How To Buy A Fast Food Franchise

One top performing Chick-fil-A restaurant reported sales of over $17 million in 2021, more than double the average per unit sales volume for the chain, according to Chick-fil-A's 2022 franchise disclosure document. Additionally, the average McDonald's restaurant logs about $4 million in yearly sales.

how to buy a fast food franchise

However, opening a franchise requires a hefty amount of cash to cover the startup costs. For example, you must have at least $500,000 in liquid assets to open a McDonald's and $750,000 to open a Taco Bell.

Insider compiled a list of some basic financial requirements for becoming a franchise owner of 12 of the biggest fast-food chains in the US, listed in alphabetical order. The below values are based on "traditional" franchise locations, meaning they are stand-alone restaurants as opposed to units in airports, malls, universities, or other buildings.

Ongoing fees: Chick-fil-A franchisees pay a "base operating service fee" of 15% of sales and an additional fee of 50% of net profits. Chick-fil-A limits its rent charges to 6% of sales.

However, it's important to note that Chick-fil-A prohibits most of its franchisees from opening multiple units, which can limit potential profits, and franchisees must devote their full time and attention to operating the business. A Chick-fil-A spokesperson told Insider it selects "a relatively small number of franchisees to operate multiple units."

Startup costs*: $1.36 million and $2.45 million. For new restaurants, the bulk of those costs cover signs, seating, equipment, and decor, according to the chain's franchise disclosure report for 2022.

Additionally, there are numerous monthly and annual fees franchisees must pay, including a monthly service fee equal to 4% of gross sales and more than $11,000 in annual fees for support and maintenance of restaurant software and equipment such as payment processing systems and kiosks.

Ongoing fees: Papa John's charges a monthly royalty fee of 5% of net sales that is due on a monthly basis. Papa John's also requires that franchisees spend 8% of net monthly sales on marketing.

Since there are so many fast food franchises available, startup costs vary widely from about $200,000 to over $2 million. Many fall around $300,000 to $500,000, including everything from the initial franchise fee to other startup costs like restaurant equipment. Many also charge royalties or a monthly service fee.

Fast food franchises are quick-service restaurants that use a franchise system to grow. Independent operators run their own locations, connected to the larger brand. READ MORE: See our Franchise Guide The Fast Food Restaurants Industry in 2022The fast food industry is still popular even with supply and worker challenges. Fast food joints continue to offer cost-effective and convenient options that customers value.

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.

To better understand the capital required to acquire and launch a fast-food franchise, The Hustle spoke with more than a dozen franchise owners and analyzed data from franchise disclosure documents filed by 22 of the largest domestic chains.

For this reason, the estimated cost of a franchise is listed as a range in franchise disclosure reports. The chart below visualizes the lowest and highest range of what a given franchise might cost. (We ranked the results by the highest estimate.)

When properly leveraged, this model is a win-win for both parties: The chain can expand quickly and pass off the financial liability of owning and operating a store; the franchisee gets to own a business with a pre-established brand and a built-in customer base.

Food production in fast food restaurants, also known as quick service restaurants (QSRs) or limited service restaurants, is focused on immediate consumption. Fast food meals are commonly taken out or delivered. However, some fast food franchises offer limited on-site seating.

A common feature of fast food franchises is the drive-thru, allowing for quick, safe, and convenient order and pick-up of menu items. While some fast-food franchises focus entirely on this approach, others offer limited on-site seating.

Fast food restaurant seating facilities are made for speed rather than comfort. The seats are often benchlike, offering a place to perch while eating rather than the comfort of a chair for a more extended stay. Customers usually eat without utensils, and supplementary items such as cups and napkins are disposable.

The fast-food industry in the United States is currently worth a whopping $239 billion each year. For anyone hoping to enter this super-competitive marketplace, you can never underestimate the value of established branding and a familiar menu!

The amount necessary to open a franchise can vary widely depending on the unique business system and execution requirements. The opening costs for a fast food franchisee can depend on many factors, including but not limited to: the franchise fee, land and building costs, training expenses (such as travel and living expenses, not the actual training courses), grand opening advertising and marketing costs, and more.

One of the most important variables in how much it costs to open a franchise is the type of franchise being opened and how big it is. Commonly, the two types offered are traditional and non-traditional. Traditional franchises are usually the biggest option. They are typically standalone buildings where the service of the franchise is the only business offering. Sometimes food court locations are also considered traditional locations. Non-traditional franchises are smaller, and typically located within another building like an airport or gas station. Other franchise types include kiosks and food trucks.

A ghost kitchen is a shared working space for multiple restaurant concepts to prepare food. These spaces reduce financial overhead by using delivery or to-go-only operation. No dining rooms or servers. By foregoing any on-site dining, they can offer a diverse menu of food options at reduced cost levels.

For example, Combo Kitchen and The Local Culinary are two newer franchises that have tailored their franchise offering around being lean and efficient. Both concepts offer the franchisee a chance to serve customers menu items from several (upwards of 50, in some cases) types of food from one hub. According to the franchisors, franchisees and their staff will be fully trained on how to prepare the menu items from each of the restaurants they select for their kitchen.

It's safe to say that there's absolutely no shortage of fast-food venues in the United States, so anyone entering this competitive space as an independent concern has a significant battle on their hands to break through the noise of the principal players.

Fast food franchises offer choices that customers already know and rely on. So, fast-food franchises are a wise investment, allowing new business owners to benefit from pre-existing demand and the marketing budgets of their parent companies.

The franchise parent company usually provides world-class training opportunities and management programs for franchise owners and their staff. They also often extend their support package beyond opening day; helping with your new business's complex administrative setup and running.

Fast-food restaurants serve meals at a low price point with a limited menu and table service. The majority of fast-food franchises are self-service affairs, where the customer queues to order their food and usually clears away their own tray after eating. This brings the running costs for QSRs down, allowing for higher profit margins.

In 2017, there were almost 191,000 fast-food franchise outlets across the US. And while the customer service is limited, the US public loves their fast food joints. In fact, the average American Customer Service Satisfaction index score for fast food franchise restaurants was an impressive 78 out of 100 - that's almost 8/10.

Many fast-food franchises have developed partnerships with online food delivery services such as UberEats and Deliveroo to extend their reach, offering the convenience of home delivery. This online marketplace has proven crucial during the COVID-19 pandemic, allowing fast-food restaurants to remain in operation.

Fast food franchises don't just offer fatty, unhealthy, deep-fried fare. Almost half of the US population aim for healthier options when selecting items from a menu, so those chains that accommodate the health-conscious, such as Subway, thrive.

In recent years, McDonald's has introduced lower-calorie options, and KFC has even started to appeal to the growing interest in veganism. A third of the American public eats from a fast-food venue on a daily basis; those that offer healthy options are the businesses that appeal to the younger generations.

Depending on the size of the franchise company you're considering, you'll need a considerable upfront investment. Most people, of course, don't have access to ready funds, so they need to rely on banks and moneylenders.

Independent companies, however, often battle to raise their necessary startup collateral. When they do achieve it, the interest rates are usually higher than those enjoyed by franchise businesses because their new business plan has no evidence of viability. Also, independent companies often go into business without the support of an established partner, unlike franchises who benefit from their parent company's business acumen and expertise.

Fast-food franchises tend to hit the ground running as soon as they open their doors because of the immediate visibility and familiarity of their branding and a menu that local customers already know and adore.

Fast food is the most popular segment of franchising. How much does it cost to open one of these franchises? We listed the opening estimated initial investment ranges and more for 10 of the most well-known fast food franchises here. 041b061a72