You have probably heard of Burger King, one of the biggest fast-food companies in the world. They mainly offer a wide variety of burgers and fries. Did you know it is a franchise? Yes, Burger King is a franchise with over 18,000 locations worldwide, of which about 7,000 are in the U.S. alone. Burger King Corporation was founded in 1954 in Florida and is based in Miami. It is an indirect subsidiary of Burger King Worldwide, located in Delaware.
The standard fee for a 20-year term Burger King franchise is $50,000. The upfront fee must be paid before opening the restaurant. Prices can vary depending on the length of the property control, with the minimum being $15,000. On top of the initial fee, Burger King also has an application fee of $250 per applicant and $5,000 for Entity Ownership. If you were to operate multiple restaurants, a fee of $50,000 is due for every additional unit.
The estimated total investment needed for beginning operation is between $1,877,600 and $3,398,600. That is if you decide to go the traditional route.
However, with Burger King, you can also opt for setting up your location inside another commerce (like a supermarket or a gas station), and can also co-brand to reduce costs. They call these non-traditional stores.
By doing this, the initial investment is reduced to a rough estimate of $220,000 – $1,450,000.
For the sake of simplicity, we will focus on traditional locations.
|Type of Expenditure||Freestanding Estimated Range||To Whom Payment is To Be Made|
|Travel and Living Expenses While Training||0||25,000||vendor|
|Real Property / Occupancy Charge||400,000||850,000||lessor/vendor|
|Civil & Architectural Drawings / Professional Fees||20,000||60,000||vendor|
|Improvements / Construction||900,000||1,200,000||contractor|
|Signage & Drive Thru||66,000||166,000||vendor|
|Cash, Inventory Control and Order Taking System||35,000||110,000||vendor|
|Working Capital / Additional Funds||45,000||90,000|
|Business Licenses, Utility Deposits, Lease Deposits and Payments||10,000||30,000||city, utility, company, lessor|
|2- Story Interior Playground||0||245,000||vendor|
Burger King Corporation is continuously looking for multi-unit operators that are committed to providing an excellent guest experience.
The approval process for a Burger King franchise includes:
|Annual Sales Level-Range||Traditional||Non-Traditional|
|$1.7M – $1.9M||8.9%||8.2%||8.9%||3.1%|
|$1.5M – $1.7M||14.3%||16.3%||14.2%||4.4%|
|$1.3M – $1.5M||18.8%||22.4%||18.8%||10.3%|
|$1.1M – $1.3M||20.4%||16.3%||20.4%||14.6%|
|$0.9M – $1.1M||15.5%||22.4%||15.4%||19.3%|
|$0.7M – $0.9M||7.0%||10.2%||7.0%||16.7%|
|Mean Average Sales||1,413,592||1,288,822||1,414,609||1,021,166|
|#/% Meeting or Exceeding Mean Average Sales||2,667 / 44%||26 / 53 %||2,641 / 44%||261 / 45%|
|High Annual Sales||4,791,985||1,910,878||4,791,985||3,901,264|
The highest-earning franchise made around $4.8 million in revenue whereas the lowest-earning franchise made less than $200,000. These numbers indicate that potential earnings can vary significantly and it depends on how well the business is run, the location, and other factors.
We can estimate that based on net revenue of $1,351,000 and a profit margin of 13%, the average Burger King franchise compensation is $175,630 per year.
Based on a midpoint investment of $2,638,100 with estimated profits of $175,630, it will take about 15 years to recoup the initial investment in a Burger King franchise. Keep in mind that these are just estimates, and your profit will ultimately depend on different factors like what kind of location you pick and how well you run your business.
After five years in the business, when you go to sell your franchise based on the median multiple of .34 and net sales average from 2019 of $1,351,000 it would sell for about $459,340. This is considerably lower than the average initial investment of $2,638,100.
Moreover, on average, you will be able to make a profit by selling your franchise iif you own multiple locations, as the median multiple for stores selling more than $5 million is .86.
If you had 10 Burger King franchises this would be about $13,510,000 in net sales.
Therefore, selling your multi-unit franchise would amount to $11,618,600. Assuming that every additional location has the same initial investment of $2,638,100, selling would only earn you about 44% of your initial investment.
Most Burger King and quick service restaurants franchisees are not making their money from the franchise itself. Rather from real estate!
Franchisees that own the real estate rather than leasing it have the opportunity to sell the real estate along with the franchise which allows for much greater profit than the sell of the restaurant business alone.
Now let’s take a look at one of the largest Burger King franchisees to see how they make money.
Carrols Restaurant Group is a restaurant franchise corporation that is also the largest Burger King franchisee in the world, and according to their website, they currently own and operate over 1,000 restaurants under the Burger King and Popeye brand names. At the same time, Carrols Restaurant Group is a publicly-traded company, meaning that it is listed on the stock market under the ticker symbol $TAST.
As an individual investor, on the surface, it may seem as if you do not have a lot in common with large corporations like Carrols Restaurant Group. But looking at this franchisee’s financials can provide valuable insight into the success of the franchisor in the industry, as well as projected revenues, costs, and profits.
Carrols Restaurant Group is one of the largest restaurant franchisees in North America. It currently operates 1,010 Burger King restaurants in 23 states as well as 65 Popeyes restaurants in seven states. Carrols has been operating Burger King franchises since 1973 and Popeyes restaurants since 2019. Below is a chart of their income statement for Q1, as well as some key takeaways.
|Three Months Ended|
|April 4, 2021||March 29, 2020|
|Restaurant Sales||$ 389,993||$ 351,558|
|Costs and Expenses|
|Cost of Sales||$ 113,790||$ 102,297|
|Restaurant Wage and Related Expenses||$ 129,646||$ 124,575|
|Restaurant Rent Expense||$ 30,314||$ 29,454|
|Other Restaurant Operating Expenses||$ 61,419||$ 57,978|
|Advertising Expenses||$ 15,369||$ 13,876|
|General and Administrative Expenses||$ 21,369||$ 20,787|
|Depreciation and Amortization||$ 20,609||$ 21,031|
|Impairment and Other Lease Charges||$ 353||$ 2,881|
|Other expenses, net||$ 227||$ 56,787|
|Total Costs and Total Expenses||$ 393,096||$ 373,565|
|Loss from Operations||$ (3,103)||$ (22,047)|
|Interest Expense||$ 6,726||$ 7,140|
|Loss before income taxes||$ (9,829)||$ (29,187)|
|Benefit from income taxes||$ (2,661)||$ (9,978)|
|Net loss||$ (7,168)||$ (22,209)|
|Basic and diluted net loss on share||$ (0.14)||$ (0.44)|
|Basic and diluted weighted average shares outstanding||$ 49,824||$ 50,821|
|(thousands of dollars)||Three Months Ended|
|April 4, 2021||March 29, 2020|
|Burger King Restaurant Sales||368,488||329,637|
|Popeyes restaurant sales||21,505||21,881|
|Change in comparable Burger King restaurant sales||14.7%||(5.7)%|
|Change in comparable Popeyes restaurant sales||0.5%||—-|
|Average weekly sales per Burger King restaurant||28,094||24,614|
|Average weekly sales per Popeyes restaurant||25,458||25,978|
|Adjusted Restaurant level EBITDA||39,484||22,797|
|Adjusted Restaurant level margin||10.1%||6.5%|
|Adjusted EBITDA margin||5.1%||1.1%|
|Adjusted Net Loss||(6,500)||(19,317)|
|Adjusted Diluted Net Loss per share||(0.13)||(0.38)|
|Number of Burger King Restaurants|
|Restaurants at beginning of period||1,009||1,036|
|New restaurants (including offsets)||2||3|
|Restaurants closed (including offsets)||(1)||(11)|
|Restaurants at end of period||1,010||1,028|
|Average Number of Burger King resaurants||1,009.00||1,030.20|
|Number of Popeyes restaurants|
|Restaurants at beginning and end of period||65||65|
|Average number of operating Popeyes restaurants||65.0||64.8|
In Q1 of 2021, total restaurant revenue increased 10.9% to $390 million, compared to $351.5 million in Q1 of 2020. At the same time, comparable restaurant sales for Burger King increased by 14.7%, in contrast to the 5.7% decrease experienced in last year’s first quarter.
Burger King Franchise makes up the majority of Carrols total restaurant sales, constituting 94.5% in the first quarter. Although revenue increased in Q1, expenses increased as well, from $20.8 million in Q1 2020 to $21.4 million in Q1 2021. Another important metric to look for in a company’s financial statement is their EBITDA, or their earnings before interest, taxes, depreciation, and amortization. There was a significant jump in Carrol’s EBITDA in Q1, from $4.0 million in Q1 2020 to $21.4 million in 2021. In 2020, Carrols lost a lot of their franchises, decreasing from 1,036 restaurants at the beginning of Q1 to 1,028 at the end for a net loss of 8 restaurants in just one quarter. However, for 2021, Carrols was able to retain all of its restaurants from the beginning of the quarter.
Despite the economic downturn brought about by the COVID 19 pandemic, Carrols Restaurant Group proved their resilience throughout the fiscal year of 2020, as top line restaurant sales grew by 6.5% to about $1.5 billion, thanks in part to their large scale acquisition activity in 2019.
There was only a modest decline in comparable restaurant sales for both Burger King and Popeyes, 2.8% and 0.1% respectively. Furthermore, their delivery platform served as an important success factor, going from contributing nothing to approximately 5% of restaurant sales by the end of 2020. At the same time, Carrols was able to dramatically improve their operating margins in 2020, increasing their Adjusted Restaurant Level EBITDA by almost $25 million and Adjusted EBITDA by just over $20 million.
The following charts are a modified version of the financial statements provided by the annual report, and what they indicate about the financial health of the largest franchisee of Burger King.
|(thousands of dollars)||January 3, 2021||December 29, 2019||December 30, 2018|
|Costs and Expenses|
|Restaurant Wages and Related Expenses||498,127||485,278||382,829|
|Restaurant Rent Expense||118,444||107,147||81,409|
|Other Restaurant Operating Expenses||236,059||227,364||178,750|
|General and Administrative Expenses||84,051||84,734||66,587|
|Depreciation and Amortization||81,727||74,674||58,468|
|Impairment and Other Lease Charges||12,778||3,564||3,685|
|Total Operating Expenses||1,543,388||1,471,508||1,145,952|
|Income (Loss) from Operations||4,114||(8,743)||33,355|
|Gain on bargain purchase||—-||—-||(230)|
|Loss on extinguishment of debt||—-||7,443||—-|
|Income (Loss) before income taxes||(23,169)||(44,042)||9,947|
|Provision (benefit) for income taxes||6,294||(12,123)||(157)|
|Net income (loss)||(29,463)||(31,919)||10,104|
|Basic and diluted net income (loss) per share||(0.58)||(0.74)||(0.22)|
|Weighted average common shares outstanding|
|Comprehensive income (loss), net of tax|
|Net income (loss)||(29,463)||(31,919)||(10,104)|
|Other comprehensive income (loss)||(5,284)||(1,268)||564|
|Comprehensive income (loss)||(34,747)||(30,651)||(10,668)|
|(thousands of dollars)|
|April 4, 2021||March 29, 2020||March 29, 2020|
|Cash flows from operating activities|
|Adjustments to reconcile net income to net cash provided by operating activities|
|Loss (gain) on disposals of property and equipment||(994)||(74)||312|
|Stock based compensation||5,223||5,753||5,812|
|Gain on bargain purchase||–||–||(230)|
|Impairment and other lease charges||12,778||3,564||3,685|
|Depreciation and amortization||81,727||74,674||58,468|
|Amortization of deferred financing costs||2,170||1,694||1,202|
|Amortization of bond premium and discount on debt||539||(80)||(913)|
|Amortization of deferred gains from sale-leaseback transactons||–||–||(1,584)|
|Deferred income taxes||6,026||(11,982)||(483)|
|Non-cash loss on extinguishment of debt||–||129||—-|
|Changes in other operating assets and liabilities|
|Refundable income taxes||115||(284)||55|
|Trade and other receivables||(6,417)||(523)||(2,275)|
|Accrued payroll, related taxes and benefits||18,103||(538)||2,084|
|Changes in operating right of use assets and operating lease liabilities, net||10,196||3,980||—-|
|Net cash provided by operating activities||103,945||48,708||80,769|
|Cash flows used for investing activities|
|New restaurant development||(17,824)||(53,596)||(23,171)|
|Other restaurant capital expenditures||(13,064)||(18,922)||(15,726)|
|Corporate and restaurant information systems||(10,685)||(11,978)||(4,887)|
|Total capital expenditures||(56,890)||(134,879)||(75,735)|
|Acquisition of restaurants, net of cash acquired||–||(130,646)||(38,102)|
|Proceeds from insurance recoveries||2,071||323||642|
|Properties purchased for sale-leaseback||(15,537)||(1,207)||(2,123)|
|Proceeds from sale-leaseback transactions||22,499||48,364||8,424|
|Net cash used for investing activities||(47,857)||(218,045)||(106,894)|
|Cash flows from financing activities|
|Proceeds from issuance of Term Loan B and B-1 Facilities||71,250||422,875||—-|
|Repayments of Term Loan B and B-1 Facilities||(4,625)||(2,125)||—-|
|Retirement of 8% Senior Secured Second Lien Notes||–||(280,500)||—-|
|Borrowings under prior revolving credit facility||–||–||17,000|
|Repayments under prior revolving credit facility||–||–||(17,000)|
|Borrowings under revolving credit facility||150,000||436,000||—-|
|Repayments under revolving credit facility||(195,750)||(390,250)||—-|
|Payments on finance lease liabilities||(1,617)||(2,170)||(1,811)|
|Proceeds from lease financing obligations||–||–||2,692|
|Costs associated with financing long-term debt||(3,303)||(11,516)||(154)|
|Purchase of treasury shares||(10,053)||(4,017)||(—-)|
|Net cash provided by financing activities||5,902||168,297||727|
|Net increase (decrease) in cash and cash equivalents||61,990||(1,040)||(25,398)|
|Cash and cash equivalents, beginning of period||2,974||4,014||29,412|
|Cash and cash equivalents, end of period||64,964||2,974||4,014|
|Interest paid on long-term debt||24,714||29,055||23,098|
|Interest paid on lease financing obligations||104||104||105|
|Accruals for capital expenditures||1,241||15,062||7,605|
|Common stock issued for consideration in acquisition||(-)||( 145,333)||(—-)|
|Non-cash reduction of lease financing obligations||–||–||2,538|
|Income taxes paid (refunded) net||153||144||270|
Although Carrols had relatively impressive revenue numbers, they are surprisingly NOT a profitable company as measured by net income. Their net income since 2019 has been at a loss, although in 2020 they were able to minimize this loss by a few million dollars. So, why is their net income at a loss? For one thing, Carrols has very high total operating expenses, which takes a huge chunk out of their original earnings. For example, looking at 2020, they made a little over $1.5 billion in total revenue, specifically $1,547,502,000. But total operating expenses amounted very close to this number, at $1,543,388,000.
Income after operations expenses is only $4,000,000, a measly number compared to how much they brought in originally. Interestingly enough, Carrols Restaurant Group still recorded positive cash flow, indicating an increase in the company’s liquidity. However, looking at the modified cash flow statement above, it becomes clear that the reason why Carrols Restaurant Group has such a high cash flow relative to their net income is because they borrowed money from a credit facility — this is what “issuances” and “borrowing” means in the above statement.
|Issued Common Shares||Retained Earnings||Other Comprehensive Income (Loss)||Noncontrolling Interests||Total|
|Balances at December 31, 2017||243,899,476||2,052||651||(476)||2,334||4,561|
|Cumulative effect adjustment||–||–||(132)||–||(118)||(250)|
|Stock option exercises||7,221,947||61||–||–||–||61|
|Issuance of shares||225,737||7||–||–||–||7|
|Dividend declared on common shares ($1.80 per share)||–||–||(452)||–||–||(452)|
|Dividend equivalents declared on restricted stock units||–||5||(5)||–||–||–|
|Distributions declared by Partnership on partnership exchangeable units ($1.80 per unit)||–||–||–||–||(387)||(387)|
|Repurchase of Partnership exchangeable units||–||(438)||–||(26)||(97)||(561)|
|Exchange of Partnership exchangeable units for RBI common shares||185,333||2||–||(1)||(1)||–|
|Other comprehensive income (loss)||–||–||–||(297)||(256)||(553)|
|Balances at December 31, 2018||251,532,493||1,737||674||(800)||2,007||3,618|
|Cummulative effect adjustment||–||–||12||–||9||21|
|Stock option ecercises||4,495,897||102||–||–||–||102|
|Issuance of shares||236,299||7||–||–||–||7|
|Dividens declared on common shares ($2.00 per share)||–||–||(545)||–||–||(545)|
|Dividend equivalents declared on restricted stock units||–||9||(9)||–||–||–|
|Distributions declared by Partnership on Partnership exchangeable units ($2.00 per units)||–||–||–||–||(382)||(382)|
|Exchange of Partnership exchangeable units for RBI common shares||42,016,392||555||–||(119)||(436)||–|
|Other comprehensive income (loss)||–||–||–||103||259|
|Balances at December 31,2019||298,281,081||2,478||775||1,769||4,259|
|Stock option ecercises||2,447,627||82||–||–||82|
|Issuance of shares||469,145||6||–||–||6|
|Dividens declared on common shares ($2.08 per share)||–||–||(631)||–||–||(631)|
|Dividend equivalents declared on restricted stock units||–||8||(8)||–||–||–|
|Distributions declared by Partnership on Partnership exchangeable units ($2.08 per units)||–||–||–||–||(336)||(336)|
|Repurchase of Partnership exchangeable units||–||(293)||–||(22)||(65)||(380)|
|Exchange of Partnership exchangeable units for RBI common shares||3,636,169||48||–||(12)||(36)||–|
|Restaurant VIE contributions (distributions)||–||–||–||–||(2)||(2)|
|Other comprehensive income||–||–||–||(57)||(40)||(97)|
|Balances at December 31, 2020||304,718,749||2,399||622||(854)||1,554||3,721|
Burger King is a highly profitable business for the franchisor with earnings of $775 million in 2019. Compared to 2018’s $674 million, Burger King saw an increase of 15% in a single year which is a great indication of growth.
However, it is important to note that in 2020 earnings decreased by 20%, most likely due to the pandemic. The company will probably recover, but it is important to keep in mind that it is a business that can be affected by such phenomena.
|Outlet type||Year||Outlets at the Start of the Year||Outlets at the End of the Year||Net Change|
Over the last three years the company has seen significant growth, with the exception of 2020, the year the pandemic began. In 2018 there was a growth of 104 units, whereas in 2019 it was only 14. This means that Burger King is growing at a slowing rate, which might be an indicator that stores are not performing as well as they used to or that franchisees are not seeing significant profit.
Burger King is a traditional fast food restaurant. These kinds of restaurants seem to be losing popularity as more healthy food options rise in the form of other franchises like Tropical Smoothie Cafe.
On top of that, franchisees seem to be making profit through real estate rather than the franchise itself as otherwise it can take you 15 years to recoup your initial investment.
Our suggestion is that you do not open a Burger King franchise if you are looking to make profit in the short term unless you own the real estate. Or you could consider opening one up in a non-traditional location (e.g. airport) for as little as $220k. This would reduce your initial investment cost significantly.
If you think Burger King is the right franchise for you, or you are interested in other franchise opportunities in the Food and Beverage Industry. Check out our listings page on the Vetted Biz website for thousands of franchises available for your investment.
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