A Chick-Fil-A Franchise Costs only $10,000 and Makes 4.5 Million - What's the Catch?
To become a franchise owner of a Chick-fil-A restaurant only costs $10,000. Compare that to a McDonalds which will cost you between $1,314,500 to $2,313,295 to open a location, a Burger King costs up to 3 million to buy a location, and a Subway as much as $470,000.
So why doesn't everyone just buy a Chick-Fil-A, and why do people even consider other franchises. Well the Chick-Fil-A franchise model is different from other franchises for a number of reasons.
1. Most franchises allow you to own and run other businesses as long as they are not in direct competition. Chick-fil-A wants you to be an active owner/operator and work directly in your location. You wont ever see a celebrity invest in a franchise like Chick-Fil-A as they wont allow you to install a remote manager to run your location. Now obviously this strategy has worked as their locations are highly successful. But if you want a passive or semi passive franchise, Chick-Fil-A is not a good option.
2. You won't build any equity in the business. So in a traditional franchise agreement yes, you have to invest more money, but you can build that business up and eventually sell it, potentially for millions of dollars. With Chick-Fil-A, because they are providing most of the money for the stores, which is likely millions of dollars, they retain the equity and ownership. So if you decide to leave the business, you just walk away and do not receive and equity share.
3. Chick-Fil-A has received a lot of flak for their allegedly anti LGBTQ stance. Based on that the company has actually been rejected from opening stores in airport locations like San Antonio and Buffalo. As our world seems to be becoming more polarized, political pushback could increase in the future.
4. Owners do not get paid like a typical franchise owner. So in most cases a franchise owner will receive 100% of the revenues, then pay royalties of around 6-8%. So if you make a million dollars you will typically pay $60-$80,000 to the franchise. There are other fees and expenses of course. But Chick-Fil-A corporate, because they are the actual owners of the store, kind of switch those numbers around. How much do Chick-Fil-A franchise owners make? It's hard to get exact numbers but it is estimated owners receive between 5%-7% of the gross. So instead of you paying the franchise a small royalty, you get paid a small royalty. So at 5% if your store does 1 million you get $50,000, 2 million you get $100,000 3 million $150,000 and 4 million you get $200,000. So that would put the average store owner Chick-fil-A earnings at $225,000 per year at 5% and $270,000 per year at 6%. Not a bad return on $10,000.
5. Does it really only cost $10,000? Well yes and no, because beyond the franchise fee you will also need to carry your business until it reaches profitability. The initial franchise fee is only $10,000 yes, and that's all you need to get started - here again from the FDD, "the $10,000 initial franchise fee is the
only initial out-of-pocket investment you will be required to make to begin operation of your
franchised Chick-fil-A Restaurant business" and take note the money cant be borrowed, it must be cash in hand. But you will also need to pay opening inventory, to pay for the rental equipment, pay for your lease and insurance, utilities, employee payroll and more. The actual estimate taken from the Chick-Fil-A disclosure documents it will cost between $295,412 to $2,431,608 to open your Chick-Fil-A. Now remember - the lower number is likely representing a smaller location. Now as per Chick-Fil-A's documents those expenses will come from your revenue, so you do not need that amount to actually open the store as it will be deducted from your revenues.
If you are fine with the politics, with the equity and revenue arrangement, you have $10,000 and want to open a restaurant. Keep in mind Chick-Fil-A receives thousands of applications every year, some suggest up to 20,000, and they only open around 100 restaurants. In 2018 they opened 102, in 2019 149, and in 2020 only 74 new franchisee owned restaurants opened across the country. Some applicants had to wait over a decade before they were accepted, and of course thousands of people are never accepted at all. This makes Chick-Fil-A the most difficult franchise to acquire. It may not be for everyone, but most Chick-Fil-A owners are very happy with their decision, and their franchisee and employee satisfaction rates are some of the highest in the country. You can apply for a Chick-Fil-A franchise in the USA, Canada or Puerto Rico on their website at https://www.chick-fil-a.com/franchise
STEAK AND SHAKE FRANCHISE ONLY $10K - WHAT'S THE CATCH?