Franchising | July 2013 | By Daniel P. Smith

2013 Best Franchise Deals

Looking to add a brand to your portfolio? These are the limited-service industry’s best bets.

Papa John's offers potential franchisees strong AUV and national brand exposure.
Papa John's lands on the Best Franchise Deals list by offering franchisees operational simplicity and name recognition. papa john's
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It’s back and bigger than ever. Now in its fourth year, our “Best Franchise Deals” report has become the can’t-miss list of top quick-service and fast-casual franchises, assessing factors such as investment-to-sales ratio, marketplace differentiation, corporate support to franchisees, and positive brand momentum.

While the previous reports whittled the best-franchise list down to 10, this year we’re homing in on 12 different brands in three size categories: The Hungry Upstarts, which focuses on smaller, emerging concepts; The Rising Stars, spotlighting more established brands seeking national penetration; and The Powerbrokers, well-established concepts with more than 300 units.

 

The Hungry Upstarts

Emerging concepts laying the groundwork for growth.

Tin Drum AsiaCafé

Total U.S. Unit Count: 11 (9 franchised)

Franchise Fee: $35,000

Total Start-Up Costs: $299,000–$477,000

Royalty: 5% of net sales

Renewal Fee: 50% of then-current franchise fee

Marketing Fee: 4.5% of net sales

With its street-inspired Pan Asian cuisine, energetic atmosphere, and self-ordering kiosks, Tin Drum is ahead of the fast-casual curve, throwing in bold flavor profiles, high-quality food, customization options, and convenience, to boot. An AUV topping $1 million, meanwhile, signals its appeal to a widening consumer base.

The Atlanta-based concept’s menu combines 15 signature sauces with more than 35 made-to-order items carrying Thai, Japanese, Chinese, Vietnamese, and Indian influences. The result, Tin Drum founder Steven Chan says, is dynamic flavor profiles that satisfy guests’ desire for more exotic food and promote repeat visits.

Tin Drum has menu items approved by HealthyDiningFinder.com—an alluring feature to health-conscious guests—as well as state-of-the-art, self-ordering kiosks equipped with health-based software that lets patrons order based on dietary goals, including gluten-free and vegetarian options.

For the franchisee, Tin Drum’s compact design reduces construction and operating costs, while the chain’s debt-free business strategy signals its ongoing effort to pursue strategic growth with the necessary infrastructure to help its franchise partners flourish.

An Outside Perspective: “What makes Tin Drum a win for a franchisee is not only the attractiveness to consumers, but the value-engineered cost of entry and strong AUV,” says Lynette McKee, CEO of McKeeCo Services, a franchising and development strategic advisory firm. “It could be a nice target for a multibrand franchisee looking for a second or third diversification opportunity.”

BurgerFi

Total U.S. Unit Count: 12 (10 franchised)

Franchise Fee: $40,000

Total Start-Up Costs: $313,750­–$627,083

Royalty: 5.5% of gross sales

Renewal Fee: % of then-current franchise fee

Marketing Fee: 3.5% of gross sales

Count eco-friendly BurgerFi among the latest entries into the burgeoning better-burger category.

Though BurgerFi’s menu is highlighted by all-natural, grass-fed burgers, the Florida-based fast casual also serves up numerous specialty items, including Kobe beef hot dogs, quinoa burgers, hand-cut fries, and frozen custard. Craft beer and wine service further boosts sales potential and differentiates the concept from a swelling list of competitors.

BurgerFi’s corporate office places a premium on providing consistent support to its franchise partners. In addition to providing assistance in such areas as field operations and lease negotiations, the company assigns each franchisee a personal business adviser to work with the operator on an ongoing basis.

The three-year-old chain, which has an AUV of $2 million, will soon debut stores in New York, Michigan, Washington, California, and Texas.

An Outside Perspective: Eric Simon, head of the business intelligence services team at Virginia-based FRANdata, says BurgerFi hits on an important trifecta with its variety, humanely raised meat, and environmentally conscious positioning.

“Nowadays, the public expects more than just another burger joint,” Simon says.

Fresh To Order

Total U.S. Unit Count: 7 (3 franchised)

Franchise Fee: $35,000

Total Start-Up Costs: $550,000–$720,000

Royalty: 5% of net sales

Renewal Fee: 10% of then-current franchisee fee

Marketing Fee: 4% of net sales

A pioneer of “fast-fine” dining—a restaurant blending upscale dining’s quality with the operational platform and price points of fast casual—Fresh To Order (F2O) features a chef-inspired, line
cook–executed menu of freshly prepared entrées, panini sandwiches, soups, and salads, all ready in less than 10 minutes for about $10.

Forty percent of the seven-year-old, Georgia-based concept’s daily business stems from dinner sales, a number that underscores f2o’s ability to please guests and provide strong ROI to franchisees. Within the next five years, f2o plans to expand beyond its Southern base by opening 50 new stores and adding 50 more to its development pipeline, including in nontraditional venues.

“With average unit volumes of $1.7 million and year-over-year comparable sales growth of 10 percent, our financial foundation is formidable,” says f2o chief development officer Jocelyn Blain.

An Outside Perspective: Simon likes f2o’s ability to attract business during different dayparts, its strict franchise requirements, and its development that features both franchised and corporate-owned locations. He says corporate stores show that the brand is committed to growing alongside its franchisees and to understanding “the reality of what is happening on the street level of its business.”

Taquerias Arandas

Total U.S. Unit Count: 27 (all franchised)

Franchise Fee: $45,000

Total Start-Up Costs: $98,000–$649,000

Royalty: 6% of net sales

Renewal Fee: $20,000

Marketing Fee: 1% of net sales

Since the original Taquerias Arandas opened in 1981, this Houston-based concept has dazzled patrons with its authentic, street-inspired Mexican cuisine.

Taquerias Arandas president Judy Camarena says the concept emphasizes a sense of community among its franchisees, one rooted in trust and systemwide success.

Years of steady growth throughout Texas and double-digit sales and traffic increases at stores across the system have readied Taquerias Arandas to take its name and its $1.3 million AUV beyond the Lone Star State. Camarena says the timing is right now given the company’s comfort with opening new stores and its role as franchisor. The growing taco trend, rising interest in the brand outside of Texas, and limited presence of national chains serving authentic Mexican cuisine have also encouraged its growth.

An Outside Perspective: McKee credits Taquerias Arandas for establishing trust with its franchisees and building a solid regional base before taking the brand to new markets outside Texas.

“What is also equally important is that the ROI for [the brand’s] franchisees is very healthy, and sales continue to climb with a nice—and low—price point and a truly authentic, real-Mex menu,” she says.

The Rising Stars

Established brands ready for the national spotlight.

Menchie’s Frozen Yogurt

Total U.S. Unit Count: 229 (228 franchised)

Franchise Fee: $25,000–$40,000

Total Start-Up Costs: $300,000–$320,000

Royalty: 6% of net sales

Renewal Fee: $20,000

Marketing Fee: 2% of net sales

Menchie’s mission statement sets a bold goal: to make every guest smile. With a $500,000 AUV,
the Encino, California–based brand gives its franchisees reason to smile, as well.

Using Menchie’s proprietary frozen-yogurt product, guests create their own mix from more than 100 rotating flavors, including the likes of cake batter and pomegranate raspberry tart. There are also 70 rotating toppings, ranging from hot fudge to fresh fruit and granola. Menchie’s hits on health by offering nonfat, gluten-free, vegan, dairy-free, no-sugar-added, kosher, and low-carb options.

For franchisees, ROI comes courtesy of a highly scalable operation with recognizable branding, operational simplicity, national purchasing power, and no hidden charges or product markups.

As Menchie’s CEO Amit Kleinberger says, “Happy franchisees make happy guests.”

An Outside Perspective: Simon says Menchie’s festive, group-drawing atmosphere creates higher ticket prices and increased referrals. But it’s the chain’s outstanding growth in a challenging economy that most impresses.

“Menchie’s has proven that a system focused on customers, product, and franchisees can dominate a highly competitive market by expanding from 38 units in 2010 to [229] today,” he says.

Barberitos

Total U.S. Unit Count: 29 (27 franchised)

Franchise Fee: $20,000

Total Start-Up Costs: $240,000–$400,000

Royalty: 5% of net sales

Renewal Fee: $2,000

Marketing Fee: 2% of net sales

Barberitos is making a splash in the fast-growing Mexican segment. In 2012, same-store sales jumped more than 10 percent from 2011 and AUV hovered near $700,000.

“Each year, the company profit grows, proving that our customers are loyal and willing to pay for our product,” Barberitos founder and CEO Downing Barber says.

As a Barberitos franchisee himself, Barber is personally affected by every corporate decision, a reality that connects him with the operators’ plight and ensures that corporate decisions drive store-level success. Barber, in fact, calls Athens, Georgia–based Barberitos a “profit-focused” system. The corporate office lends counsel to site selection, design and construction, marketing, and business management, alongside franchise support every six to nine weeks.

“Many franchises do not even operate any of their own [stores], so they don’t fully understand what franchisees have to do deal with,” Barber says. “But there’s no ivory-tower thinking here.”

An Outside Perspective: If handled correctly, McKee says, Barber’s status as CEO and franchisee can be a big plus for the Barberitos system, as it allows corporate leadership to better understand the daily grind and the external factors operators encounter.

“The communication between the CEO and his franchisees also takes on a different tone because the profitability of the franchisees is a top focus,” says McKee, who applauds Barberitos’ efforts to clearly define its franchisee profile and performance.

Freddy’s Frozen Custard & Steakburgers

Total U.S. Unit Count: 83 (74 franchised)

Franchise Fee: $25,000

Total Start-Up Costs: $461,000–$899,000

Royalty: 4.5% of net sales

Renewal Fee: 1/3 of then-current franchise fee

Marketing Fee: .25% of net sales

Kansas-based Freddy’s has earned growing national recognition—and a repeat appearance on this Best Franchise Deals list—for its premium steakburgers, fresh-made custard, and $1.4 million AUV.

Freddy’s COO Scott Redler says Freddy’s encourages innovation and entrepreneurial thinking among its franchisees, while also supplying the support that fosters expansion. A formal “Freducation” training program and ongoing franchisee coaching ensures consistency throughout the system. Freddy’s also prides itself on transparency with its franchise partners, handing its operators all product purchase incentives and rebates.

“We share the system’s purchasing power equitably and proportionately with the franchisees from day one,” Redler says.

Freddy’s, which today has outlets in 17 states, plans to add as many as 300 stores within the next five years.

An Outside Perspective: With the right systems and operations in place, including franchisee training and strong supplier relations, McKee says, Freddy’s could meet its ambitious growth goals.

“Freddy’s AUVs are strong and if the franchisee carefully monitors his or her costs of entry, this could be a repeat for QSR’s Best Franchise Deals again,” McKee says.

Penn Station East Coast Subs

Total U.S. Unit Count: 253 (252 franchised)

Franchise Fee: $25,000

Total Start-Up Costs: $320,798–$460,813

Royalty: 4–8% of net sales

Renewal Fee: $1,000

Marketing Fee: 1% of net sales

It could be because of its conservative growth approach, or its intense focus on operational simplicity and a customer-pleasing experience. But Penn Station’s record speaks for itself: only two closures in its 28-year history.

The Cincinnati, Ohio–based company, where AUV topped $600,000 in 2012, provides its franchisees with monthly financial comparisons and average income statements that allow operators to benchmark their performance against others in the system.

“Penn Station is a great franchise deal not only because of our strong systems and unit economics, but also our approach to franchisee profitability,” says Penn Station director of sales Jad Buckman.

Today, Penn Station is in 13 states, having added Georgia and the District of Columbia to its roster this year. Plans are to open at least 30 new units by year’s end.

An Outside Perspective: Simon says it’s refreshing to see a brand with a low closure rate and believes the monthly systemwide benchmarking allows operators to pinpoint areas in need of attention.

“Penn Station has taken a deep interest in its franchisees’ [profit and loss statements], leading to increased bottom lines and, in turn, lower closure rates,” Simon says.

The Powerbrokers

National brands with name recognition, profit potential.

Firehouse Subs

Total U.S. Unit Count: 576 (539 franchised)

Franchise Fee: $20,000

Total Start-Up Costs: $178,376–$625,801

Royalty: 6% of net sales

Renewal Fee: 25% of then-current franchise fee

Marketing Fee: 3% of net sales

Last year, Firehouse Subs opened 95 restaurants, added 144 new franchisees, entered nine new markets, and watched AUV jump 12.7 percent to $731,000. For the 19-year-old, Jacksonville, Florida–based concept—founded by firefighting brothers Robin and Chris Sorensen—the chain’s ascent has been one wild ride.

“We’ve been afforded an incredible opportunity to help a lot of people [and] the more we grow, the more opportunities we’re able to provide,” Robin Sorensen says.

Firehouse says its franchisees can be in business for themselves, but not by themselves. The concept consistently sits near the top of Franchise Business Review’s franchisee satisfaction rankings, and executives tout its litigation-free history with franchisees.

“[Our team] embraces a culture in which we strive for excellent communication with our franchisees—both individually and collectively—and we ensure that we are fundamentally fair in our business practices,” says CEO Don Fox.

The chain’s “family-style” franchising includes an area representative model that provides a higher caliber of local training support and a continuity of relationships. Firehouse also offers financing to its established franchisees to spark additional system-wide growth with long-term partners.

An Outside Perspective: Citing its positive relationship with franchisees and track record of AUV increases, McKee calls Firehouse “one of the premier opportunities for a franchisee.” She credits Firehouse for developing its systems and business model prior to attempting a major growth program and commends leadership for its transparency with franchisees.

Papa John’s

Total U.S. Unit Count: 3,130 (2,482 franchised)

Franchise Fee: $5,000

Total Start-Up Costs: $175,000–$250,000

Royalty: 5% of net sales

Renewal Fee: $4,000

Marketing Fee: 7% of net sales

In the 2012 American Customer Satisfaction Index, Papa John’s claimed the top spot among all
limited-service restaurants and national pizzerias. The Louisville, Kentucky–based chain was also named Pizza Brand of the Year in a 2012 Harris Poll. Such honors underscore Papa John’s credibility with consumers, but also excite current and prospective franchisees, who are eager to participate in a proven, streamlined system where AUV tops $800,000.

Ongoing corporate support includes quarterly visits with a franchise business director and operations support person, a regional marketing director, online training, and a no-cost secret shopper program that helps breed positive customer experiences.

“The history of our brand has demonstrated that franchisees have a high degree of success if they follow our culture and recommendations,” says Papa John’s vice president of global sales and development Joe Smith.

An Outside Perspective: “Papa John’s will continue to be a darling of the pizza industry for years to come,” McKee says. With its national advertising program, industry reputation, and steady record of making impactful decisions that drive franchisee ROI, McKee says, Papa John’s will continually attract new franchisees and see its existing operators open new units.

Zaxby’s

Total U.S. Unit Count: 565 (467 franchised)

Franchise Fee: $35,000

Total Start-Up Costs: $209,500–$646,100

Royalty: 6% of net sales

Renewal Fee: 50% of then-current franchise fee

Marketing Fee: 2.5%–4.5%

Chicken concept Zaxby’s has watched its system-wide sales surge toward the $1 billion mark and its AUV surpass $1.7 million. The compelling numbers continue to silence early concerns that the 23-year-old concept would struggle to grow beyond its Southern roots.

Zaxby’s executives cite a proven growth record built on a sound financial and business model that includes distinctive store design, high repeat-diner frequency, and a collaborative culture driven by mentoring and sharing best practices among operators.

“Coaching, mentoring, and consistent franchisee support give our licensees a jump-start on profitability by focusing on proven processes, systems, and efficiencies, and eliminating problems and risk before they occur,” says Zaxby’s senior director of franchise administration Amy Camp Pritchett.

An Outside Perspective: “Some brands develop across the U.S. without truly realizing how their resources, both financial and personnel, will be impacted,” Simon says. “Zaxby’s has built the right way: grassroots, one restaurant at a time.”

Simon adds that Zaxby’s training, operations systems, and franchisee support procedures have produced high-revenue restaurants and a solid foundation of 500-plus units that should galvanize prospective franchisees.

Jersey Mike’s Subs

Total U.S. Unit Count: 584 (566 franchised)

Franchise Fee: $18,500

Total Start-Up Costs: $215,843–$394,063

Royalty: 6.5% of net sales

Renewal Fee: 0

Marketing Fee: $7,500

Though Jersey Mike’s has been franchising since 1987, methodical early development has given way to robust expansion. In 2012 alone, the fast-casual sandwich chain opened 92 new stores, a 33 percent jump in new-store growth over 2011. While Jersey Mike’s does not disclose AUV, an estimate from research firm Technomic places that figure near $640,000.

Jersey Mike’s Franchise Systems president Hoyt Jones says leadership is consistently seeking ways to help franchisees improve, whether it be through staff training, corporate-backed customer loyalty programs, or ROI-generating technology such as the advanced “Super App” Jones says will debut next year.

“Ultimately, success breeds success,” Jones says. “Our existing operators are excited to extend the Jersey Mike’s brand … [and we’re] attracting interest from new multibrand, multiunit franchisees that share our passion.”

An Outside Perspective: Simon says Jersey Mike’s has expanded by focusing on store profitability and training, elements that promote additional development by existing franchisees.

“The training and simplicity of the model allows the owner to focus on growing his business outside his four walls [and] becoming a part of the community,” Simon says.

The Hall of Fame

Some brands are destined to make this list year in and year out. The Best Franchise Deals Hall of Fame includes quick serves worthy of this year’s list that have already made an appearance at least two times.

• Subway

• Popeyes

• Bojangles’

• Saladworks