Beyond the Arches #3
Chick-fil-A: Why the Model Works
Chick-fil-A is one of the most successful quick-service restaurant brands in the U.S., going toe to toe with behemoths like Taco Bell, Starbucks, and McDonald’s in terms of revenue. And as other fast food chains struggle, it seems Chick-fil-A is continuing to gain momentum with stronger same store sales growth than its contemporaries. It’s worth considering what the company is doing differently and why its strategy is working.
Much of Chick-fil-A’s success can be attributed to its unique 1-to-1 operator-to-location model. Unlike most brands, which are dominated by multi-unit franchisees who own hundreds of locations across multiple states and even countries, Chick-fil-A’s “1-to-1” model requires each location to be owned and run by a single operator. The company does not allow multi-unit franchise ownership.
On the surface, restricting franchisees to a single unit may seem like an unnecessary handicap, but consider this: Chick-fil-A is incredibly selective about who they work with. The company only chooses about 80 new operators each year from an applicant pool of over 60,000 – a lower acceptance rate than the Secret Service. And money is no guarantee that you’ll land the deal. Chick-fil-A only selects operators who are demonstrably involved with their communities and have the dedication to persevere through the rigorous application process, which can include a dozen or more rounds of essays and interviews.
Why does everyone want in on Chick-fil-A? Well, it probably has something to do with their franchise model being one of (if not the) most franchisee-friendly in the industry. Unlike most parent companies, Chick-fil-A shoulders the bulk of the startup costs for new locations. A new franchisee can get in the door for as little as $10,000. Even though this means the parent company takes a larger share of the returns, the low initial capital investment puts franchisees in a great position for substantial financial success.
As we mentioned, though, the catch is the extremely competitive application process. It ensures that only the most dedicated, motivated local operators will be given the opportunity to open new locations. Chick-fil-A’s franchise model requires heavy day-to-day involvement by unit owners and provides intensive training for new franchisees. These operators are all in, which translates to personalized customer service, better quality control, and increased employee satisfaction – the perfect recipe for a few billion dollars worth of customer satisfaction.
- Chick-fil-A updated its One rewards program this week. Point values for some rewards have increased, and the program now features more menu options for each reward tier.
- The U.S. Equal Employment Opportunity Commission has filed a lawsuit against Papa John’s International Inc., alleging that the company unlawfully denied a legally blind Georgia man’s request to keep his service dog on site.
- Former Green Bay Packers cornerback Jarrett Bush is bringing Blo Blow Dry Bar to his hometown as his first foray into franchising post-NFL.
- Happy Belly Food Group has added fast-casual Greek restaurant PIRHO Food Grill to its portfolio of brands.
- Atlanta-based franchisee Falcons Group is making multi-unit moves in the Minneapolis area, acquiring four Qdoba restaurants owned by franchisee Randal Gast, as well as six corporate-owned locations.
- Amandeep Judge, owner of 1000 Degrees Pizza, has announced the acquisition of six-unit My Pie Pizza, the first of what he has indicated will be a series of acquisitions.
- Pet Supplies Plus signed a deal to acquire twenty units of Loyal Companion Pet Stores from Independent Pet Partners, with plans to convert half the stores into Pet Supplies Plus locations and the other half into Wag N’ Wash.
- Rent-a-Center franchisee Paris Ackerman has sold 64 units to concessionaire Directional Capital in a private equity-backed deal.
- The US PPI rose very little in January and fell 0.1% in February, surprising analysts and stirring hope that inflation could be easing. The drop was led by a 36.1% decrease in the cost of eggs that brought welcome relief to both consumers and business owners.
- On top of the falling PPI, import prices also decreased in February. This was largely due to a decrease in the price of oil and has contributed to slowing inflation overall, as well as government spending.
- If you’ve been anywhere near a news outlet recently, you know the banking sector is struggling right now. A slew of recent bank failures has the markets on edge and may complicate the lending landscape in the near future.