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FDD Talk 2019: Chick-fil-A Franchise Review (Financial Performance Analysis, Costs, Fees, and More)

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In this FDD Talk post, you’ll learn the following:

  • Section I – Background information on the Chick-fil-A franchise opportunity, including relevant news updates
  • Section II – Estimated initial investment for a Chick-fil-A franchise, based on Item 7 of the company’s 2019 FDD
  • Section III – Initial franchise fee, royalty fee, marketing fee, and other fees for a Chick-fil-A franchise, based on Items 5 and 6 of the company’s 2019 FDD
  • Section IV – Number of franchised and company-owned Chick-fil-A outlets at the start of the year and the end of the year for 2016, 2017, and 2018, based on Item 20 of the company’s 2019 FDD
  • Section V – Presentation and analysis of Chick-fil-A’s financial performance representations, based on Item 19 of the company’s 2019 FDD, including information on the:
  • 2018 average, median, high, and low sales for the 234 domestic non-Satellite franchised Operator Chick-fil-A Restaurants located in malls that had been open and operated by Operators for at least one full calendar year as of December 31, 2018
  • percentage of domestic non-Satellite franchised Operator Chick-fil-A Restaurants located in malls that had been open and operated by Operators for at least one full calendar year as of December 31, 2018 and generated annual sales of less than $1,650,000; between $1,650,000 and $2,300,000; and over $2,300,000, respectively
  • 2018 average, median, high, and low sales for the 1,539 domestic non-Satellite franchised Operator Chick-fil-A Restaurants located in non-malls that had been open and operated by Operators for at least one full calendar year as of December 31, 2018
  • percentage of domestic non-Satellite franchised Operator Chick-fil-A Restaurants located in non-malls that had been open and operated by Operators for at least one full calendar year as of December 31, 2018 and generated annual sales of less than $5,185,000; between $5,185,000 and $6,185,000; and over $6,185,000, respectively

Section I – Background Information

26 Things You Need to Know About the Chick-fil-A Franchise

Using AI to Fight Foodborne Illness

1.  In May 2019, Chick-fil-A announced that it was turning to a high-tech method to detect foodborne illness. In a proactive move, the chain is deploying an artificial intelligence program to monitor social media to spot signs of an outbreak.

2.  Davis Addy, Chick-fil-A’s senior principal IT leader of food safety and product quality, outlined how the company plans to use the technology during a presentation at the ReWork Deep Learning Summit in Boston. According to Addy, “For us in this journey with analytics and food safety, we’re going from a place of hindsight to insight…and eventually foresight so we can be more proactive in helping our restaurants better identify and address food safety risks.”

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3.  In an article detailing Chick-fil-A’s plans, it was noted that norovirus causes 19-21 million illnesses and between 570-800 deaths annually, according to the Centers for Disease Control and Prevention (CDC). Most of these outbreaks occur in foodservice settings – restaurants, schools, nursing homes, hospitals, day care centers, military barracks, universities, and cruise ships.

4.  It has also been determined that 64 percent of outbreaks are attributed to restaurants and 70 percent of those outbreaks are caused by infected workers. By tracking the spread of an outbreak in real time, Chick-fil-A will have a better chance of finding the source quickly, whether it be an employee or an issue further down the supply chain.

5.  Chick-fil-A plans on using the custom software to learn from online customer behavior to identify phrases and keywords that spot trends of emerging illness. The software will read through customer feedback across social media channels.

6.  At the time of the announcement, Chick-fil-A said that the software was operating at 78 percent accuracy. Amazon and Chick-fil-A are currently working to improve the technology to learn from inconsistencies of posts to accurately identify the correct trends and actual outbreaks.

7.  Through a mobile app, store managers are relayed information of concerning customer posts and have the choice to reach out to them directly to remedy the situation. A corporate dashboard also tracks the data to spot trends on a broader scale.

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Opening Stores Without Dining Rooms

8.  In October 2018, Chick-fil-A announced that it was testing locations without dining rooms in Nashville, Tennessee and Louisville, Kentucky. These units will focus instead on catering and delivery and were set to open that month. Customers in these markets can still order catering at any local Chick-fil-A, but the fresh models will serve as hubs for catering and delivery.

9.  The Nashville location has no dining room or drive-thru – roughly 4,200 of its 5,800 square feet will be dedicated to the kitchen, which is more than double the size of a normal Chick-fil-A space. Customers can order by walking up to the front counter inside the restaurant, or through DoorDash delivery. They can also order catering to be delivered or picked up at the restaurant.

10.  According to David Sims, franchise operator of the Nashville restaurant, “Customers are relying more on mobile delivery and this new location helps us provide that convenience.” Another new feature that Chick-fil-A is testing out at the Nashville location is a credit/debit card only system, “making the Chick-fil-A Mobile App the easiest way to order,” according to the company. The restaurant will have the full Chick-fil-A menu available.

11.  Chick-fil-A’s Louisville restaurant will have a similar format. In this case, there will be no dining room or walk-up ordering. It will focus solely on preparing catering and delivery orders for Chick-fil-A restaurants in Louisville’s East End. This store was slated to open in mid-October 2018 and will be roughly the same size as typical 4,800-square-foot stores.

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12.  Bruce Smith, franchise operator of the Louisville location, said, “This is a tremendous opportunity to create a better experience for restaurant team members and customers alike. Team members can stay focused on making sure every customer has the best possible experience at our restaurants. It’s never been easier for customers who are picking up their catering orders.”

Partners with DoorDash for Nationwide Delivery

13.  In mid-November 2018, Chick-Fil-A announced that it had partnered with DoorDash, the on-demand destination connecting customers to their favorite national and local businesses, to offer delivery from more than 1,100 of its restaurants nationwide.

14.  According to Jon Bridges, senior vice president and chief marketing officer of Chick-fil-A, “So many of our guests’ busy lives and family commitments have them strapped for time. Delivery is one way we can help them get a quick yet high quality meal. If they’re unable to come to us, we’ll come to them.”

15.  In celebration of the partnership, Chick-fil-A and DoorDash gave away up to 200,000 free Chick-fil-A Chicken Sandwiches (one per customer in participating cities) from November 13 until November 20, 2018, when placing an order through DoorDash. The giveaway was available exclusively through the DoorDash app and website with a $5 minimum order when using the promo code “CFADELIVERY”. The giveaway was available daily after 10:30 a.m. local time.

16.  Nationwide delivery continues Chick-fil-A’s innovative work outside its physical restaurants. So far in 2018 (at the time of the announcement), the company re-launched the Chick-fil-A mobile app, opened its first delivery-focused locations in Louisville and Nashville (with door-to-door delivery available via DoorDash in Nashville), and was testing Mealtime Kits in Atlanta restaurants.

17.  To maintain both DoorDash’s commitment to high-quality service and Chick-fil-A’s food quality, deliveries will be made to customers within a 10-minute radius of participating restaurants.

18.  Chick-fil-A had been testing delivery with DoorDash since 2017 in select markets. Since the pilot began, both Chick-fil-A and DoorDash have invested in custom-built technology integrations to ensure order accuracy and a smooth delivery experience for customers.

19.  Ninety-eight percent of respondents who used DoorDash during the pilot said the food they ordered was consistent with what they expected from Chick-fil-A. The delivery test also revealed that 90% of DoorDash orders included Waffle fries; orders peaked during dinner and on inclement weather days; and delivery sales were highest for restaurants near hospitals and universities.

20.  Christopher Payne, chief operating officer of DoorDash, added, “Chick-fil-A’s standout business momentum is a testament to how they listen to what their customers want. Customers expect convenience without sacrificing quality, and DoorDash is thrilled to provide that level of service to Chick-fil-A’s loyal fan base through door-to-door delivery. We’re proud to be a part of their journey and provide new ways for customers to enjoy their favorite Chick-fil-A menu items from anywhere.”

Company History

21.  Chick-fil-A was founded in 1946 by S. Truett Cathy when he opened a small diner in Hapeville, Georgia called the Dwarf Grill. While running the Dwarf Grill, Cathy developed what became Chick-fil-A’s signature chicken sandwich. In 1961, Cathy purchased a pressure fryer that could cook a chicken sandwich in the same amount of time it took to cook a fast-food hamburger. A few years later, Cathy finalized the recipe for Chick-fil-A’s Original Chicken Sandwich and registered the name Chick-fil-A, Inc.

22.  The first official Chick-fil-A restaurant opened in 1967 in the food court of the Greenbriar Mall, in a suburb of Atlanta, Georgia. Over the next few decades, Chick-fil-A continued to expand across the Southern region of the United States by opening stores in suburban mall food courts. The first free-standing Chick-fil-A restaurant opened on April 16, 1986, on North Druid Hills Road in Atlanta. Following this, Chick-fil-A focused on opening standalone units over food court units.

23.  During the 1990s, Chick-fil-A continued its growth across the U.S. and opened its first international location in 1994 in Canada. However, this location did not do well and closed within a few years. Chick-fil-A tried once again to open an international location, this time in Durban, South Africa. A few more stores opened in South Africa in the late 1990s, but none of the locations were profitable and were all shut down by 2001.

24.  After two decades of absence in Canada, Chick-fil-A decided to give it another shot by opening an outlet at the Calgary International Airport in May 2014. In 2018, Chick-fil-A announced that it would continue to expand within Canada, in the Greater Toronto Area, over the next five years.

25.  While Chick-fil-A mostly has a presence in the Southern United States, today, the chain has grown beyond this region through national expansion. There are now Chick-fil-A restaurants across the United States in standalone units, universities, hospitals, mall food courts, and airports.

Entrepreneur’s Franchise 500

26.  Chick-fil-A did not rank on Entrepreneur’s 2019 Franchise 500 list.

Section II – Estimated Costs

  • Please click here for detailed estimates of Chick-fil-A franchise costs, based on Item 7 of the company’s 2019 FDD.

Section III – Initial Franchise Fee, Royalty Fee, Marketing Fee, and Other Fees

  • Please click here for detailed information on Chick-fil-A’s initial franchise fee, royalty fee, marketing fee, and other fees, based on Items 5 and 6 of the company’s 2019 FDD.

Section IV – Number of Franchised and Company-Owned Outlets

Franchised

2016

  • Outlets at the Start of the Year:  1,643
  • Outlets at the End of the Year:  1,730
  • Net Change:  +87

2017

  • Outlets at the Start of the Year:  1,741
  • Outlets at the End of the Year:  1,853
  • Net Change:  +112

2018

  • Outlets at the Start of the Year:  1,845
  • Outlets at the End of the Year:  1,947
  • Net Change:  +102

Company-Owned

2016

  • Outlets at the Start of the Year:  34
  • Outlets at the End of the Year:  42
  • Net Change:  +8

2017

  • Outlets at the Start of the Year:  31
  • Outlets at the End of the Year:  29
  • Net Change:  -2

2018

  • Outlets at the Start of the Year:  37
  • Outlets at the End of the Year:  42
  • Net Change:  +5

Section V – Financial Performance Representations (Item 19, 2019 FDD) and Analysis

Domestic Chick-fil-A Restaurants Included in Sample

  • As of December 31, 2018, there were approximately 2,352 domestic Chick-fil-A Restaurants and Licensed Units open and operating, including approximately 1,989 domestic Chick-fil-A Restaurants and 363 domestic Chick-fil-A Licensed Units.
  • The domestic Chick-fil-A Licensed Units, which are operated by Chick-fil-A Licensees, and their annual sales volumes, are not the subject of these financial performance representations.
  • As of December 31, 2018, approximately 1,947 of the 1,989 domestic Chick-fil-A Restaurants were being operated by Operators and 42 of the 1,989 domestic Chick-fil-A Restaurants were being operated by Chick-fil-A or its affiliates.
  • The domestic Chick-fil-A Restaurants that are operated or were operated at any time during calendar year 2018 by Chick-fil-A or its affiliates, and their annual sales volumes, are not the subject of these financial performance representations.
  • Approximately 1,780 of those 1,947 domestic Chick-fil-A Restaurants being operated by Operators had been open and operated by Operators for at least one full calendar year as of December 31, 2018 and had been operated by Operators during the entire year.
  • Of these 1,780 domestic Chick-fil-A Restaurants operated by Operators, 7 were “Satellite” locations, and their annual sales volumes are not the subject of these financial performance representations. The remaining 1,773 non-satellite domestic Chick-fil-A Restaurants that had been open and operated by Operators for at least one full calendar year as of December 31, 2018, and their annual sales volumes, are the subject of these financial performance representations and discussed below.
  • Approximately 234 of the 1,773 domestic non-Satellite franchised Operator Chick-fil-A Restaurants that had been open and operated by Operators for at least one full calendar year as of December 31, 2018 were located in malls, and approximately 1,539 of the 1,773 domestic non-Satellite franchised Operator Chick-fil-A Restaurants that had been open and operated by Operators for at least one full calendar year as of December 31, 2018 were located in non-mall environments (e.g. free-standing or drive-thru only units).
  • During the calendar year ending December 31, 2018, 1 domestic non-Satellite franchised Operator Chick-fil-A Restaurant located in a mall unit permanently closed, of which 0 had been open for less than 12 months, and 8 domestic non-Satellite franchised Operator Chick-fil-A Restaurants located in non-mall environments permanently closed, of which 0 had been open less than 12 months.

Annual Sales Volume of Domestic Chick-fil-A Restaurants

  • For purposes of the financial performance representations set forth below, the term “annual sales volume” includes a franchised Operator Chick-fil-A Restaurant’s entire gross receipts (excluding only sales taxes levied upon retail sales and payable over to the appropriate governmental authority) from sales at, from, or related to the franchised Operator Chick-fil-A Restaurant during the applicable calendar year, whether for cash or on a charge, credit, or time basis, including sales and services (i) where orders originate and/or are accepted at, in, or away from the franchised Operator Chick-fil-A Restaurant, or (ii) pursuant to telephone or other similar orders received or filled at or in the franchised Operator Chick-fil-A Restaurant.
  • Both non-Satellite franchised Operator Chick-fil-A Restaurants located in malls and non-Satellite franchised Operator Chick-fil-A Restaurants located in non-mall environments are similar with respect to their operations and receive similar services from Chick-fil-A.
  • Because franchised non-Satellite Operator Chick-fil-A Restaurants located in malls and franchised non-Satellite Operator Chick-fil-A Restaurants located in non-mall environments achieve generally different levels of financial performance, financial performance representations have been included for each type of Restaurant in order to provide information relevant to prospective Operators.
  • Some franchised Operator Chick-fil-A Restaurants have sold this amount. Your individual results may differ. There is no assurance that you’ll sell as much.

Annual Sales Volume of Domestic Non-Satellite Franchised Operator Chick-fil-A Restaurants Located in Malls That Had Been Open and Operated by Operators for At Least One Full Calendar Year as of December 31, 2018 (234 Units)

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