Why Restaurant Franchises Cost What They Do

A question we are often asked by entrepreneurs is, “Why do restaurant franchises require such a high investment?” While every restaurant or food franchise’s fees differ, some of the most popular food franchises require investments between $101,000 and $1,700,000.* How can a restaurant franchise cost so much? Aren’t they just selling burgers and fries?


The Franchise Fee:


Most franchises require franchisees to pay a one-time franchise fee at the start of the franchise agreement. This is, in essence, how most corporate franchise entities make money. It’s equatable to buying any good. If you want the right to own or to use something, you must pay for it first. In the case of a franchise, the franchise fee most often covers the “how-to” guide, which will instruct the franchisee on just about everything concerning his or her franchise.

 The Royalty Fee


Not all but many franchises require franchisees to pay an ongoing royalty fee for use of trademarked items. After all, a franchise’s trademarks include more than its logo and slogans; you’re paying for brand recognition. The biggest difference between a double cheeseburger with special sauce and a Big Mac® is the name, not what’s between the buns.

 Operations Costs


Running a restaurant might seem fairly straightforward but there’s a reason why most independently owned restaurants fail. (The failure rate for restaurant and food franchises are lower.) The labor, food and operations costs are high when compared with the average 2-3 percent profit margins experienced by most restaurants and food franchises. You’ve got to charge enough to keep the lights on, to keep your servers and cooks paid— but not charge so much that your customers feel you’re unreasonable.


If you’re wondering why franchisees put up with so many expenses and risk of failure consider the propensity for success of restaurant franchises. The most popular kind of franchise to start is a food or restaurant franchise for one major reason: there’s huge global demand for fast-casual, quick-service and fine dining establishments with a successful track record.



*Some franchises, like Taco Bell, require franchisees to own more than one franchise. 

The 10 Fastest Growing Industries In the U.S. and What That Means For Franchising

The Top 10 Fastest-Growing Industries in the United States:

1. Generic pharmaceuticals

2. Solar panel manufacturing

3. For-profit universities

4. Pilates and yoga studios

5. Self-tanning product manufacturing

6. 3-D printer manufacturing

7. Social network game development

8. Hot sauce production

9. Green and sustainable building construction

10. Online eyeglasses sales

If the above list, found on Wonkblog, is any indication, the way out of the recession is  hot sauce, green construction and whole lot of downward facing dogs. If that’s the case, then the franchise industry, which predicted a 5% growth margin for 2012, is poised for an even better end of year report.


Why Hot Sauce?

It seems as though not some, but most, like it hot. As a nation, our tastes are changing. The growing number of immigrants and morphing demographics of our melting pot country are causing a desire for spicy, ethnic foods.  For the past decade, the hot sauce manufacturing industry has grown at a rate of 9.3 percent per year.


While there aren’t any hot sauce franchises (to our knowledge) this taste for spicier food is sure to carry over in ways other than the bottle of Tobasco on your table. Mexican-inspired franchise restaurants are seeing an increase in their popularity across the country, too.

For those who like it hot, becoming a Mexican restaurant franchisee might be for you! Here are a few great options to consider.


Green, Mean Money Machines

Solar manufacturing and sustainable building construction, the two green industries on IBIS World’s list, can attribute part of their growth to various government subsidies. Though these subsidies are beginning to wind down, the growth rate for green industries is predicted to continue in 2012 with Solar Panel Manufacturing and Sustainable Green Building growing at a rate of 8.2 percent and 9.4 percent respectively.


For the environmentally conscientious interested in becoming a franchise owners there are quite a few options available:


Say Om

Pilates and yoga studios were highly resistant to the recession and have continued to grow as the U.S.’ economy strengthens. From 2002 to 2012, the industry grew an average of 12.1 percent per year. In 2012, yoga and Pilates studios are projected to experience a 5.1 percent growth rate.


A number of yoga and/or Pilates franchises are available to those interested in helping others improve their strength, flexibility and fitness levels. Though they’re not mentioned explicitly in IBIS’ report, I would imagine similar health and fitness concepts like gyms and massage franchises have experienced an uptick in their growth rates and are ripe for expansion as well.


  • IMX Pilates
  • Wundabar Pilates
  • Sunstone Yoga
  • Open Doors Yoga
  • Innergy Yoga
  • Bikram Yoga

Interview with Bob Wright, COO of Charley’s Grilled Subs


Article first published as A Heart For Service: Interview with Bob Wright, COO of Charley’s Grilled Subs on Technorati.

In September, Charley’s Grilled Subs opened their 100th restaurant on a military installation on Joint Base Lewis-McChord near Seattle, W.A. It was Charley Shin, Charley’s CEO and Founder, who, “was smiling the widest when the first soldier came through the lunch line,” says Bob Wright, chief operating officer of Charley’s.

A self-described “incurable patriot” despite having not served in the military, Wright shares a heart for service with both Shin and the international Philly Steak sandwich franchise’s employees, which he says, “makes the franchise’s relationship with the military so special.”


It’s this heart for service that Wright loves about Charley’s Grilled Subs and what attracted him to franchising in the first place.


“My grandfather always said everyone needs a job where they work for tips,” says Wright, who got his start in franchising as ‘the pizza delivery guy’ in college for Domino’s. Eventually, Wright became a Domino’s franchisee for about a year. “I’ve been there, too,” Wright says. “Nothing replaces that experience of being the business owner, of being responsible for every customer’s experience.”


Though his time as a Domino’s franchisee was short, it was his time as ‘the pizza delivery guy’ that was so influential in Wright’s franchising career. “I didn’t start out wanting to be in the food service industry,” he says, “but I loved it.”


Over the course of his career, Wright has had the chance to work with big-name franchises like Checkers, Wendy’s, Café Express and, of course, Charley’s. Though Wright’s original plan was to practice law. Today, he practices management. To him, serving as chief operating officer of Charley’s means he gets to develop, train and lead other to success. “For a quarter of a century, I’ve had the opportunity to serve others; whether it’s my team or franchisees. It brings out the best in a person.”


With Wright, his words express a continuous theme of service in the name of others, which is why he fits in so perfectly at Charley’s Grilled Subs. Charley’s makes its food to order. While this might sound obvious, it’s not—most food court establishments “assemble to order” as Wright likes to say. “We don’t put anything on the grill until you order it,” he explains.


This is because, like Wright, the people at Charlie’s believe “a good quality meal can make a difference in someone’s day,” he says proudly.


For those interested in becoming a Charley’s franchisee, the selection process is straightforward. Financial liquidity and wherewithal are necessary. Above all? “A heart of service,” says Wright. It’s important for potential franchisees to have adequate experience running a business in a managerial role. It’s not easy balancing the business side of the franchise and pleasing customers.


With all that said, “Charley’s has experience same-store growth throughout the recession,” says Wright. “Restaurant units have seen 13% growth this year and expect a 20% unit growth through to 2013,” he adds. Charley’s Grilled Subs has a growth model in place that still includes the bread and butter food court locations but specifically internationally, which are traditionally underserved.

Visit Franchise Clique’s website if you’re interested in more food franchises or sandwich franchises.