Making a Profit With a Fast Food Franchise

August 15, 2010 9:58 AM

How long would it take to become profitable with a fast food franchise?

I know a great spot where I think a Rally's (Checkers in some regions of the US) would be pretty successful. It's on a vacant corner lot that used to be a gas station (two other gas stations are across the street, so that probably drove out this one), and the gas station was demolished and the land is now bare. It's main stretch is a four lane interstate route with no median, and the location is near several homes and subdivisions as well as a number of business parks. Nearby competition includes a McDonald's, Wendy's, and Arby's (all on the same side of the street) as well as Subway, a pizza joint, a Mexican and a Greek restaurant inside a shopping plaza across the street. The next closest Rally's happens to be located on the same interstate route, but it is located in a completely different city about 20 minutes away, so if other people are like us, we only go there maybe once a year, and that's only because we know its there. The next closest is about 8 miles away by highway. But we've never gone to that one. There are several others to the north of us (Toledo, Ohio). We are in Perrysburg, one of the more notably affluent cities in the area. But who doesn't like cheap burgers and the world's greatest fries? I'm no fan of burger joints, but Rally's has definitely always been an exception for me.

So my question is, what would it take to make such a franchise successful and how long would it take to pay off the costs, or at least make it into the black? I've never been involved in any sort of franchising venture before, but I've been to the Rally's/Checkers franchise info site. It just doesn't detail anything along the lines of what I'm asking about here.

Has anyone started a fast food franchise from the ground up (including building the building and such)? Any others who've participated in franchising in any sort of way? Any insight is highly appreciated.

posted by purefusion to work & money (11 answers total)

This question is both really simple and completely unanswerable.

The simple answer is, if it costs you Y to get going, and you profit $X/mo, then it will take you Y/X months.

The non-simple answer is, how could anyone tell you how much it will cost, or how much you will profit? It's not like there's an easy way to even take a wild stab at it.
posted by RustyBrooks at 10:21 AM on August 15, 2010

a vacant corner lot that used to be a gas station

A word of caution, this property may be sitting vacant for a reason. Depending on your jurisdiction, acquiring the property might saddle you with liability due to the former gas station's underground fuel storage tank. Was the station's underground fuel storage tank removed? Even if it has been, there may be additional remediation necessary before you'd be able to build on the property, particularly if the tank was leaky. However, some states do have programs that provide loans and/or grants to assist in the removal and remediation associated with underground fuel storage tanks.
posted by RichardP at 10:30 AM on August 15, 2010 [2 favorites]

I know the owner of a large chain franchise here in Vegas that's not turned a profit after 10 years.

He knows someone that did in about 8 months.

Location, location, location.
posted by Rendus at 10:30 AM on August 15, 2010 [3 favorites]

Also, someone probably already owns the franchise rights for your area. If there is one 8 miles away and another 20 minutes away in a nearby town, I would bet that that person has the rights to your town. Contact that person and see if you can form a joint venture.

Also, I second the concern about the former gas station site. I have a friend whose family owned a gas station that was profitable and did ok, but when it came time to sell it, they could not because of the EPA and the site contamination. Had to demolish the building and the lot sat vacant. They tried to get rid of it by not paying taxes on it and still had a legal fight. Finally some insurance and some government grant allowed them to clean the ground of contaminants and they sold cheap after expenses.
posted by JohnnyGunn at 10:38 AM on August 15, 2010 [1 favorite]

"So my question is, what would it take to make such a franchise successful and how long would it take to pay off the costs, or at least make it into the black? I've never been involved in any sort of franchising venture before..."

The reason the Rally's site doesn't give these details (aside from Franchising Law) is that there is no simple, blanket answer for this. Demographics, traffic, land and construction costs, competition are just a few of the factors that have to be entered into this. I am not trying to insult you when I say, if you have to ask these questions you are not prepared to enter into this type of business. Success in any franchise, especially anything as competitive and capital-intensive as fast food, requires some background in business. This could come from experience working in a fast food company at the managerial level or from owning one or more other small businesses.

Many fast food companies sell franchising territories to companies that open five or six stores in an area and can balance the risks of location and demographics amongst those multiple outlets. I don't know if Rallys does or not, but that is something to check. Go into the closest one and ask who owns it and whether they are an area franchisee.

Oh, and be prepared to show a minimum net worth of around $1million.
posted by Old Geezer at 10:38 AM on August 15, 2010

Nearby competition includes a McDonald's, Wendy's, and Arby's (all on the same side of the street) as well as Subway, a pizza joint, a Mexican and a Greek restaurant inside a shopping plaza across the street.

I don't know jack (in the box) about fast food franchising, but this sounds pretty brutal. Just because you think Rally's is a cut above these other places does not mean the public at large does.
posted by benzenedream at 12:05 PM on August 15, 2010

Contact corporate. They'll have all sorts of data relating to what makes for a good location. Keep in mind though that they are trying to sell you something, so reality will not likely be as rosy as they paint it. Still, it's the place to start your research.
posted by spilon at 1:54 PM on August 15, 2010

Also, you are going to need six figures of liquid assets, at a bare minimum, before any reputable franchise company will talk to you. They want to be sure you the capital to ride it out until it gets successful, or at least that you don't fail so quickly that it makes the franchise look bad.
posted by COD at 2:26 PM on August 15, 2010

Usually, other fast food restaurants nearby means that you are in a *good* area. McDonald's especially spends a LOT of resources finding sites for their restaurants. The only "downside" is that you usually will have to execute your franchise's quality standards better than average because you don't have a captive audience.

As for figuring out whether it really is a good site (underground tanks notwithstanding) is to watch traffic flows. Not being a breakfast restaurant, you'll want to be sure the location is accessible by the prevailing traffic at dinnertime. If they have to make left turns, they aren't going to go in.
posted by gjc at 5:42 AM on August 16, 2010

Shit, forgot: the key to making a profit is to be in the restaurant managing it. If you are the restaurant manager, that is one expensive employee you don't have to pay. If you just want a turnkey cash generating operation, it will be harder.

And these aren't terribly profitable times in the restaurant business.
posted by gjc at 5:45 AM on August 16, 2010

Thanks to all who chimed in. Each answer was thought-provoking, and I really appreciate the insight. Hard to choose any single answer as more definitive than another. Plus, gjc's addendum really makes a lot of sense so I marked it too. Thanks again.
posted by purefusion at 5:13 PM on August 20, 2010