Quick Research Tips to Help Compare Food Franchise Choices
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Food Franchises By Robert Edwards
Here at franchise city we work with investors helping them find the best franchise and the vast majority of people when they come to us want, or think they want a fast food franchise.
Now we have spoken previously on whether fast food franchising is a good choice and about some individual restaurants, but this video won't be justifying whether food is good or bad. Instead we will show you some of the quick methods we use to help our clients compare and analyze various food franchise choices. Now this is by no means an in depth analysis just some quick numbers anyone can put together.
Now it is quite sad that most people don't do any analysis or comparison they just decide to call up the franchise one day, complete an application, and a few months later are running a franchise while the franchise owner right next door could be making double what they are. You don't know unless you research.
Some of the statistics we look at to assess and compare food franchises are sales to investment ratios, AUV or average unit volumes or how much money a store brings in per year, and failure rates. Now this is for new food franchises only, a food franchise resale you would be looking at their individual financials and these figures while important would not be the whole story.
Now unfortunately some statistics are not easily accessed by the public which is why working with a franchise consultant will make life easier and doesn't cost you anything - (shameless plug) but there are some stats you can find online.
A really handy list is the qsr50 which provides a relatively accurate representation of stats for the top 50 qsr food franchises.Now just this list itself will give you a quick overview of some decent information and you can sort by total earnings, failures or growth, and a number of other criteria so if we sort by average sales per unit you can see that Chick-fil-A has the highest average store earnings at about 4.4 million per year. Too bad you will never get one and I'll post a link to the video that explains why right above.
Now if we scroll right to the bottom of the list, we see Baskin Robbins, Subway, Auntie Anne's, Papa Murphy and Jamba Juice. But while earnings are very important they are not the whole story. You can also see listed in the far right column how many changes in units each franchise had for the year. A positive number means growth while a negative number will generally be store closures. There are also statistics like how many franchises they have, system wide sales and rankings but for our purposes those aren't quite as important.
Another interesting statistic to compare food franchises is the Sales to Investment Ratio. We get this figure by dividing the average purchase price of the franchise by the average unit volumes. Lets do that for a couple of franchises.
So let's first look at Mcdonalds franchise. We see their average investment range from their 2017 FDD is $1,008,000 to $2,214,080 making an average McDonalds cost $1,611,040. We can see on the qsr50 average unit sales are about 2.5 million. So we divide 2.5 million which is their average unit sales by 1.6 million - and we will just round these figures off giving us giving us a sales to investment ratio of 158% which is not bad. McDonalds closed 104 stores in 2016. Now again I caution anyone to only use this statistic to make their buying decision, but it is a lot more than I see most people doing and it definitely will help.
Lets try another one. How about KFC. Their FDD gives an investment range of $1,465,550 – $2,586,550 making the average investment cost for a KFC $2,026,050. Their unit sales average is $1.060,000 giving a sales to investment ratio of only about 52%. KFC closed 103 stores in 2016.
Subway franchise investment range is $147,050 to $320,700 giving an average investment of $233,875. Their average sales volume per unit is $422,520 so we divide 422,520 by $233,875 which leaves us a 181% sales to investment ratio. So while Subway earns much less their investment is also much less. And we can see that Subway closed 359 stores in 2016.
So there you have just a few quick numbers you can look at to help in your research for a food franchise. Another helpful research tool is validation - speaking to other franchise owners in the area, or franchisees that have left the system. That information will be in the FDD provided by the franchise and will also give you an estimation of the general level of satisfaction from franchise owners as a whole.
If you would like to discuss any of these franchises further or see which are available in your territory give us a call consultations are always free or visit our Franchise Directory