MOST PROFITABLE QSR FRANCHISES

Launching a new Quick-Service Restaurant (QSR) franchise can be extremely challenging, making the professional advice of a franchise lawyer invaluable.

Contact Neufeld Legal PC for franchising legal matters at 403-400-4092 / 905-616-8864 or Chris@NeufeldLegal.com

Making an assessment as to the most profitable quick-service restaurant (QSR) franchises, which faces the constraints of financial information being heavily controlled and restricted, relies upon industry insights and the scrutiny of the limited public financial information that is made available (given that most larger QSR franchise system form part of a publicly-traded company), with a primary measurement being their Average Unit Volume (AUV), which represents the average annual sales per location [more on QSR AUV]. However, it's important to remember that high AUV doesn't automatically mean high net profit margin, as costs like labor and rent vary. Nevertheless, using recent industry data, what are perceived as the most profitable QSR franchises have been ranked by their AUV and profitability indicators:

Top QSR Franchises by Average Unit Volume (AUV)

Franchises with the highest AUV typically have a robust, in-demand concept and excellent operational efficiency (figures are set out in US dollars).

• Chick-fil-A: Consistently ranks at the top with some of the highest AUVs in the entire QSR industry, often reported in the range of $6 million to over $7 million. It's known for its selective franchising process and strong customer loyalty.

• Raising Cane's Chicken Fingers: Another chicken chain with extremely high AUVs, often reported between $5 million and $6.5 million.

• Shake Shack and Whataburger: These chains often appear with AUVs in the $3.5 million to $4 million range.

• McDonald's: A global leader with very high brand recognition. While its AUVs are often in the $2.9 million to $3.6 million range, its consistent performance and established system make it a safe and highly profitable investment for many franchisees.

• Culver's: Known for premium products, its AUVs are often reported in the $3.4 million to $3.7 million range.

Franchises with Strong Profit Margins and ROI

Some franchises may have a lower AUV but offer a better return on investment (ROI) due to lower initial investment costs or leaner operating models, leading to high profit margins.

• Chick-fil-A: Despite its high gross sales, its initial franchise fee is exceptionally low (around $10,000), though the parent company retains a much larger share of profits and has a high royalty rate. This unique structure provides a strong incentive for the operator, leading to high-quality operations.

• Domino's Pizza: While its AUV is lower than the top burger or chicken chains (often around $1.3 million to $1.4 million), the pizza delivery model is highly efficient with strong delivery logistics and lean operations, often resulting in good net profit margins for franchisees (frequently reported in the 12-16% range).

• Wingstop: Known for a simple, focused menu and high-volume digital ordering, Wingstop units often achieve AUVs over $2 million, and its model is considered to have strong margins due to its operational simplicity.

More about the largest QSR franchise systems (in Canada, USA, and globally).

Key Factors for QSR Profitability

When evaluating a QSR franchise, you should look beyond just the revenue number (AUV) and consider these critical factors:

• Average Unit Volume (AUV): The total sales generated by a single location. Initial Investment: The cost to build and open the restaurant, including land, construction, equipment, and franchise fees. A lower investment with a respectable AUV often leads to a higher ROI.

• Net Profit Margin: The percentage of revenue left after all expenses (Cost of Goods Sold, labor, rent, royalties, etc.) are paid.

• Operational Efficiency: Simple menus, strong supply chains, and high-tech integration (like robust drive-thrus and digital ordering) generally lead to better margins [more on QSR operational efficiency].

Christopher Neufeld is a business lawyer knowledgeable in the rigors and challenges of the franchise business (with a particular emphasis on the restaurant sector, given my prior background in the hospitality industry), together with the legal constructs that are critical to their effective operation. For experienced legal representation in starting, acquiring / selling, operating and managing a franchise, contact franchisee lawyer Christopher Neufeld at 403-400-4092 [Alberta], 905-616-8864 [Ontario] or Chris@NeufeldLegal.com.