🍟 9/26/2022 – The Next Chick-Fil-A?!


Culver’s: A Small Town Restaurant That’s Going National

In rural Wisconsin, just northwest of the capital, Madison, lies Sauk City. 3,500 residents call this small town ‘home’, but Sauk City is home to more than just this handful of people. No, Sauk City is the birthplace and current headquarters of a burger franchise that’s building something special: Culver’s. 

The brand, founded in 1984 – decades after fast food juggernauts like McDonald’s, Burger King, Wendy’s, and Chick-Fil-A -has the makings of becoming the next massive franchise. 

Their slow and steady approach has been compounding over the years, and when I look at what they’re doing, it’s hard to not see the similarities they have with Chick-Fil-A.

Sure, one sells burgers, custard, and cheese curds, while the other sells chicken-sandwiches; but from a franchising standpoint, there’s many encouraging parallels.

The Obvious Signals

1. High average unit volumes

Chick-Fil-A has garnered tons of attention thanks to the average revenue per location of their stores.

In 2021, Chick-Fil-A’s average revenue across the board was $5.013 million. But if you dig deeper and exclude restaurants located inside of malls (which are typically smaller and have lower revenue potential), the average revenue of their 1,836 non-mall locations is $8.1 million 🤯.

Culver’s, on the other hand, did an average of $3.01 million per restaurant in 2021. That number is based on 770 franchised locations, and 6 corporate owned stores. 

$3.01 million is a far cry from Chick-Fil-A at the moment, but keep in mind that Chick-Fil-A ws founded 17 years earlier (1967), and that in 2014, Chick-Fil-A’s average unit volume outside of malls was just over $4M aka it’s doubled in the last 7 years.

When you factor in that Culver’s started 17 years later, and recognize how quickly revenue can compound when you hit an inflection point (which Chick-Fil-A clearly has since 2014), then it’s not too difficult to see that Culver’s could be on the verge of a big breakout.

Just take a look at the below stat’s from 2021 – yes, Culver’s has less locations than these brands, but it currently is pacing as the 2nd highest revenue per location among all the big players.

Note: the above chart is from the WSJ and they notably excluded Raisng Cane’s and In-N-Out Burger, in addition to Culver’s.

2. Passionate Customer Base

There’s many ways to measure how passionate a customer base is. To me, average revenue is actually a great starting point. After all, if people truly love your brand and product, then it should show up in your sales year in and year out.

Culver’s checks that box with their average unit volume amongst the highest in the country. They also win awards as the top fast-food burger in the country, edging out regional fan favorites like In-N-Out Burger and Whataburger. 

But beyond the objective numbers and recognition, there’s intangibles that can be picked up. For instance – I tweeted the following on Saturday morning in anticipation of this newsletter, and here was one of the replies:

Smart man, Tilo!

But to say that Culver’s is the next Chick-Fil-A solely based on the average revenue per location or customer sentiment online, would be insufficient.

Let’s dive deeper to see how else Culver’s is mirroring the Chick-Fil-A success model…

Culver’s Origins

The Culver’s story unequivocally starts with the Culver family. In 1961, Ruth and George Culver bought an A&W franchise, whom their son Craig would work in from an early age.

Craig went on to major in biology in college, but struggled to find a job upon graduating in 1973. He ended up managing a McDonald’s franchise in Madison, Wisconsin, where he learned even more about restaurant management, operations, and franchising. 

After 3 ½ years managing the McDonald’s, he felt confident enough to go out on his own. Lacking the funds to purchase a franchise, he tapped his father for help, and together they purchased the same A&W franchise they bought in 1961 (George and Ruth had sold it in 1968 in favor of another restaurant). 

Craig and George, the father & son duo, ran that A&W for 6 years, before selling it in 1982. But 2 years later, they found themselves re-buying it again – this time with the sole intention of converting it to their own restaurant. 

Thus, in 1984, Culver’s was born.

A Rocky Start

Their first year in business was…rough.

In year 1, they generated just $300,000 in revenue, and lost $40,000 total, almost sending them into bankruptcy. 

In year 2 however, they broke even. And in year 3, they had their first year of profitability. 

In 1990, the first successfully franchised Culver’s opened, and by 1995 they’d have 45 Culver’s churning out ButterBurgers and custard in the state of Wisconsin. 

The growth from there has followed the same pattern: slowly expanding from where there’s already a high density of stores. You won’t find a lone Culver’s anywhere in the country.

If you see one, you’re likely close to a bunch more. 

2000 – Today

Culver’s opened just under 100 stores in the first decade of franchising. Since then, they’ve been growing steadily, focusing on providing quality food and customer service, one location at a time.

To bring us up to speed on where Culver’s is today, here are the key milestones since the turn of the century:

  • 2014 – Culver’s average unit volume hits $2 million per store, the same year they opened their 500th location and do over $1 billion in system wide revenue 
  • 2015 – Craig Culver, co-founder of Culver’s, retires as CEO on his 65th birthday – longtime employee Joe Koss is the current CEO, while Craig maintains involvement in overall strategy
  • 2017 – Culver’s sells a minority stake (undisclosed) to Roark Capital – the first outside capital the brand has ever taken to this day

Note: Roark Capital owns or has ownership stakes in brands including Auntie Anne’s, Baskin Robbins, Buffalo Wild Wing’s, Arby’s, Cinnabon, Carvel, Dunkin’, Jimmy John’s, Jamba Juice, Moe’s, OrangTheory, Sonic, and more.   

  • 2021 – Culver’s opens it’s 837th restaurant, achieves an average revenue per location of $3,016,676 and systemwide sales of $3.2 billiion

The last few decades have been successful for Culver’s to say the least. An investment from Roark Capital is especially indicative of the growth potential Culver’s has over the coming years.

But what specifically led to this? How has Culver’s primed themselves for future growth? 

I call it:

The Culver’s Domino Effect

Just like Chick-Fil-A, Culver’s has their own domino effect that leads to the same outcome: rabid fans and repeat customers. 

With a consistent quality product being produced – whether it’s burgers & custard for Culver’s or chicken sandwiches for Chick-Fil-A  – both concepts then leverage a specific franchise strategy to generate results that most restaurant brands only dream of.

While the methods of Culver’s and Chick-Fil-A – which ultimately result in an ultra-loyal custome base – may have some differences when you examine them closely, from a macro perspective, it’s the exact same approach

Here’s the 3 levers both brands are pulling when it comes to franchising:

1. Intentional Growth Strategy

When Chick-Fil-A started franchising, Truett Cathy, the founder of Chick-Fil-A, would only expand to other malls that were local to other Chick-Fil-A’s. This kept costs down and allowed the brand to grow profitably

Chick-Fil-A has followed a slow-growth approach to this day, and while they have way less locations than a McDonald’s, the average store is performing better than any fast food brand worldwide.

Culver’s also has an intentional growth approach. As I mentioned earlier, they won’t expand anywhere there isn’t already a high density of stores. 

It’s an inside → out growth approach where 1 store won’t get too far from the nucleus of Culver’s. Instead, the nucleus is just getting bigger and bigger, until someday it will surely be coast to coast.

As you can see, Culver’s quite literally is unwilling to expand to many markets, even though the demand is surely there.

This plays a major role in why each individual Culver’s performs at such a high level. By growing where the concept has already caught on, the recognition and reputation is embedded into a new Culver’s on day 1.

2. Tight Franchisee Requirements

“If the leadership is not right, boy, it’s certainly not going to work. We franchise to owner-operators, people who are going to own restaurants and operate restaurants.”

Craig Culver

Much has been written about Chick-Fil-A’s franchise requirements. While they only require a $10,000 franchise fee to be paid, it’s also incredibly competitive to be accepted.

Chick-Fil-A only wants owner-operators who are passionate about the brand, which leads to just ~100 out of 60,000 applicants being accepted each year.

For context, you’d have a better chance of getting into Harvard, Stanford, or the Secret Service than becoming a Chick-Fil-A operator.

Culver’s requires more upfront capital than Chick-Fil-A. A lot more for that matter – Culver’s initial investment is $2.3M -$5.8M, and according to Culver’s website, you and any potential investors need a minimum of $500,000 in liquid assets to qualify for ownership of a Culver’s franchise.

While this naturally weeds out many applicants, Culver’s does its part to ensure that prospective franchise buyers truly want to be a Culver’s owner. 

Before any entrepreneur is considered for a Culver’s franchise, you must complete a discovery week, which includes working six 10-hour days in the restaurant. 

Basically Culver’s says “oh, you think you want to own and operate our business? Suit up for a week and get a taste of what it’s like”.

I guarantee dozens (if not hundreds) of starry-eyed wantrepreneurs come out of that week each year saying, “thanks, but no thanks”. 

This test of commitment undoubtedly slows Culver’s ability to award and, subsequently, open new stores, but it’s a way to filter for only the truly passionate operators who can maintain the quality Culver’s demands.

Sound familiar? 🤔

3. Focus on Customer Service

“If you’re going to charge more…you better be serving it with a please or a thank you or a my-pleasure attitude. Otherwise, it becomes just another burger.”

Craig Culver

Culver’s qualifies as a quick-service restaurant, the same category as behemoths like Chick-Fil-A, McDonald’s, etc. But they find themselves at the more premium end of this category:

  • Higher prices
  • More complex menu
  • Restaurants sit 98-120 guests
  • Made to order food (i.e. each meal gets cooked after a customer orders)

To justify this, the Culver family knows that service must be a differentiator. Craig Culver’s mom, Ruth Culver, was known as the “hospitality queen”, and is the reason for the basic practices you’ll see in Culver’s today.

Waiters will take every order to a customer’s table, and each employee is trained to say “please” and “thank you” with every guest. 

“Every time you came in,” Craig Culver says of his mother, “it was like she wrapped you in a hug.”

They haven’t lost that spirit.

It’s hard to argue that what Culver’s is doing isn’t working. 

Their growth strategy leads to strong brand recognition for every new location that opens, while their franchise requirements filter for the best suited franchisees, creating a domino effect that leads to the eye-popping numbers stores are currently putting up.

If you haven’t been convinced yet, consider this – Culver’s has only closed two stores in their entire history.

That’s an insanely good track record, and shows the positive power of franchising. If you want to open a burger business, I guarantee you have a better chance of success and lower chance of failure by going with a Culver’s. 

As for what the future holds, I won’t be surprised to see Culver’s have Chick-Fil-A levels of revenue in the next 5-8 years. They’ve taken no shortcuts, and have patiently been laying the groundwork for such growth over the previous decades. Combine that with the more recent investment from Roark Capital, and it’s only a matter of time.

Regardless, the Culver family is happy to keep on keeping on. After all:

“It’s not important how many restaurants you have. What’s important is how many good restaurants you have.” 

George Culver


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