- Chick-fil-A is dominating the fast-food industry as other chains struggle to keep up.
- One of Chick-fil-A’s advantages is that most franchisees aren’t allowed to have more than one location, according to John Hamburger, an industry expert.
- In recent years, chains have increasingly relied on mega-franchisees who own up to hundreds of locations, which can mean they have less knowledge of the day-to-day happenings at them — a problem Chick-fil-A does not have.
Chick-fil-A’s recent dominance in the fast-food industry can be tied to one behind-the-scenes secret, according to an industry expert.
Chick-fil-A has long topped rankings of food quality and customer service. It is one of the most profitable chains in the US, with average sales per restaurant reaching $4.4 million in 2016, QSR magazine reported. For comparison, KFC’s sales per restaurant were $1.1 million in the same period.
It’s less expensive to open a Chick-fil-A than it is to open a location of almost any other chain — Chick-fil-A charges franchisees only $10,000 to do so.
But unlike other franchises, Chick-fil-A prohibits franchisees from opening multiple locations.
That’s in stark contrast with the rest of the industry, as many fast-food franchisees own hundreds of locations. Four franchise groups make more than $1 billion a year, and 130 generate revenue of more than $100 million, according to the Restaurant Finance Monitor.
According to John Hamburger, the founder of the trade publication Franchise Times Corp., the reliance on franchisees is feeding into some major issues in the restaurant industry.
The franchise model aims “to put somebody in the store that was close to the customer,” Hamburger told Business Insider. “They’re dealing with the customer. They’re in the community. They’re active in the community. And that’s what Chick-fil-A does.”
Chick-fil-A franchise owners are involved in hiring and firing employees. The company also encourages franchisees to get involved in the community through various local organizations.
According to Hamburger, that allows Chick-fil-A to get a leg up on the competition for quality and customer service.
From a purely financial standpoint, relying heavily on franchisees is helpful for fast-food chains. Franchisees bear the brunt of labor and food costs, allowing the corporate offices to avoid more volatile expenses — an extremely appealing position for investors.
But this strategy could be driving the chain-restaurant industry into a crisis.
Hamburger says some chains are seeing the negative impact of losing their community connections. For instance, Applebee’s, which has gone to a 100%-franchise model in recent years, closed 99 stores last year amid sinking sales.
“While we’re a big chain, we spend a lot of time trying to be part of the community,” Stephen Joyce, the CEO of Dine Brands, Applebee’s parent company, said in a recent interview with Business Insider.
Chick-fil-A’s success as a rapidly expanding private company could help convince more public companies to follow in its footsteps. As fast-food chains rely on mega-franchisees that compete with Chick-fil-A more directly, they may want to take a page out of the chicken chain’s playbook.
Source: Business Insider UK