Franchising has facilitated rapid growth for nearly every major restaurant chain in the world, including McDonald’s, Subway, KFC, Pizza Hut and Starbucks.
When companies franchise, outside operators fund all the overhead for building, opening and running restaurant locations. In return, the company gives the operators, or franchisees, a cut of the profits. That’s largely how McDonald’s and Subway have managed to open more than 35,000 and 42,769 locations, respectively, over the last several decades.
So why doesn’t Chipotle, which has just 1,681 restaurants — and says it eventually wants to replace all major fast food chains — consider franchising?
“The reason we don’t franchise is because we don’t need to,” says Chipotle spokesperson Chris Arnold. “Companies tend to franchise because they need money to grow and/or operators to run their business. We have plenty of money for growth (more than $US1 billion in cash on our books) and don’t have trouble attracting great people to run our restaurants.”
Chipotle also doesn’t want to relinquish any control over its restaurant operations.
“When you franchise, you give up control over how restaurants are run and that can compromise the experience,” Arnold says. “What’s more, our business model is so strong, we would rather not sell off our revenues to franchisees in exchange for only a small percentage of that.”
Chipotle keeps a close watch over how effectively its assembly lines are operating and how quickly queues of people are moving through queues. Sometimes that means reviewing restaurants’ security footage to make sure employees are doing their assigned jobs.
The company also wants to maintain tight control over its food sourcing, without facing any potential pressure from franchisees, Arnold said.
“Because of our food culture… we tend to have the highest (or among the highest) food costs in the industry as a percentage of revenue,” Arnold says. “That very much flies in the face of conventional industry wisdom, and it can be hard to do things like that if you have franchisees who don’t agree with those decisions or fall out of favour with them for some reason.”
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