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Chick-fil-A Finding Success In Its Remarkable Franchising Model

What makes Chick-fil-A rolling, when all others have hit a wall?

In a report published by QSR Magazine , a trade publication for fast-food restaurants, Chick-fil-A topped the highest average sales per store in 2010, with sales of $2.7 million per unit—higher than industry giant McDonald’s which only earned average sales per restaurant of $2.4 million.

And last year, while Chick-fil-A was continuously adding locations, its competitors have gone to a standstill. KFC was said to have reduced its total number of units, as well as Arby’s, Pizza Hut, Dairy Queen and Hardee’s.

The College Park, Georgia-based quick-service chain has many secret ingredients—among those known to many include its Christian culture (which has been quite controversial in the eyes of some of its employees and customers the past years), its concentration on nearby local communities (a move which helped strengthen repeat business), and the excellent food that their chefs in outstanding chef apparel prepare.

But there’s one lesser known ingredient that made Chick-fil-A roll the past years in the midst of the challenging economy: its extraordinary franchising approach which is considered unique in the restaurant circle.

Companies, especially fast-food restaurants, typically make use of franchising to quicken their growth—they tap outside investors for additional capital to build more stores. Franchisees would come up with an upfront franchise payment plus the expenses needed to put up and operate a new location. They also pay up about 9% of their revenue to the mother company to cover advertising costs and the rights to use the brand name and sell its products. A major restaurant chain, such as KFC for instance, asks its franchisees to invest around $1.9 million to be able to operate a store.

But Chick-fil-A has a completely different model.

Upfront payment is only $5,000 (yes, that’s just three zeros), since the company is the one that bankrolls the expenditures for its new locations. They pick the place, retain their ownership of the restaurant, collect rent, get 15% of the location’s sales and divide the remaining income with its franchisee. The franchisees cannot put it up for sale nor can they pass the business to their beneficiaries or heirs.

And considering the chain’s present success, the formula apparently works—for both sides.

One of its operators, Margaret Phillips says that she took the opportunity as a big break. “Almost 30 years ago, I scraped together the amount of $5,000 so I can have my first Chick-fil-A restaurant in Daytona Beach, Fla. I was 23 years old then.” Phillips worked at Chick-fil-A’s North DeKalb Mall location for seven years, starting at 16, before she became a franchisee.

As Chick-fil-A executives disclosed, their chefs in cool chef apparel, as well as all service crew and management staff have done so well in hitting the company’s targets. Their 1,100 franchisees collected operating profits that totaled to an estimated $210 million in 2010, or $190,000 each. And that’s despite its six-days-a-week operating schedule.

Its founder and CEO, S. Truett Cathy, is said to be a devoted practicing Christian and is well-loved by its highly motivated and loyal franchisees.