Why do some fast food franchises cost less to buy into?
Entry cost differs because of format, build-out, equipment, territory and how the franchisor charges its fees. A small kiosk or food court unit needs less construction than a freestanding store with a drive-thru. A lower entry cost can mean smaller sales, tighter limits or heavier ongoing fees, so compare the whole cost of running the unit.
When two fast food brands show very different entry costs, the gap has several causes to examine. It usually reflects what you are being asked to build and equip, and what the franchisor keeps charging you later. Looking at the pieces separately helps you see what a lower entry cost leaves out, and what you may be asked to pay for down the road.
Format and build-out
A kiosk, a food court counter or a unit inside another business needs far less construction than a freestanding restaurant with a dining room and a drive-thru lane. Less space also means fewer seats, a shorter menu and a smaller sales ceiling. Ask the franchisor how stores of your format perform in markets like yours, then ask owners of that format the same question.
Equipment and supplier terms
Some brands include an equipment package and some leave you to buy it. A short menu may need few machines, while a larger one calls for more. Ask who owns the equipment, who services it and when it must be replaced. Required suppliers can also shape costs after opening. The guide to buying a quick service restaurant covers this in more depth.
Fees after opening
A lower entry cost can come with royalties, marketing contributions and technology fees that take more of each sale. Ask for a full list of recurring charges and add them to your own projections with your accountant. Also ask about renewal, remodel and transfer terms, since they show how much freedom you really have in the system over time.
Related reading
14 pages on the same subject, grouped by topic.
Buying
- Expert answerHow do I read a fast food franchise’s brand audit reports before buying?
- GuideFood franchise opportunities in Canada: what franchisors publish
- Expert answerHow do I check a fast food franchise’s kitchen equipment before buying?
- Expert answerHow can I check whether a food franchise is profitable before I buy it?
- Expert answerWhat does a fast food franchise owner do day to day?
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- Expert answerHow do I check a fast food franchise’s staffing before buying?
- GuideBuying a café or coffee shop in Canada
- Expert answerShould I buy a burger franchise or an independent burger restaurant?
- Expert answerWhat changes when you buy a food court restaurant instead of a street-front one?
- Expert answerCan I buy a fast food franchise with no restaurant experience?
Sources
This answer is checked against primary sources. Links were last confirmed on the dates shown.
- 01Business Development Bank of CanadaGovernment5 tips to finance a franchise purchase
- 02Canadian Franchise AssociationIndustryInterested in Buying a Franchise?
- 03Business Development Bank of CanadaGovernmentHow to conduct due diligence when buying a business
- 04Canadian Franchise AssociationIndustryFranchise Disclosure Legislation across Canada
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