This Chick-fil-A franchise report was written by Brian Bixler.
During the last few years, Chick-fil-A’s brand has certainly tested the old adage “there’s no such thing as bad publicity.”
Dan Cathy, president and CEO of the company, ignited a firestorm of controversy in July 2012 when he spoke out publicly against marriage equality in the United States. The comments led to calls for a boycott, a severing of ties with promotional partner Jim Henson’s Muppets, the company’s possible exclusion from the Chicago and Boston markets and even a same-sex “kiss-in” staged by the LGBT community in Chick-fil-A stores.
While Chick-fil-A might still leave a bitter taste in some protesters’ mouths a year and a half later, activists were somewhat mollified when the Civil Rights Agenda announced in the fall of 2012 that Chick-fil-A had ceased donating to organizations that promote discrimination, specifically against LGBT civil rights. It was also acknowledged that Chick-fil-A officials stated in an internal document that they would treat every person equally, regardless of sexual orientation.
By that time, the company had received support from Arkansas Governor and once-presidential-hopeful Mike Huckabee who used his pulpit to help Chick-fil-A achieve record-breaking attendance, thanks to supporters who listened to Huckabee’s call for appreciation, and increased sales an estimated 29.9 percent in one day with stores seeing an average of 367 more customers during the same period.
Average Sales Per Restaurant (Source: QSR)
Today Chick-fil-A’s brand looks no worse for the wear. If its image remains at all tarnished for customers, investors see nothing but a shiny, golden opportunity to be part of one of the most successful restaurant chains in America. In 2012, Chick-fil-A averaged $3.2 million in sales per store, topping even those of second-place McDonald’s Corp. ($2.6 million), with eight times the number of restaurants in the U.S., according to QSR magazine.
Chick-fil-A tops the industry in terms of average sales per restaurant. And while industry giant McDonald’s came in second, the list is generally dominated by fast-growing regional brands or niche chains with a loyal following. Most national brands, such as Burger King, Wendy’s, KFC and Taco Bell (not shown) are slower-growing and generally have average per-unit sales in the $900,000 to $1.4 million range, QSR reported.
2012 Average Sales Per Unit (in Thousands)
- Chick-fil-A: $3,157.9
- McDonald’s: $2,600.0
- Jason’s Deli: $2,556.4
- Krispy Kreme: $2,428.0
- Panera Bread: $2,427.2
- Chipotle Mexican Grill: $2,113.0
- Whataburger: $1,996.0
- In-N-Out Burger: $1,935.0
- Culver’s: $1,837.5
- Zaxby’s: $1,765.7
Currently, the company has more than 1,700 restaurants in 38 states and the District of Columbia and is focusing future growth in the Midwest and Southern California, as well as the Philippines, Canada and South Korea.
Growth like that can attract more than 20,000 franchisee applicants annually, according to the company, but it hand-picks only 70-100 each year. The company is most noted for having a franchise model unlike almost any other and may even seem at odds with the entire franchise concept.
Chick-fil-A Franchise Cost
“Chick-fil-A’s franchising strategy is unique in the fast food market. Anyone can become a Chick-fil-A franchisee for only a $5,000 fee. This is substantially lower than the fees of its nearest competitors, which can push into the tens or hundreds of thousands of dollars,” said a Yale School of Management case study on the company.
In exchange for the low entrance fee, Chick-fil-A demands a lot from its franchisees. In essence, it bankrolls and controls the operation, not only dictating the location, but also retaining ownership of the land, which cannot be sold or passed on to a franchisee’s heirs. It also covers the equipment and rents everything to the franchisee for 15 percent of the restaurant’s sales, plus 50 percent of the pretax profit. This compares to the 5-10 percent of gross sales charged by other franchise brands.
“Although the company considers you a franchisee, it will feel more like a partnership to you, and only those willing to follow the rules are invited,” says BusinessMart.com in its overview of Chick-fil-A.
Franchise Model Works
But the unusual model works and it may be because of another aspect of the Chick-fil-A brand. The lawsuits it has faced for discrimination, its founder’s unabashed profession of his Southern Baptist faith, whose philosophies guide the company, and, of course, the brouhaha over gay marriage have made Chick-fil-A one of the most famous corporations to espouse Christianity in America. Therefore, many of its “operators,” as the company calls its franchisees, are like-minded.
They are willing to remain closed on Sundays, which is just one of the Chick-fil-A rules.
“Chick-fil-A carries a thick rulebook and a big stick when it comes to their franchises, but smart investors with little capital won’t mind,” BusinessMart concludes.
So who is the ideal Chick-fil-A operator? The company points it out plainly on its website:
Becoming a Chick-fil-A Operator
You might want to continue researching an opportunity with Chick-fil-A if you:
- Are looking for a full-time, “hands-on” business opportunity.
- Have a proven track record in business leadership.
- Have successfully managed your personal finances.
- Are a results-oriented self-starter interested in growing a business.
- Are prepared to have no other active business venture.
This is not the right opportunity for you if you:
- Are seeking an investment or an equity position in a business.
- Want to sell property to Chick-fil-A, Inc.
- Are requesting that Chick-fil-A, Inc. build at a specified location.
- Are seeking multi-unit franchise opportunities.
- Would like to diversify your franchise portfolio.
“We’re seeking people with character rather than experience. If you can’t manage your own life, how do you expect to manage a business?” founder Truett Cathy told the Atlanta Journal Constitution.
He added that store operators are typically “family men” with track records of responsibility and good decision-making.
Strict Adherence to Training
Chick-fil-A has a very structured training program for its operators that must be completed before they can begin operation of a franchised Chick-fil-A restaurant. The multi-week sessions cover operations, food preparation, labor scheduling, accounting, maintenance, purchasing, policies and certain other applicable topics. Furthermore, the training program must be completed to Chick-fil-A’s satisfaction by at least two of the on-site, leadership level employees. Operators are offered additional development courses and franchise support.
Franchisees Hold Jobs for Life
If the demands put on Chick-fil-A operators eliminate some investors, there are plenty of additional entrepreneurs that want a piece of the chicken. While poor performance or defaults on payments may cause an operator to lose his or her unit (with their initial investment refunded) that rarely happens, according to the Yale report.
“Whereas turnover in franchisees can run high in the fast food business, often as high as 50-60 percent, Chick-fil-A prides itself on its incredibly dedicated and consistent franchisees, which have yet to rise above 3% per year. Indeed, the vast majority of Chick-fil-A franchisees hold their jobs for life.”
Management of the company has also received mostly positive reviews in the press, with the exception of what the Atlanta Journal-Constitution calls “missteps” during its history.
“Its expansion overseas in the 1990s into South Africa failed and it has been the subject of lawsuits alleging that it discriminates against pregnant women and non-Christians seeking to be franchisees,” the newspaper reported.
Franchise Dates Back to ’60s
Chick-fil-A, headquartered in College Park, Ga., just outside of Atlanta, has become an iconic brand that dates back to the early 1960s when Truett Cathy found a pressure-fryer that could cook the chicken sandwich in the same amount of time it took to cook a fast-food hamburger. He later registered the name Chick-fil-A with the upper-case A standing for grade-A goodness.
The founder believed in serving real, high quality food with fresh, local ingredients where possible. With the Chick-fil-A chicken sandwich as a signature menu item, company leadership says it would never offer a value menu that might affect the quality of the food.
Analysts have also noted Chick-fil-A’s continuing expansion, even during the recession that hit some competitors hard. While Chick-fil-A was adding stores, its rival KFC saw its total number of units shrink, along with Pizza Hut, Arby’s, Hardee’s and Dairy Queen, QSR reported.
A Brand in Demand
Despite some of its public relations pitfalls, Chick-fil-A remains a respected brand. Detailing the company’s Financial Disclosure Document during the third quarter of 2013, Franchise Chatter reported that Chick-fil-A had one of the highest average sales results across all franchise categories in 2011, and its performance got even stronger in 2012.
Chick-fil-A’s average unit volume at mall locations grew by 4.2 percent (from $1,408,662 in 2011 to $1,467,312 in 2012), while average sales at non-mall locations grew by 7.2 percent (from $3,394,064 in 2011 to $3,656,933 in 2012). Moreover, the highest reported sales at the chain’s mall and non-mall locations rose by 24.9 percent and 11.0 percent respectively.
In addition to the potential for continued sales growth as the chain continues to expand domestically and internationally, operators also benefit from Chick-fil-A’s highly memorable advertising campaign with cows that have a problem spelling (“Eat More Chikin”), as well as the company having its name attached to a major sports event: the annual Chick-fil-A Bowl (formerly the Peach Bowl) between colleges from the Atlantic Coast Conference and Southeastern Conference. The Chick-fil-A Classic high school basketball tournament and Chick-fil-A Kickoff Game in Atlanta also increase brand awareness for a Chick-fil-A franchise.