Admittedly, a list of the best values in the quick-service franchise arena is a catalog coated in subjectivity. Yet, there remains an assortment of common characteristics that many franchise values possess.
First, a good franchise deal is more than a simple, by-the-numbers assessment of franchise fees and start-up costs, a method that would fill any list with the pizzerias and sandwich shops that generally require less equipment, operational strength, and build out.
“Plus, you have to understand that a smaller investment is likely to generate a smaller return,” Technomic executive vice president Darren Tristano says. “Sometimes you might have to invest more to get that bigger payout, which can still signal value for the franchisee.”
As restaurant marketers are quick to point out, value means more than a dollar figure; rather, it’s what you get for that dollar. In this exploration for the industry’s best franchise values, the following criteria emerged:
Size: Restaurants with a hefty number of outlets bring economies of scale from supply chain to marketing efforts that smaller operations struggle to replicate. On the other end, those that are too big can buckle under their own weight. Necessary changes can be difficult and complex to implement, breeding a corporate-versus-franchisee mentality that stifles forward movement.
Name Recognition: Brand awareness goes a long way with consumers who want food and experience that matches their expectations.
Momentum: Brands selling off franchises and struggling to stay afloat signal turmoil. In contrast, brands adding units and overcoming the economy’s troubles inspire confidence and strength.
Market Niche: Brands that hold a distinctive place in the industry are well positioned to become a destination spot for consumers and gain a competitive advantage over other outlets.
Average Unit Volume (AUV): When compared against start-up costs and other long-term investments, AUV gives a strong sense of a franchisee’s return on investment.
El Pollo Loco
- Franchised Units: 243
- Franchise Fee: $40,000
- Total Start-Up Costs: $416,850–$789,850
- Royalty: 4%
- Renewal Fee: $20,000
- Marketing Fee: 4–5%
A regional player just five years ago, El Pollo Loco has emerged a hot name in the industry. Only four years into its expansion east of the Mississippi, El Pollo Loco, headquartered in Orange County, California, has earned a following for its citrus-marinated chicken and assortment of healthy offerings.
“We are beautifully positioned to appeal to the growing number of consumers looking for healthier options; consumers’ growing demand for bolder, spicier flavors; and the growing Hispanic population,” El Pollo Loco vice president Brian Carmichall says.
El Pollo Loco’s strong lunch and dinner dayparts propelled it to U.S. sales topping $625 million in 2008 and AUV nearing $1.7 million, a number that sits high among quick-serve brands.
Word on the Street: “El Pollo Loco is a favorite … because of its huge growth potential and because of its sales-to-investment ratio. With AUV of $1.7 million and a max start-up of $789,850, you can count on a 2:1 sales-to-investment ratio or higher,” says restaurant expert Aaron Allen, founder and CEO of the Quantified Marketing Group.
- Franchised Units: 22,762
- Franchise Fee: $15,000
- Total Start-Up Costs: $114,800–$258,300 (traditional); $84,300–$200,100 (nontraditional)
- Royalty: 8%
- Renewal Fee: None
- Marketing Fee: 4.5%
Smiles abound at the Connecticut headquarters of Subway, where the sandwich giant has climbed the quick-serve mountain to capture U.S. sales of $9.6 billion in 2008. The affordability of franchise entry, which sits among the lowest in the industry, and includes incentives for franchisees to open additional outlets, continues to drive the company’s remarkable ascent.
“We keep costs low because we have a simple operation … and we negotiate deals on an international level to keep standards high and costs down,” Subway’s director of development Don Fertman says, adding that the brand’s flexibility allows its outlets to find and enter unusual spaces ranging from c-stores to churches.
Word on the Street: “Subway is attractive for its low investment start-up, which opens it up to the widest base of prospective franchisees,” Allen says. “It also benefits from a clear, consistent, and extremely potent brand image. A concern for the company’s future is the encroachment issue and the continued attack of regional players with higher average unit volumes and aggressive franchise efforts.”
- Franchised Units: 2,200*
- Franchise Fee: $25,000
- Total Start-Up Costs: $113,823–$528,120 (traditional); $72,500–$376,623 (nontraditional)
- Royalty: 5%
- Renewal Fee: $4,000
- Marketing Fee: 7%
Twenty-five years ago, Papa John’s was a former broom closet in a Jeffersonville, Indiana, pub; today, the company generates more than $2 billion in U.S. sales with AUV exceeding $750,000.
Few can match Papa John’s extensive—and clever—marketing push. From founder John Schnatter delivering pizzas and searching for his beloved Camaro to the “Better Ingredients. Better Pizza.” campaign, Papa John’s fashions itself as a pizzeria favoring quality over price, largely avoiding the discount wars of its competitors.
“‘Better Ingredients. Better Pizza’ is not a tagline, but lived throughout the brand,” Papa John’s spokeswoman Tish Muldoon says.
With competitive start-up costs, the international player has positioned itself for additional growth.
“[These are] the most attractive development incentive programs offered in recent years,” Muldoon says, adding that the company has low-cost build out, first-rate systems, and extensive corporate support.
Word on the Street: “The key to prosperity in the pizza segment is quality positioning, clear marketing, and a qualified franchise base,”
Allen says, noting that Papa John’s has all three.
*based on 2008 figures
Qdoba Mexican Grill
- Franchised Units: 353
- Franchise Fee: $30,000
- Total Start-Up Costs: $454,000–$738,000
- Royalty: 5%
- Renewal Fee: Either 15% of then-current franchise fee or $5,000, whichever is greater
- Marketing Fee: 2% local marketing and up to 2% national marketing
Since its 1995 opening as a single storefront in Denver, Qdoba’s ascent has been both swift and remarkable, as the company became the first fast-casual Mexican chain to open 500 outlets. In 2008, Qdoba earned an estimated $447 million in sales while AUV surpassed $1 million. Qdoba’s vice president of franchise development Todd Owen credits experienced and consistent leadership for the momentum.
Parent company Jack in the Box Inc. opened 56 Qdoba franchises in 2008 and is looking to accelerate the Mexican chain’s expansion in the coming years given the high cash-on-cash returns Qdoba generates. According to Owens, the high percentage of multiunit Qdoba operators showcases the company’s focus on a franchise system based on stability, integrity, and strength.
Word on the Street: “Qdoba’s advantage is relatively small space, inexpensive build-out cost, a simple menu, low inventory, and they are perceived as fresh,” says Paul Tran, director of franchise development for Fransmart, a U.S.-based franchise-development company. “Unlike drive-thru concepts, they don’t need to open stand-alone locations to do good volume. They can go in-line and their build-out costs can be less.”
- Franchised Units: 104
- Franchise Fee: $30,000–$35,000
- Total Start-Up Costs: $356,350–$649,200
- Royalty: 5%
- Renewal Fee: $17,500 at 10-year term
- Marketing Fee: 3%
While early detractors questioned the viability of a salad-dominated brand, Saladworks’ customers have voted with their wallets. Saladworks created a following for its hip, modern atmosphere as well as its menu, which also includes soups and sandwiches. In 2008, the Pennsylvania company earned more than $64 million in U.S. sales while AUV neared $1 million.
Plans call for the establishment of more than 1,000 outlets across the country in the next decade. Saladworks’ vice president of business development, Jena Feret, says franchisees receive in-depth training, covering everything from management and marketing to food preparation. Other development tools include lease negotiation services, low-cost vendors, and ongoing operational support.
“Saladworks is so confident in our systems and processes that the concept is offering guaranteed financing to qualified individuals,” Feret says.
Word on the Street: “Saladworks is on the trend for healthier food and they are going green, which customers resonate with,” Tran says. “Only problem is that they may niche themselves out. Even if they roll out a bunch of brand-new products, they will always be seen as a salad concept.”
- Franchised Units: 5,047 U.S. locations*
- Franchise Fee: $25,000
- Total Start-Up Costs: $119,950–$461,700
- Royalty: 5.5%
- Renewal Fee: $1,500
- Marketing Fee: 5.5%
Bolstered by name recognition, a proven business model that bests $3 billion in sales, an evolving product mix (toasted subs have lured lunch diners), and a value-added supply chain, Domino’s franchisees report a healthy mix of franchisor support and consumer response.
Indeed, the Ann Arbor, Michigan–based company takes care of its own, offering significant discounts for successful operators to open subsequent locations, including a $5,000 fee to build a new store and a slim $1,500 fee to purchase an existing store.
“Domino’s Pizza offers some of the lowest franchise fees in the industry and makes franchising and business ownership accessible to qualified team members,” Domino’s Pizza executive vice president of franchise operations Scott Hinshaw says.
Word on the Street: “Domino’s has a powerful reputation for speed of delivery,” Allen says. “This is the core essence of their brand. The more they move away from it, the weaker they become against competitors like Pizza Hut (winning with product innovations) and Papa John’s (winning with a focus on the perception of quality).”
Seattle’s Best Coffee
- Franchised Units: 552
- Franchise Fee: $30,000
- Total Start-Up Costs: $298,000–$481,000 (traditional) $191,000–$521,000 (nontraditional)†
- Royalty: 7%
- Renewal Fee: N/A
- Marketing Fee: 1%
When Starbucks purchased Seattle’s Best Coffee (sbc) in 2003, the brand’s growth strategy turned toward licensing. As the economy staggered, a renewed emphasis was placed on SBC franchising, with executives betting that the slow economy would bring more credit-worthy candidates and better access to labor.
From coffee carts and kiosks to full cafés, franchisees can enter at a variety of investment levels while still capturing strong volume.
“The various investment levels coupled with our ability to test products and concepts within company-owned cafés to ensure they are market-ready for franchised locations allows Seattle’s Best Coffee to provide franchisees a variety of options and services to help them maximize their investment,” SBC’s director of franchise development, Marie Gill, says.
Franchisees also receive a lot of support, including site selection, store opening assistance, café training, ongoing consultation, and employee training.
Word on the Street: “Seattle’s Best Coffee is a relatively inexpensive brand to build out; people love coffee so there’s no introduction needed; and … there’s also a market for folks who just dislike Starbucks,” Tran says, adding that few consumers recognize the Starbucks-SBC link.
†estimated costs do not include real estate and improvements
Long John Silver’s
- Franchised Units: 1,022* with more than 400 additional
- multibranded units
- Franchise Fee: $20,000
- Total Start-Up Costs: $879,500–$1,256,000
- Royalty: 5% of gross sales
- Renewal Fee: Right to collect 10% of initial franchise fee
- Marketing Fee: 5% of gross sales
The longtime leader in the quick-serve seafood segment, Long John Silver’s has an unquestioned market niche, which makes the concept an attractive option for many franchisees.
“Seafood provides great diversification to those franchisees operating in other quick-serve segments such as burgers and pizza,” Long John Silver’s director of asset strategy, Doug Heinrich, says.
A fully franchised system under the Yum! Brands banner, LJS values the input of its franchisees, which recently led the brand to place a renewed emphasis on standalone locations over cobranded units.
In addition, franchisees have the ability to join the Unified Foodservice Processing Co-op (UFPC), which allows participation with all other Yum! Brands in volume pricing on equipment, food, and other services.
Word on the Street: “Long John Silver’s is perhaps the least touted brand in the Yum portfolio, but it is a clear winner in the quick-serve seafood segment,” Allen says. “The Yum purchasing cooperative provides tremendous advantages and economies of scale for all of its brands, including LJS.”
Popeyes Louisiana Kitchen
- Franchised Units: 1,534 U.S.
- Franchise Fee: $30,000
- Total Start-Up Costs: $500,000–$1,000,000
- Royalty: 5% of gross sales
- Renewal Fee: $15,000
- Marketing Fee: 4% allocated for advertising fund
Though Popeyes often falls under KFC’s shadow, the Atlanta-based purveyor of Cajun-styled chicken remains a compelling draw for franchisees. In 2008, Popeyes’ U.S. sales topped $1.55 billion for an estimated AUV near $1 million, more than rival KFC.
Financial incentives abound at Popeyes, which seeks to alleviate some out-of-pocket start-up costs. Qualifying prospective franchisees can receive a waiver for the company’s $30,000 franchise fee and reduced royalties during the first year.
And though restaurant financing often limits its coverage to hard assets, such as building costs and land plots, while leaving franchise fees unfunded, Popeyes’ development incentive program allows franchisees to open a restaurant in any of the expanding target markets.
Such enticements, Popeyes vice president of development Greg Vojnovic says, are among “the strongest development incentive programs offered by any franchised company.”
Word on the Street: “Popeyes is a good deal because the build-out cost is reasonable for a drive-thru, stand-alone building,” Tran says. “The price points are attractive to price-conscious consumers; and there are opportunities to thrive in B locations and not just A locations.”
- Franchised Units: 408
- Franchise Fee: New Franchisee: $55,000; Existing: $45,000; Mentor: $30,000
- Total Start-Up Costs: $1,797,500–$3,392,407
- Royalty: 4%
- Renewal Fee: $30,000
- Marketing Fee: 2%
Culver’s director of development Tom Goldsmith acknowledges the reality of his operation’s hefty franchise costs, cautioning that Culver’s isn’t for entrepreneurs light in the pocketbook.
“Most affordable, we’re not,” Goldsmith says.
After securing more than $640 million in U.S. sales in 2008 for an AUV nearing $1.7 million, the Wisconsin-based company has proved that the following for its ButterBurgers and frozen custard runs deep.
Goldsmith cites the fact that all expiring franchises have renewed and none have closed as a testament to the in-demand product mix as well as the company’s supportive environment, which includes “hands-on involvement” and real-estate ownership.
Culver’s is looking to expand beyond its Midwestern roots while continuing its positive-unit and revenue-growth trend.
Word on the Street: “Culver’s has a strong density of restaurants in its core market and has done a good job of growing in a sort of concentric circle approach versus a scattergun like many growing franchise companies,” Allen says. “The downside of a Culver’s is the incredibly high start-up costs … which puts it out of reach of many of today’s restaurant-industry investors.”