Everybody has to eat, and in this fast-paced world where everybody seems to be in a hurry all the time, fast food franchises are the go-to franchise opportunity for many entrepreneurs eager to build a business empire that will allow them to be independent, financially secure, and able to live the life they want to live. On the surface, a food franchise is a perfectly profitable way to get into business, but how much profit can you make with a food franchise?
According to an
Entrepreneur investigative report on franchise profits, "restaurants have some of the highest startup costs in franchising. At the same time, they offer the biggest returns." The problem with restaurant franchises isn't that they aren't profitable, but unlike a lot of other franchise opportunities, someone who gets into the restaurant business should have at least some experience working in the business. Running a restaurant is a time-consuming, challenging, and often-stressful undertaking. Without the right management, it's unlikely your restaurant will thrive, much less show a huge profit. Many restaurant franchisees end up starting with one franchise and then opening others over time, which helps to create the revenue they want to see. Operating a chain of restaurants is a great way to make those healthy profits, but for each restaurant opened, the problems associated with restaurant ownership compound.
A Franchise Business Review report on food franchising states that slightly more than half of the food franchises in the United States bring in profits less than $50,000 a year. The report goes on to state, "While the majority of franchisors struggle to maintain market share, the top performing brands are growing by double-digits, enhanced by high franchisee satisfaction and performance." What does this mean, and how does it affect your decision about whether or not to choose a food franchise as a business to get into?
There is no way to determine exact profits a food franchise will generate. It depends on location, cost versus profit, etc. In the food business, the margins are small, leaving no room for error. The same Franchise Business report suggests the top brands can earn in the neighborhood of $200,000 to $250,000, but the profit, after all expenses, for an average fast food franchise is around $82,000 annually. This assumes the franchise has everything going for; good location, a great product, and effective management.
First, there really is no simple cut and dry answer to the question, "Are food franchises profitable?" Yes, they can be, and many entrepreneurs have made fortunes operating food franchises. When you buy into a franchise, particularly one of the widely-recognized brands, you have the benefit of a brand with a customer base that already devours the product. That's a big plus. On the surface, it seems to be all you need to know about whether or not getting into the food franchise business is a good idea. The customers are already there, the product recognition and respect are already there, and the training and operating procedures are already in place. It's a turnkey opportunity that should start turning profits right away. For the most part, this is true, but even with all these benefits, there have been plenty of failures.
Location, management issues, and cost are three things that can mean the difference between a restaurant that shows a healthy profit and one that loses steam and fizzles out completely. For restaurants, location is everything. A restaurant is a business that needs to be in a highly visible place, preferably around a customer base that wants good food when they crave it. Business districts, around shopping plazas, and in the heart of any city or town is where you want to locate your food franchise. These are high rent but necessary for survival and profitability of your food.
Poor management of a restaurant can cut into profits. Poor managing can entail everything from overspending to hiring an ineffective crew to run your restaurant on a day-today basis, which eventually gives your business a bad name and results in a loss of customers. Not understanding the dynamics of the food industry can affect profit margins negatively.
One of the big problems with getting into a food franchise is that initial investment. You are literally trying to earn your money back the minute you open the door. While a fast food franchise offers huge potential profits, they require some of the biggest Start-up costs in the industry. If you want to open a McDonald's, for instance, you'll need a minimum of $750,000 in liquid assets. To open a KFC, your net worth must be a minimum of $1.5 million with $750,000 in liquid assets. That's a lot of capital to make up for, and on top of that, many food franchisors take 12% or more in monthly fees for the right to use the brand trademark and for advertising and other fees outlined in your franchise agreement. Those fees are ongoing.
Franchisors are eager to let you know everything you need to know about the costs of getting into the franchise, but when it comes to hard talk about profits, getting a straight answer can be difficult. That's not so much because they are being evasive or have something to hide. It's because there are no guarantees and there isn't a simple way to determine if your franchise business will do as well as others, even if your franchise is in the same area as another of the corporation's franchisees.
The bottom line is simple. If you have the money to get into one of the large popular food brands, such as a KFC, Taco Bell, or a McDonald's, and if all of the pieces of the puzzle fall into place, you can earn huge profits. The average McDonald's earns in the neighborhood of 2.5 million in sales annually, but that isn't your profit. What you get from that depends on your overhead and comes after all expenses are paid, including royalty fees to the company. That's still not a bad take away, but not everybody can afford to get started with a McDonald's or one of the other top performing food franchises. That doesn't mean you can't get into one of the hundreds of other more affordable food franchises, and while you may not clock the annual sales that you would with McDonald's or Taco Bell, you will have a smaller investment.
If you love the food business and want to own a food franchise business, there are certainly plenty of opportunities out there. You don't have to invest millions to get into a profitable food franchise. Check out All USA Franchises and let out huge FREE directory of franchises be your guide.
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