🍟 7/11/2021 – Sample Breakdown: KFC & The UPS Store

To franchise owners,

Today I’ve broken down two very popular franchises, KFC and The UPS Store.

When I officially launch the newsletter in a few weeks, it typically won’t cover such large brands that have reached scale but will be more focused on small to medium-sized franchises.

The goal is to provide analysis on brands that show a lot of potential, but are still small enough that there is available territory for you should you pursue one of the brands.

Here is what you can expect from the weekly email:

  • Analysis of 1 restaurant brand and 1 non-restaurant brand
  • The brand will be small – medium-sized franchises (2 – 200 locations nationwide)
  • The newsletter will ALWAYS be FREE

See below for what the format of each brand breakdown will be.

DISCLAIMERDO NOT CONSIDER ANYTHING WRITTEN BELOW AS INVESTMENT ADVICE. IF YOU DECIDE TO PURCHASE A FRANCHISE, YOU MUST DO YOUR OWN RESEARCH, AND REALIZE ANY INVESTMENT MAY GO TO $0.00.

Kentucky Fried Chicken (KFC) Franchise

Background

  • Founded in 1930, started franchising in 1952
  • Headquartered in Louisville, Kentucky
  • Franchisor is owned by Yum! Brands, the owners of other brands such as Pizza Hut and Taco Bell

Fees, Expenses

  • Royalty: 4-5% of gross revenue OR monthly payment of $1,260 whichever is greater
  • National Co-Op Fee: 4.5% of gross revenue
  • Franchise Fee: $45,000

Initial Investment

  • Newly constructed outlets: $1.4M – $2.7M
  • Remodel an existing outlet: $1M – $2.2M

Financial Performance

  • Average net sales of company owned units (44 units): $1,296,962
  • Average net sales of franchisee owned units (2,982 units): $1,193,701
  • Average cost of labor for company owned units was $399,192
  • Average cost of product for company owned units was $391,356

Average Cost of Labor + Average Cost of Product as a percentage of Net sales = 61%

Number of Units

  • Growth of +17.1% over last 3 years
  • 24,394 units open as of 2021
Franchise ownership numbers
Source: Entrepreneur.com

The Wolf’s Take 🍟 

Given the popularity of the brand, I honestly expected higher revenues per unit out of KFC. Considering it costs a minimum of $1M to open a location, it’s unfortunate that KFC chose not to include EBITDA from franchisee or company-owned locations.

Generally speaking, 12-15% margins are healthy for a restaurant, so you would think KFC franchisees fall into that range at a minimum. Regardless, anyone trying to purchase a KFC would have hundreds of franchisees to speak to who would be able to report their exact profitability – so the lack of data in the FDD isn’t an issue for serious buyers.

The UPS Store Franchise

Background

  • Founded in 1980
  • Headquartered in San Diego, California

Fees, Expenses

  • Royalty: 5% of Gross Sales
  • Marketing Fee: 1% of Gross Sales
  • National Advertising Fee: 2.5% of Gross Sales
  • Franchise Fee: $29,950

Initial Investment

  • Traditional Outlets: $137,849 – $566,585

Financial Performance

  • 2019 Average Gross Sales: 521,316
  • 2019 Top 10% Average Gross Sales: $916,057
  • 2019 Bottom 10% Average Gross Sales: $252,427

Note: These statistics are based on 4,561 reporting locations

Number of Units

  • Growth of +5.8% over the last 3 years
  • 5,268 units open as of 2021
UPS Store Franchise Location Growth Chart
Source: Entrepreneur.com

The Wolf’s Take 🍟 

For franchises, The UPS Store has a very palatable initial investment, as well as royalties and marketing fees being charged. 8.5% in total fees is outstanding given the popularity of the brand. A good rule of thumb for franchises for fees is “6, 3, & 3”:

  • 6% royalty
  • 3% national brand fund
  • 3% miscellaneous fees

With that said, the revenue isn’t super high with an average of about $520k, and just like KFC, The UPS Store doesn’t share any EBITDA data. However, they too have tons of franchisees operating who would provide would-be buyers with their profitability (anytime a candidate is considering buying a franchise, the franchisor provides contact info to all existing franchisees).

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