Franchising: Who Does it Really Benefit?

Patrick Gross, MGT 386, December 10, 2008

Last year Chick-fil-A opened roughly 70 new franchises throughout the United States. This is a surprisingly low number considering that they had over a 1000 applicants. Usually when a franchisee opens a new McDonald’s or Burger King they need to have extremely good credit and large amounts of capital up front close. Chick-fil-a only requires that you have 5000 dollars and strong moral fiber. How is it that Chick-fil-a does this? Is it a profitable business model for them? How well has it worked in comparison to other fast food restaurants.

Let me start by explaining why you only need $5,000 to open a Chick-fil-a. Chick-fil-a’s corporate office covers all the costs of starting the new franchise. They own the real estate, the building, and they even hire a start up team and pay for your training. They also send out a team of marketing consultants and operational consultants to assist you in an extravagant grand opening. This all sounds great but what is the catch? The catch is that for the rest of your career you have to pay Chick-fil-a 50% of you your net profits. In addition to that you are limited to one or maybe two franchises if you are lucky. On the other hand people still make a quality living being a Chick-fil-a operator. Take for example an owner example owner operator Brad Williams out of Suwanee, Georgia who lost year produced revenues at one Chick-fil-a a little over three million dollars. This produced a twelve month net profit close 440,000 dollars. Not bad for serving waffle fries and chicken sandwiches.

So is this a profitable business model for them? In my opinion, yes it is. The secret to this or any restaurant business is that it is all about the people. Due to the fact that you only need 5000 bucks to open one of these money makers, Chick-fil-a has thousands of applicants annually. The more applicants they have the more selective they can be in choosing quality individuals to run their restaurants. This model has provided them with MBA’s or entrepreneurs who have started their own restaurants. With quality people running their restaurants they do not have to worry about very many of them tanking.

If this is such a great business model for franchising why does every fast food restaurant not do it? I would argue that a company like McDonald’s or Burger King has operated with the same type of business model since it originated. I would also argue that Chick-fil-a’s business model is unique and provides them with a competitive advantage and it is something other fast food restaurants should be aware of.

In terms of the individual at this stage in my life I would apply for a franchise with Chick-fil-a and not McDonalds. I say this because I do not have millions of dollars in lines of credit but I think I could come up with a few thousand dollars. Also from a more personal perspective I believe in the same things that Chick-fil-a does from a corporate standpoint. I can easily identify with who they are as people and the reasons they do what they do.

References:

1. Eat More Chikin Inspire More People, Written By: Truett Cathy
2. Research Info from Business Honors Project (Attached Excel Spreadsheet)
3. www.Chick-fil.a.com