Case file 012 · Fast-food franchises
5 Restaurant Chains That Got Too Greedy. Their Owners Went Broke.
At most fast-food chains, an independent owner runs the restaurant. The chain is paid on what it sells. The owner is paid on what's left.
The numbers
The story in 30 seconds
Most of these restaurants aren't owned by the chain. An independent owner rents the name, the recipe and the ads, and pays for them with a slice of every sale.
The chain is paid on sales, so it wants anything that grows them: discounts, ads, remodels, more stores. The owner pays for most of it, and in a slow month the chain still gets its slice.
This year owners of Wendy's, Applebee's and Popeyes restaurants ended up in bankruptcy court. Wendy's ended one owner's franchise and billed it $119 million in fees for the future, even on restaurants already closed.
Follow the $100
Every $100 a customer spends at a Wendy's:
Wendy's: $8
off the top of every sale, profit or not
Wendy's's $8, up close
- Royalty$4
- Advertising$4
The owner: $92
who pays for the beef, the staff and the building out of it
What this means for your business
- 1
Know who's paid on sales and who's paid on profit.
Try thisList everyone who takes a cut of your sales off the top: a franchisor, a delivery app, a card processor, a landlord.
- 2
Run every discount through your own numbers.
Try thisTake a $10 sale, cut it 30%, then take off what's still owed on the sale. See what's left for you.
- 3
Read the exit before you sign.
Try thisFind what you'd owe if the deal ends early: fees for the years left, leases, guarantees.
More plays from the video
- Look for fees charged on sales, not profit.
- Look for who picks the discounts and the ads.
- Look for remodel rules and their deadlines.
- Look for what you'd owe if the chain ends the deal: Wendy's contract charges its fees for every month left on the term.
How you compare
Wendy's takes $8 of every $100 off the top. Two food franchises from the 40, for comparison:
Kiosks kept about 14.6¢ of each sales dollar on average, before loan payments.
Owners pay a 5% royalty on every sale.
Run your numbers
Before you sign a deal that takes a cut of your sales, run these numbers.
If what comes off the top is close to what you keep, one slow month or one discount you didn't pick can wipe out your profit.
