Are Fast Food Franchises Good Businesses?

browser on 24/03/2025 - 18:13

Not interested in joining them, just wondering if they are good businesses. Without naming specific stores, many new stores start from scratch, either on new land or knock down. New building, new parking, new kitchen, new dining area, along with all new equipment and technologies.

Sounds like a lot to start, how soon can they break even and start making money? Can imagine a big chuck of the revenue goes to franchisor, loan repayments, labour costs, rents if land is leased. Then there're utilities, rates, insurances, all sorts of maintenances, cost of food and wastage.

Judging by new fast food joints are still popping up, they likely profitable right? Would be interesting to look at their uncooked books.

Food & Grocery

Comments

  • Drakesy on 24/03/2025 - 18:21
    +8

    Not sure how true it is but the rumour i heard was my local Macca's was $1m to buy in + whatever the site costs were, say $2m, it paid itself off within 3 years and it's now been operating for 20+.

    Not a bad Roi

    However pick a dodgy one (Donut king, eagle boys etc.) and you'll wish you never even tried.

    Have a friend who brought into an asian desert franchise. They force you to use their products imported from their suppliers in asia at a horrendous markup, makes it very hard to price it competitively.

    • Ughhh on 24/03/2025 - 18:25

      I heard that too re maccas. Also you can't just pay $1M and have it, you still go through an interview process like you're applying for a job.

      • tomsco on 26/03/2025 - 02:11

        Yeah I did a course for first level of management. Every time you go up a level you do another course.

        My course was two weeks and there were two people hoping to become licensees attending my two weeks. They’d then have to do every other course after that.

    • browser on 24/03/2025 - 18:37

      That sounds pretty good, overly simplistic calculation 1m per annum net, so 3m over 3 years to pay it off. Then 1m profit every year after that.

      But it is a huge investment decision for most people.

      Well established brands like Maccas, KFC, Subway, etc are probably lower risk, but harder and more expensive to get into.

    • JimmyF on 24/03/2025 - 19:58
      +1

      i heard was my local Macca's was $1m to buy in + whatever the site costs were, say $2m

      Yeah it was $3m like 30 years ago. Its not that today, keep adding zeros.

    • MS Paint on 24/03/2025 - 20:27

      According to the McDonald's franchise booklet it's between $4m-12m and unencumbered.

      • Drakesy on 24/03/2025 - 20:29

        Yeah factoring in inflation this is more what I expect it would be now

      • browser on 24/03/2025 - 23:03
        +1

        Holy cow! Sometimes through council meeting minutes you can find some people owns 5 or 6 or even 10 McDonald's franchises, goodness! Tens of millions of dollars selling fast food.

  • AustriaBargain on 24/03/2025 - 18:55

    Pizza places can be, if you have the marketing to sell enough pizzas each week and pay a manage to run it all properly. Margins on pizzas are insane. It's a stressful job for the manager so they need to be paid properly even if the rest of the staff is minimum wage.

    • Craze on 24/03/2025 - 20:42

      Genuinely curious- can you elaborate why is it stressful for the manager? For larger chains like Domino's I'd think they have a fairly mature/robust automated system for most things which helps take the load off the manager as part of daily items to manage.

      In terms of margins- beverage business is also highly profitable from what I gather (Boost and most bubble tea chains are examples).

      • AustriaBargain on 24/03/2025 - 21:01
        +2

        They have to make dough daily and project the need for dough into the future (it cold ferments for days), managing teenagers who are emotional over teen stuff in their private lives, drivers who would rather disappear for an hour and get stoned, training and constantly encouraging and managing expectations of the teens in store, every single day of the year. Even when you're on holiday you would have to worry about what you're coming back to.

        • bloom on 24/03/2025 - 21:11

          My old man had a Domino’s tenant for a few years, sent him broke and it’s being taken over by Domino’s head office until a new franchise can be found

          • AustriaBargain on 24/03/2025 - 21:17

            @bloom: Speaking to some managers I've been told that some locations are guaranteed easy money, other locations are hard. And independent places, like Eagle Boys franchises who decided to go indie instead of turning into Pizza Huts, can have a tough time because they were responsible for their own online ordering systems and marketing. And their own internal data systems to keep track of what they are doing. It's not easy doing it alone.

          • WoodYouLikeSomeCash on 25/03/2025 - 11:42

            @bloom: The only way that happens is if you’re not running a good store.

  • netjock on 24/03/2025 - 19:25
    -1

    It depends.

    Jim's franchises on average are making $100k pa each. Franchise fee is like $30k minimum.

    Domino's is good (apparently) if you can get multiple shops.

    Look at the Retail Food Group (RFG) franchises for laughs which they got roasted as part of parliamentary inquiry.

    • JimmyF on 24/03/2025 - 19:59
      +3

      Jim's franchises on average are making $100k pa each. Franchise fee is like $30k minimum.

      hahahahaha they are not.

      • TEER3X on 25/03/2025 - 10:46
        +1

        I think they mean for Jim

        • JimmyF on 25/03/2025 - 13:09
          +1

          Yep Jim is the one banking the money.

          I know of a few people who have gone into a Jims franchises, they all regretted it. But said it was good for learning the ropes, and all exit the Jims franchises as soon as they can.

          Jims is a typical franchise model. Charge a arm/leg and a heap of ongoing fees to the person buying the franchises, bleed them dry, when they pull out, sell it on again.

          Far more money selling a $50k lawn mowing run every 12-18 months than doing the lawns!

      • Tiredman on 25/03/2025 - 14:01

        Yep.

  • JimmyF on 24/03/2025 - 20:00
    +1

    Are Fast Food Franchises Good Businesses?

    Generally no. Its rare to get a good site that makes money.

    many new stores start from scratch, either on new land or knock down. New building, new parking, new kitchen, new dining area, along with all new equipment and technologies.

    Yeah it is easy to expand your brand when someone else is paying all the costs and taking all the risks. If these sites printed money, why is the parent company needing to even franchise in the first place?

    In this case, the new franchise is paying for everything, they are taking all the risk if the site will work or not. If it fails, the company takes the site back, and flips it to the next sucker. Who runs it till they are dry, and the cycle repeats. This is how they make a lot of money.

    Just because it is a franchise, doesn't mean it will print money.

    The ones that do make money, the host company will try and muscle you out so they can take it over.

  • morse on 24/03/2025 - 20:06
    +5

    From what I’ve heard success is an exception. It can be done but more people fail than succeed.

    • JimmyF on 24/03/2025 - 23:20
      +1

      From what I’ve heard success is an exception. It can be done but more people fail than succeed.

      That is the franchise model! Otherwise the parent company would be opening the stores up and banking all the profit.

      The 'money' for them is from all the fees, being the middle man for all the food and rent. Getting a cut of everything.

  • AndyC1 on 24/03/2025 - 21:23

    Depends on the franchise you are buying into.

    • JimmyF on 24/03/2025 - 23:20

      What's a good one in your books?

  • geekcohen on 25/03/2025 - 06:07

    I used to do marketing for a commercial real estate agent and they sold a lot of property. Something to keep in mind is that a lot of the buildings are not owned by the Franchisee and are rentals. Same for Bunnings. A lot of Bunnings stores for the buildings are owned by Wesfarmers but investors who then rent it to Bunnings.

    So, essentially, a commercial investor will build something for a specific franchise on a long-term lease and then rent it back. These are then often sold every couple of years or held onto for a very long time and then sold. Depending on the lease agreement will depend on who pays some of the outgoings like land tax etc.

    This is often like this for all fast food chains.

    So whilst it might sound expensive for the building/parking etc, it might not be a part of it. In terms of the fit out, that would be up the Franchise.

    • geekcohen on 25/03/2025 - 10:32

      Correction

      A lot of Bunnings stores for the buildings are owned by Wesfarmers but investors who then rent it to Bunnings.

      are not owned by Bunnings/Wesfarmers

    • JimmyF on 25/03/2025 - 13:12

      Something to keep in mind is that a lot of the buildings are not owned by the Franchisee and are rentals

      Correct, but a lot of the time the franchise company will own the main lease and then sublease it at a profit to the lucky franchisee. Who has no control over anything.

      I know coffee club used to do this. Basically sell the business every few years to a new lucky franchisee, and pocket a big franchise fee, pocket the rent profit, pocket all the skimming off the goods you HAVE to buy from them etc. That was where the money was at, not selling the product.

  • Ozbargainusername123 on 25/03/2025 - 07:36
    +5

    Terrible idea.
    The contract lawyers and accountants make sure you are squeezed for 99% of your blood, sweat and tears. After it's all said and done you will be working maximum hours for minimum wage.
    I have a couple of friends in lawn care.
    Although they are making similar $ the one who joined a franchise is taking home LESS than half in profit. All the $ gets sucked up by the franchise owner.
    It's dumb. Either go independent or don't bother.

    • geekcohen on 25/03/2025 - 07:54

      Although they are making similar $ the one who joined a franchise is taking home LESS than half in profit. All the $ gets sucked up by the franchise owner.

      Also some of these places have 3 or 4 of the same mob in the same area! I know there are a few Jim's Mowing in my area.

      Plus, what annoys me with the Franchise stuff is that you have to enquire all through their head office, you cannot ring the local bloke directly unless you speak with him. Just huge control over enquiries.

      It's dumb. Either go independent or don't bother.

      100%. Independent might be a struggle to start with, but once it is going you have huge benefits.

      • JimmyF on 25/03/2025 - 13:14

        Plus, what annoys me with the Franchise stuff is that you have to enquire all through their head office, you cannot ring the local bloke directly unless you speak with him. Just huge control over enquiries.

        If it is a Jims one, that is because Jims chargers the local franchise for a 'lead' when you call them up.

        So if you call up for your 'free' quote and don't go ahead, the poor sap that quoted got slapped with a lead fee from HQ.

  • 82norm on 25/03/2025 - 07:57
    +2

    The horror stories I’ve heard are frightening and will send you broke. One example, the franchise sourced their soft drinks from a supplier. Let’s say, $45.00 can of 30. You were FORCED due to the contract to purchase from them. Whereas, it was on sale at Cole’s for $25. Every few years you had to refurb your store to their themes, xx dollars that you had to stump up, again using their suppliers with a bumped up margin. Bs guaranteed returns, yeah as long as you work 7 days a week, 18 hr days. Had a mate who partnered with a friend years ago, they barely broke even. Friendships were destroyed, debts taking years to repay…. Wouldn’t touch one a mile away. Setup your business instead.

  • Trying2SaveABuck on 25/03/2025 - 09:36
    +1

    If we are talking 'food industry' outside of a McDonalds which is essentially a money printer i cant understand 'why' anyone would do this - you can copy 'almost' any business model and not have to pay franchiee fees nor do you have to comply to their rules which can be 'very' limiting - back in the everyone paid cash days it made sense because almost everyone was 'pocketing' cash but in the rise of card payments has killed that…

    I kind of understand 'other' service base franchees because the 'business' will find you clients - ie i have used Jims for a number of odds jobs in the past in which i have 'called' the main line told them the issue and the have sourced a tradie/worker for me within their network - in that case you are 'paying' for the business referrals (which can be worth it)

    When it 'comes to food' anyone can start a cafe the success comes down to the 'people' working their and product on the plate for the price it is sold at

    • tenpercent on 25/03/2025 - 09:50

      Jim's Coffee sounds like a goer

    • JimmyF on 25/03/2025 - 13:17

      you can copy 'almost' any business model and not have to pay franchiee fees

      You'll find the larger supermarkets don't generally allow one offs in food court. Its all 'chain' stores.

      So want to get into a food court, you have to be part of a chain.

      Everything I've seen, being a franchise in a shopping center is the worst of both worlds. Shopping centers can't go broke soon enough.

      • Trying2SaveABuck on 25/03/2025 - 14:31

        So want to get into a food court, you have to be part of a chain.
        You'll find the larger supermarkets don't generally allow one offs in food court. Its all 'chain' stores.

        'Supermarkets' couldnt give a 'single' f—- what other stores are in a center as they generally only sign up to shopping centers if they get a 25 year sweetheart deal on rent ie Coles is probably paying the same for a massive space as the small botique shop owner - it is why Colesworth are so powerful they know they 'bring' customers and foot traffic it is also why they 'sometimes' close down after a few decades because once the sweetheart deal conditions are over it is no longer viable to pay the rent the center can demand - Watergardens Coles was there from day one all of a sudden it went from paying 7k per month in rent to be asking to pay 30k per month and they shut the doors….

        The Shopping center management also ONLY care about who is willing to 'pay their bills' - it is true they 'may' pick a franchee over a individual because there is a level of security that if the Subway store fails then Subway (parent company) will step in find a new owner so they will still get paid

        A lot of people with money are also 'pretty stupid' and happy to start a business with no experience and sign 3-5 year expensive leases shopping centers usually gamble on these people because they have a 'very' high fixed annual increase in rent ie CPI + 5% or something crazy - most large businesses think Loviesa wouldnt touch such a s—t deal

        With that said the boost Juice at Deer Parking shopping center went bust bloke didnt pay rent for months and just took off o/s. There is little shopping centers can do bar close your door if you owe then 6 months rent

        Everything I've seen, being a franchise in a shopping center is the worst of both worlds. Shopping centers can't go broke soon enough.

        As long as their is a line of businesses willing to pay crazy rent to them they wont go bust ever, if one goes under someone will buy them out and the cycle continues

        The other kicker is the 'longer' a small-medium business stays in a area the more established it becomes the eaiser it is to 'up the rent' on them because they essentially a stuck and it is 'very' hard for most businesses to change physical locations

        • JimmyF on 25/03/2025 - 15:38

          'Supermarkets' couldnt give a 'single' f—- what other stores are in a center

          Whoops meant shopping centers, not supermarkets. But some supermarkets do care about what other supermarkets are allowed and how close they are to them.

          there is a level of security that if the Subway store fails then Subway (parent company) will step in find a new owner so they will still get paid

          Depending on who holds the lease, if the subway franchise has the lease, then the head office won't be picking up the bills unless they want to keep the store location. Thats the entire reason they do the franchise model. Rapid expansion without spending a dollar or taking any risk.

          expensive leases shopping centers usually gamble on these people because they have a 'very' high fixed annual increase in rent ie CPI + 5% or something crazy

          Oh there is a 'something crazy' in the lease terms. All shopping center leases are you pay the agreed rent or a % of your gross income, whichever is higher. So if you make no money you pay the agreed lease rate, but if your store booms, you end up paying even more. Hence why shopping centers need to die, they are evil.

          As long as their is a line of businesses willing to pay crazy rent to them they wont go bust ever, if one goes under someone will buy them out and the cycle continues

          America and its zombie malls might say otherwise.

          At the end of the day, there is only so much you can squeeze out of each customer to cover the crazy high rents that the stores get charged. At some point the customer just says no and doesn't make the purchase if the price is too high.

          Shopping centers give cheap rent for the anchor tenants to draw the customers in, everyone else pays. So while the movie theatre will get semi cheap rent, all the food outlets near it won't! Same for Coleworth, they get cheap rent, all the other goods stores don't.

          • Trying2SaveABuck on 25/03/2025 - 17:46

            @JimmyF: agree with everything you said bar the comparision of U.S zombie malls to Australia that just not applicable to Australia - partly due to the duopoly of Colesworth and partly due to the sheer lack of population density we have

            we have 1 chadstone in Victoria and a few other large shopping centers generally one in each large district ie Northland, South Land, Highpoint etc

            In U.S.A you could have 5 large shopping centers within 15km not to mention there retailers are all the size of a small shopping center here - ie Costco, K-Mart, Target etc all are MASSIVE you could probably put 10 standard Woolworths in a single Costco in the states

            In Aus we have much smaller targeted retails ie K-Mart sells cloths a few home life style things that it whilst in the US K Mart would sell everything Coles/Kmart/Eb Games/Myer would sell here

            in Aus if you dont have Coles/Woolworths you essentially wont have a viable shopping center - U.S has WAY more competition ie Wall Greens, Trader Joes, Costco etc

            • JimmyF on 25/03/2025 - 18:55

              @Trying2SaveABuck:

              we have 1 chadstone in Victoria and a few other large shopping centers generally one in each large district ie Northland, South Land, Highpoint etc

              There are way more than those ones. Doncaster gives Chadstone a run for its money these days, but out that way you also have Eastland, Knox, then heaps of smaller ones like Forest Hill, Fountain gate, Dandenong, Wavery Gardens, Lillydale, Brandon Park and the list goes on for a bunch of smaller shopping centers.

              Bigger isn't better, Chadstone is a nightmare and most people who don't live near it, avoid it like the plague. I would go to any other shopping center out east before going to Chadstone! But then they are also closer.

              whilst in the US K Mart would sell everything Coles/Kmart/Eb Games/Myer would sell here

              How did that work out for Kmart in the US? It didn't they went bankrupt and now closed.

              But I agree, US malls are slightly different, all the big chain stores you listed want to be standalone, so a mall becomes a collection of smaller branded shops without a draw card.

              Even cinemas are standalone in the US in a lot of places. All thanks to the US crazy car culture of driving everywhere. Drive to have a meal, then jump back in the car and drive to go to the movies, then drive again to get food food on the way home.

  • Wiadro on 25/03/2025 - 10:42
    +2

    i have a friend who owns 3 Maccas in nw sydney
    has had them in the family for nearly 40 years.
    they live very very very well,
    plus have a back office of 12 people and a warehouse full of maccas random signs, furniture, kitchen equipment etc

  • WoodYouLikeSomeCash on 25/03/2025 - 11:45

    Domino’s MU franchisee’s pull in excess of a million dollars annually.

    • lunchbox99 on 25/03/2025 - 12:41

      Is that revenue or profit?

      • JimmyF on 25/03/2025 - 13:17

        It'll be revenue, the average punter confuses revenue with profit……

        So it'll be $1m in revenue, and $965k in costs and outgoings.

      • WoodYouLikeSomeCash on 25/03/2025 - 18:33

        Profit.

        • JimmyF on 25/03/2025 - 19:01

          LOL They do not rack in $1m profit a year.

  • Some Guy on 25/03/2025 - 13:45
    +1

    Well the Hungry Jacks at South Gundagai just closed down, so I'd say maybe not or maybe. It depends.

  • koplik8 on 25/03/2025 - 17:24
    +1

    I know someone who owned a Gloria Jeans. They were meant to negotiate his rent. It was around the time when all of their shops inside the book stores were closing when the book shop chain went bust. His rent doubled. They just sent him their lawyers bill. He followed up to see what the bill was for. So much for looking after your franchisees.

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