a bit restrictive but that is what is required. The franchisor wants you to be fully dedicated to running your Chick-fil-A franchise.
Having a strong recommendation from your references will increase your chances of standing out from the pack. A thorough selection process is carried out that borders around these factors. This enhances the chances of success and also the caliber of operators eventually chosen.
- Chick-fil-A Pays The Start-up Costs
So why are there tons of applications coming in despite several restrictions? As a Chick-fil-A franchisee (operator), you only get to pay the $10,000 franchise fee. Other expenses are borne by the franchisor. Some of these expenses include the choice of location, purchase of the real estate, building the restaurant and also acquiring all necessary equipment. Little wonder the franchisor wants to maintain its ownership.
This opportunity allows you to own a thriving business and part of a solid brand with just a $10,000 investment.
This is significant when compared with similar businesses where you need to commit upwards of $1,000,000. So, if you wish to become a part of this successful fast-food brand, then you should carefully consider the above requirements with a view of meeting them.
- Chick-fil-A Expansion Plans
This restaurant franchise has embarked on expansion plans to cover more states by opening new outlets. This is good news if you live in any of the following states; Oregon, Pennsylvania, Wisconsin, Washington, Utah, Texas, and Rhode Island.
Other states include California (with special focus on San Francisco Bay, L.A. County, San Diego County, and Orange County), Arizona, Florida (specifically Southeast Florida), Colorado.
More areas include Connecticut, Maryland, Kansas, Maine, Georgia, Illinois, Iowa, Minnesota, Massachusetts, Michigan, New Hampshire, Missouri, Nevada, Nebraska, New York (with special focus on New York City and Long Island), New Jersey and North Dakota. The franchise is focusing on these 28 states.
It may cover other areas in the nearest future. To find out more, it is necessary to attend operator events nearest to you.
- This is Not an Investment!
This may sound strange to you, but that is what the company says on its website. The company is only interested in individuals who want to go the extra mile by being a part and parcel of the business. What does this mean? It means that you should be fully engaged in its daily running and shouldn’t own other businesses. This policy has helped it sustain steady growth in all of its locations.
If you are interested in becoming a Chick-fil-A franchisee or operator, you should have the right mindset when applying. Having a short-sighted view of being a good investment opportunity alone can disqualify you. Your commitment and capacity to deliver are of utmost importance to this franchisor. You must possess an entrepreneurial spirit, passion for serving others and have some depth in organizing and running a business efficiently.
How Much Does Chick fil A Franchise Cost?
This has been mentioned earlier. However, for the sake of emphasis, all that is needed to open a Chick-fil-A restaurant is a franchise fee of $10,000. This presents you with an opportunity of grabbing an incredible offer.
However, you need to have met all of its requirements as listed above. Lots of applications are being turned down annually. Most of the set-up costs are borne by the franchisor, hence its greater control.
Only 0.4% of applications representing 75 to 80 new franchisees out of 20,000 applications ever get selected. Despite its one-day off policy (operators are allowed to close on Sunday), the company has posted huge growth. This is evidenced by its 2017 revenue which revealed over $9 billion. There are some initial investment details you need to know.
Estimated Initial Investment
The following are some estimated initial investment you need to know. As mentioned earlier, a large part of these expenses is borne by the franchisor. However, the business will have to eventually pay for these. They include;
- The Initial investment fee. This has a fixed rate of $10,000.
- Opening inventory starts from $14,850 to $99,500.
- There is also the cost of the first month’s lease/sublease of premises. This starts at a low of $2,250, and a high of $51,255.
- The first month’s insurance expense has a low of $215 and a high of $7,800.
- Additional funds range from $237,200 to $2,104,900.
Details of Other Types of Fees
Several other types of fees will be paid by the business. What are these fees? They include;
- The business services fee. This is charged at $300
- The Advertising Fee. Now how much this cost is determined as a percentage of Gross Receipts or a vote of Operators in regional or local areas. The fee ranges from 0% to 3.25% as determined by Chick-fil-A.
- Rent. The rent starts from $2,250 to $51,255 including percentage rent where applicable.
- Insurance ranging from $215 to $7,800.
- Business Services fee at $300.
- Equipment Rental from $750 to $2,000.
- Hardware and Software Support; High-Speed Internet Access. This starts from $1,000 to $4,500 per annum.
- Fines- Minimum Standards and Procedures- This has a varying cost and differs according to circumstances.
- Holdover Liquidated Damages- This is double the base rent and percentage rent.
Benefits of Becoming a Chick-fil-A Operator
There are several benefits you stand to gain by becoming a Chick-fil-A operator. While some of these have been listed, others include operating an international brand. This franchisor has demonstrated its capacity to operate a unique and successful business model. While there are restrictions on you as an operator, it also allows you to become a part of your success story.
The $4.8 million average earnings by each Chick-fil-A restaurant in 2016 is a testament to the fact that there are immense opportunities to benefit from it. Benefits derived do not end with profits alone. The stringent selection process means that you successfully scaled through a vetting process that validates your capacity to deliver.
Having a Real Passion for a Restaurant Franchise
From what we have discussed so far, earning profits is not enough. Chick-fil-A requires you to be fully engaged.
Without really liking the job, you will eventually fail. Profits are only guaranteed if you love the job. You will be involved in running your Chick-fil-A franchise 6 days a week! Therefore, your experience will eventually come to bear. The best part is you also continue to learn on the job.
The Training Program
Despite demonstrating a capacity for business leadership, you will still need to undergo a training program. This training program involves several aspects of effectively running a Chick-fil-A outlet. So, what are the things you will be learning? The training program will cover accounting, customer relations, food preparation, planning, purchasing, marketing, company policy, and maintenance. These are the major areas to be focused on.
As time goes on, the franchisor will provide ongoing training. These will take the form of seminars, conferences or refresher courses. The initial training program is carried out in the franchisor’s corporate headquarters located in Atlanta, Georgia. The duration of this training program may vary, but it typically lasts 5 to 6 weeks long
Why is there a Stringent Selection Process?
This question will be asked by a lot of people. However, while the low franchise fee is one of the reasons, another reason is that it wants its business to succeed. While a lot of other franchise opportunities would accept everyone, Chick-fil-A does not. The level of success it has achieved is a testament to the efficacy of its policies. You get to benefit from the experience of running one yourself.
As a Chick-fil-A franchisee (operator), you are allowed to operate one licensed unit at a specific licensed site as chosen by the franchisor. However, as a Chick-fil-A operator, you are not granted an exclusive territory. Hence, you may be facing competition from other franchisees (operators). These competing franchise outlets are either affiliates of Chick-fil-A or may be directly owned by it. The terms of operation are captured in the Operator Agreement to be signed by you and the franchisor.
Before applying for an operating license, prospective franchisees will be interested in knowing the spread of this company. While we earlier stated that it is currently establishing more outlets in 28 states, the Chick-fil-A franchise has over 2,200 restaurants spread across 47 states. These are being increased to cover more locations. With current expansion plans, it is believed that it will soon have a presence in all 50 states.
How to Apply for an Operator Status
Becoming a Chick-fil-A franchisee follows several procedures. The first involves filling an online “expression of interest” form. This is then followed by a formal written application. What follows next is a recorded live video interview in addition to a physical interview conducted by the franchisor. Your leadership skills and business experience are scrutinized during this session.
How Have Chick-fil-A Franchisees (Operators) and Employees Fared?
One interesting area to consider when applying for a Chick-fil-A franchise is to find out how its franchisees have fared. This allows you to measure how successful you will be with your Chick-fil-A unit is eventually considered.
Research has shown that Chick-fil-A has an impressive percentage of franchisees that have held units for upwards of 20 years. Its franchisee dropout rate was discovered to be less than 5%.
Chick-fil-A employees have also been treated well. This has led to long-serving employees who have been allowed to move up the ladder through several incentives. The success of its business model has made it one of the most sought after fast-food restaurant franchises. Sadly, many competitors do not seem to be interested in replicating its business model.
Though many of its competitors are open for business 7 days a week, the Chick-fil-A franchise has restricted its operations to 6 days only. This means they do not open on Sundays. Yet they are much more profitable than other competing franchises. Their outlets have posted an average growth of $4.4 million each! (In 2016). This is massive because most competitors have an average of $400,000 in revenue generated.
Why Some Categories of Investors are Reluctant in Applying for a Chick-fil-A Franchise
With so many benefits and huge revenue figures posted by all its outlets, you may wrongly assume that everyone is interested in starting one. However, this is not true. Brokers, investors, sports celebrities and many others are not too interested in owning a Chick-fil-A franchise.
But why is that so? We must examine these reasons. This helps you make informed decisions on whether the business model suits you or not.
- You will be Buying a Job
This simply means that instead of owning a franchise where you have some level of flexibility, including absentee ownership, the same is not true for Chick-fil-A. As a Chick-fil-A franchise operator, it is mandatory to be fully involved in its day to day running. Also, you are not allowed to own other businesses. This is much similar to buying a full-time job. Absentee ownership is out of the question.
With this highly restrictive rule, it makes it difficult for many to develop an interest in starting one. A lot of prospective franchisees (operators) are discouraged when they learn about this stringent measure. Most people will want to have their freedom of running their franchise the way that seems best to them.
- You Own Nothing as a Franchisee
For most businesses or franchise opportunities, franchisees are allowed to sell their business or pass it on to their family when they want to retire. The same cannot be said for a Chick-fil-A franchise. As an operator, you own nothing at all. This is the major reason why they address franchisees as operators. This has led to opposition in some states.
The argument is that operators are more like employees rather than franchise owners. Your lack of equity means you have absolutely nothing to sell. Having these restrictions has led to many preferring to avoid the opportunity altogether.
- You Have No Say on Where the Store will be Located
This may seem strange to many, however, that is the reality. As a Chick-fil-A franchisee (operator), the choice of a location is solely the responsibility of the franchisor. As a result, a selected location may be unsuitable to you based on distance and other factors. You will be lucky if a location that suits your needs is chosen. This decision on the choice of location serves the interest of the business more than that of the franchisee.
- Multi-Unit Ownership is Not Allowed
It is common knowledge that a lot of franchises offer their franchisees the opportunity to own several units. Many franchisees invest in multiple franchises. Others operate several units of the same franchise.
With the Chick-fil-A franchise, you cannot do that. You are restricted from running a single franchise unit. This ensures that all your attention is fully focused on that unit.
- Low Earnings
Now you might be surprised. What happened with the huge revenue posted by its many units right? As an operator, you get to only receive 5% to 7% of the total gross profits generated. Breaking this down further, it means that if your Chick-fil-A unit generates sales of $1,000,000, your earnings will be $50,000 (using 5%). For $3,000,000, you will earn $150,000 per annum.
Now, this can translate to good pay if you were an employee, but as a franchise owner, it is significantly low. This lends credence to our earlier narrative of buying a job.
- Stringent Selection Procedure
The selection process alone can be tiring! We earlier discussed that Chick-fil-A receives over 20,000 applications per annum. Out of this number, only 75 to 80 are considered, making 0.4% of approved applications. A lot of persons do not have the patience to go through this rigorous process.
These are some of the reasons certain categories of investors are reluctant to apply for this franchise opportunity. A lot of people will prefer that Chick-fil-A is more accommodating and less stringent. However, if they had operated as others did, they would not have become the success story they are today. Its unique business model has resulted in great success, and no one wants to put a stop to a winning formula.
These are some of the basic and most pressing questions about the Chick-fil-A franchise you need to know about.
Although applying for one and getting approval is not an easy process, the business offers you a strong chance of succeeding by ensuring that its business model is strictly adhered to. This has led to people running successful businesses for decades.