The Hustle took a deep dive into the world of fast food franchising earlier this week, and the findings are absolutely fascinating. Writer Zachary Crockett researched and analyzed the franchise agreements for 22 American fast food chains and talked to owners for a fuller picture.
In America, the majority of fast-food restaurants aren’t owned by the corporation itself, but by franchisees — individuals who pay for the right to use a brand name.
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.
It sounds like a good deal, but there’s always a catch, and here it is: the initial investment for most franchisees is steep, between $15,000 and $50,000, plus building fees, equipment, and inventory that can push the startup costs well above $1 million. As a guarantee, of sorts, that a franchisee will be good for all of this, franchisors also require a minimum net worth of $1 million, half of which must be liquid.
The one exception is Chick-fil-A, where the franchising fee is a mere $10,000. The company covers the rest of the startup costs. Franchisees aren’t required to have a certain amount of money in the bank, though stating on the application that you subscribe to “Christian values” does help your chances. Yes, there’s an application. While 60,000 people are called every year to Chick-fil-A, just 80 are chosen. Those are steeper odds than getting into Stanford, landing a job at Google, or getting into the Secret Service.
But—and it’s a big but—what Chick-fil-A giveth, Chick-fil-A taketh away. Every franchisor takes a cut of the monthly sales revenue—called a royalty fee—but for most chains, that’s just 4 or 5%. Chick-fil-A, though, takes a whopping 15%, plus half the profits.
This is all shaping up to be a game of Would You Rather, or one of those speculative exercises in risk and reward. So which would you choose?