Subway has been in the business of franchising restaurants since 1974. It’s one of the top fast food franchises because of growing domestic and international demand for healthier fast food options. Compared with other popular names in the top fast-food franchise list, Subway’s initial start-up costs are relatively modest:
- Startup costs are estimated at between $117,000 and $263,000
- The net worth requirement of between $80,000 and $310,000
- Liquid cash of $30,000 to $90,000
More customers want to eat fresh and healthy meals on the go. In 2015, Subway announced it will eliminate artificial preservatives, flavors, and colors from its food. Subways initial franchise fee is also relatively modest ($15,000). The ongoing royalty fee (8 percent gross sales) and ad royalty fee (4.5 percent gross sales) are competitive.
There were almost 27,000 Subway restaurant franchises in the U.S. in 2016 and almost 18,000 franchise restaurants in more than 111 countries. Subway’s international franchise expansion originally focused on Australia-New Zealand, Japan, Saudi Arabia, the Netherlands, Belgium, Luxembourg, United Kingdom, Puerto Rico, Spain, France, Italy, and Germany.
McDonald’s has been in the franchising business since 1955. In 2015, there were almost 30,000 McDonald’s franchise restaurants in the world. Because a McDonald’s franchise has long been considered the “gold standard” of fast food franchise restaurants, startup costs are ultra-competitive (between $989,000 to $2,250,000). McDonald’s recently scored a major consumer win when all-day breakfast was introduced in 2015.
Many franchise trend watchers say that McDonald’s is still the golden-arched gold standard. New franchise owners must have $750,000 in liquidity, pay a $45,000 franchise fee, and 12.5 percent royalty.
Special incentive programs help minority franchise owners purchase a McDonald’s franchise. New owners receive McDonald’s renowned “world-class” training. This training is required before the new franchise owner receives the keys to his or her McDonald’s restaurant franchise.
It’s costly to own a McDonald’s franchise and, unlike other fast food franchise options, McDonald’s requires the franchise owner to be involved with daily operations. According to the “Wall Street Journal,” McDonald’s sales dropped in 2012 for the first time since 2003. In 2014, quarterly receipts turned down for the first time since 1997.
However, there’s little doubt that owning a McDonald’s franchise is a good investment for the future. It’s still the standard by which most other fast food restaurant franchises are measured.
If you’ve never enjoyed the pleasure of a Chick-Fil-A sandwich, you probably will soon. Chick-Fil-A is on an expansion mission. The company has been franchising restaurants since 1964, when the privately-owned Dwarf House first offered its signature boneless chicken breast sandwich. There are now 1,700 franchise restaurants across the U.S. delivering estimated sales of more than 5 billion dollars last year.
According to the “Wall Street Journal,” Chick-Fil-A’s revenues surpassed KFC’s longstanding top slot in the fast food chicken restaurant concept more than three years ago.
Chick-Fil-A approves approximately 75 percent of franchise applicants each year. According to the company, about 20,000 prospective owners ask for operating rights:
- To determine the full cost of owning a Chick-Fil-A restaurant, you’ll need to submit an application to the corporate office.
- The franchise fee is about $10,000. That’s a very modest sum in the fast food franchise world.
- Franchise owners receive all the equipment necessary to operate the Chick-Fil-A fast food franchise from the franchisor. It’s rented to the operate for 15 percent of unit sales.
- Plan to take a day of rest each week. Your Chick-Fil-A restaurant will close on Sunday to give you and employees time to enjoy the benefits of owning a Chick-Fil-A franchise.
Ranked#4 Dunkin’ Donuts(4.2 out of 5)
If you live in New England, you already know that your world runs on Dunkin’ Donuts. It’s the fast food choice of the New England Patriots football franchise and many workers can’t start their day without a cup of Dunkin’ coffee.
Dunkin’ has been in the franchise business since 1955. Today, there are approximately 12,000 franchised units in the United States and 36 countries around the world. Dunkin’s parent, Dunkin’ Brands, is also the franchisor of Baskin-Robbins.
The basics of buying a Dunkin’ Donuts franchise include:
- Buying a Dunkin’ Donuts franchise requires liquidity of at least $125,000 and a net worth of $250,000.
- Applicants must pass a criminal background, credit, and proof of assets check. The franchisor must approve your business plan.
- The initial franchise fee ranges from $40,000 – $90,000.
- The initial investment is estimated at $217,000 to $1,600,000.
- The ongoing royalty fee is 5.9 percent.
- The ad royalty fee ranges from 2 to 6 percent.
A Dunkin’ Donuts franchise offers superior name brand recognition. It’s consistently considered one of the most attractive fast food franchises to own. Although making donuts is labor-intensive, Dunkin’s online university simplifies the task of training and managing a 24-7 work force.
Ranked#5 Papa John’s(4.1 out of 5)
People love pizza and, if you’ve never tried Papa John’s pizza, you’re in for a tasty and lucrative treat. Papa John Schnatter opened Papa John’s restaurant with $1,600. The business began franchising in 1986.
Today, Papa John’s is the third-largest pizza franchise in the world. There are almost 4,000 Papa John’s franchise restaurants in the United States, UK, China, and the Middle East.
If you’re interested in multiple units, the franchisor says “yes” if you’ve got the required net worth:
- To own one franchise, you must have $250,000 minimum net worth.
- To own four to 10 franchise units, you must have a 1 million dollar net worth.
- To own 11 or more franchise units, you must have a 2 million dollar net worth.
- Estimated investment ranges between $160,000 to $395,000 (the average unit requires an investment of about $220,000).
- You should have a minimum of $250,000 liquid assets (cash/available financing) for one or more units.
- The franchise fee is $25,000 + five percent ongoing royalty, payable monthly.
- Papa John’s likes partnerships, a successful management background in business, and local proximity to the franchise unit(s).
Best Fast Food Franchise Opportunities
For people looking to get into the restaurant business, a fast food franchise is usually a really great opportunity to open up a restaurant. There are a lot of great benefits to fast food franchises. You’ve got instant name recognition, built in marketing from corporate offices, and a product that you know people love. However, buying into a food franchise is not always as easy or cheap as you might think. So, before you take the plunge and buy, here are a few things to consider.
Know what makes a restaurant a franchise.
Not all chain restaurants are franchises. For example, Starbucks is one of the most well-known chains in the world, but it is not a franchise. Every Starbucks store is company owned and operated. Wendy’s however, is a restaurant franchise. Owners (franchisees) buy the rights to open and operate a Wendy’s. And, as part of that deal, the franchisee pays a monthly royalty to the corporate office (franchisor). In return, the franchisor pays for marketing, menu designs and provides help solving problems for their franchisees.
Identify your budget and your qualifications.
The best fast food franchises are expensive. More than anything else, the cost of the franchise will limit your choices when it comes to buying into food franchise opportunities. Money aside, you’ll also want to think about your restaurant experience. Franchisors don’t just hand over the keys to their business to just anyone, they want to make sure the person they have selling their product is qualified to do the job.
Create a business plan.
Before you can get any sort of financing (whether from a bank or an investor), you’ll need to create a restaurant business plan. As you create your plan, you’ll be forced to look at things like the population of an area, profile the local economy and identify your choices to build/rent.
Have a lawyer read over the franchise contract.
Once you’ve been approved to franchise fast food and you’ve secured your financing, you’ll need to sign a contract with the franchisor. Before you sign anything, make sure you read over that contract very closely. Even the best food franchises can hide things in their contracts, so it’s always a good idea to have a lawyer read it over with you. Make sure you know what will happen if by some unfortunate odds your franchise fails. Are you stuck paying the franchisor a set amount of money each year regardless of your success or failure? Who owns the equipment? Can you get any of your money back? Just because you’re part of a national chain, doesn’t mean you’ll be an instant success. It still takes a lot of work to run a successful business.
Now that you know what to do to get started, let’s take a look at the pros and cons to owning one of the best food franchises.
- Successful track record – Most of the top food franchises have multiple restaurants that have been operating for quite some time. It’s pretty easy to see they are successful.
- Financing help – Most traditional lenders are really familiar with what it takes to get a fast food franchise up and running. From equipment to real estate needs, lenders are ready and willing to finance these types of restaurants because of their typically high revenue.
- Built-in demand – Most consumers have been trained (unbeknownst to them) to look for fast food franchises, which is a really great advantage when you’re just getting started.
- High upfront costs – Most of the top fast food franchises require you put down a pretty big chunk of change to get started. You’ll need to pay your franchise fee, build or rent a place, buy kitchen equipment and supplies and the list goes on and on.
- Employee problems – Most fast food businesses require a lot of employees to function, and these employees are generally paid as little as possible. Because you’ll be working with people making minimum wage (or close to it), you’ll experience a lot of turnover and it can be a challenge to keep a full staff.
- Low margins – You’ll be paying for both the cost of the food you sale and the labor it takes to prepare it, so your actual margins are actually relatively low.
Now that you know more about what it takes to run a successful business, take a look at our best fast food franchise list to see which one is the best fit for you.