Burger King Franchise Cost & Revenue will surprise you ” Vetted Biz

This article is based on its 2022 FDD & on a video originally recorded on Vetted Biz Youtube Channel

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.

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Competitors of Burger King include other franchises in the fast-food industry such as McDonald’s, Subway, KFC, and other Burger Kings nearby. We will analyze if the initial cost is worth the potential returns.

In Q1 of 2021, total restaurant revenue increased 10.9% to $390 million, compared to $351.5 million in Q1 of 2020.

How much is a Burger King Franchise?

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.

Burger King franchise cost

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.

Additional Cost Breakdown

Type of Expenditure	Freestanding Estimated Range		To Whom Payment is To Be Made
Type of Expenditure	Low	High	To Whom Payment is To Be Made
Franchise Fee	50,000		BKC
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
Zoning Expenses	5,000	25,000	vendor
Improvements / Construction	900,000	1,200,000	contractor
Landscaping	25,000	60,000	lessor
Equipment	199,600	294,000	vendor
Décor Package	45,000	95,000	vendor
Signage & Drive Thru	66,000	166,000	vendor
Pre-Opening Wages	57,000	61,000	employees
Opening Inventory	6,000	12,000	vendor
Cash, Inventory Control and Order Taking System	35,000	110,000	vendor
Insurance	14,000	25,000	broker
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

Ongoing Costs and Fees

Royalty fee: 4.5% of Monthly Gross Sales

Advertising: 4% Monthly Gross Sales

These fees are standard for most franchises in the Food and Beverage Industry.

What do you need to open a Burger King Franchise?

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:

Submission of franchise application.
Verification of net worth and liquid assets through a CPA opinion letter.
Submission of a business plan containing planned organization structure, operations plan, marketing, growth and acquisition plan.

How much do Burger King franchise owners make?

Annual Sales Level-Range	Traditional			Non-Traditional
Annual Sales Level-Range	Consolidated	Company-owned	Franchisee-Owned	Franchisee-Owned
Above $1.9M	13.0%	2.0%	13.1%	5.2%
$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%
Below $0.7M	2.2%	2.0%	2.2%	26.3%
Total	6063	49	6014	574
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%
Median Sales	1,350,766	1,298,298	1,351,146	947,585
High Annual Sales	4,791,985	1,910,878	4,791,985	3,901,264

2020 Burger King Median Franchise Sales: $1,351,000

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.

Is Burger King Franchise Profit Worth the Franchise Cost?

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

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.

Keep reading to find an in-depth analysis of Carrols Restaurant Group and what their stake in Burger King means for interested investors

Over 1,000 Burger King restaurants

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.

Quarterly Earnings (in thousands)

	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

Supplemental Information

(thousands of dollars)	Three Months Ended
(thousands of dollars)	April 4, 2021	March 29, 2020
Revenue
Burger King Restaurant Sales	368,488	329,637
Popeyes restaurant sales	21,505	21,881
Total Revenue	389,993	351,518
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	19,866	3,972
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

Q1 2021

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.

Top Burger King Franchisee Makes Over $20 million in Profits: Annual Report

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.

Annual Earnings: Income Statement

(thousands of dollars)	January 3, 2021	December 29, 2019	December 30, 2018
Revenue
Restaurant sales	1,547,502	1,452,516	1,179,307
Other revenue	—-	10,249	—-
Total revenue	1,547,502	1,462,765	1,179,307
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
Advertising Expenses	60,735	58,689	48,340
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
Other income	(1,271)	(1,911)	(424)
Total Operating Expenses	1,543,388	1,471,508	1,145,952
Income (Loss) from Operations	4,114	(8,743)	33,355
Interest Expense	27,283	27,856	23,638
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
Basic	50,751,185	43,421,715	35,715,372
Diluted	50,751,185	43,421,715	45,319,971
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)

Annual Cash Flows Statement

(thousands of dollars)
(thousands of dollars)	April 4, 2021	March 29, 2020	March 29, 2020
Cash flows from operating activities
Net income	(29,463)	(31,919)	10,104
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)
Accounts payable	(5,927)	1,196	(926)
Accrued interest	(245)	(2,917)	146
Accrued payroll, related taxes and benefits	18,103	(538)	2,084
Other liabilities	10,993	238	3,998
Changes in operating right of use assets and operating lease liabilities, net	10,196	3,980	—-
Other	(1,589)	5,797	1,314
Net cash provided by operating activities	103,945	48,708	80,769
Cash flows used for investing activities
Capital expenditures
New restaurant development	(17,824)	(53,596)	(23,171)
Restaurant remodeling	(15,317)	(50,383)	(31,951)
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
Supplemental disclosures
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.

Burger King Franchisee makes less than 1% profit margin in 2021

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.

Burger King Corporation Income Statement

	Issued Common Shares		Retained Earnings	Other Comprehensive Income (Loss)	Noncontrolling Interests	Total
	Shares	Amount	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
Share-based compensation	–	48	–	–	–	48
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)	–
Net income	–	–	612	–	532	1,144
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
Share-based compensation	–	68	–	–	–	68
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)	–
Net income	–	–	643	–	468	1,111
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
Share-based compensation	–	74	–		–	74
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)	–
Other	(115,273)	(4)	–	–	–	(4)
Restaurant VIE contributions (distributions)	–	–	–	–	(2)	(2)
Net income	–	–	486	–	264	750
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.

How many Burger King units have opened and closed?

System-wide Outlet Summary

Outlet type	Year	Outlets at the Start of the Year	Outlets at the End of the Year	Net Change
Franchised	2018	7,176	7,280	+104
	2019	7,280	7,294	+14
	2020	7,294	7,029	-265
Company-Owned	2018	50	50	0
	2019	50	52	+2
	2020	52	52	0
Total Outlets	2018	7,226	7,330	+104
	2019	7,330	7,346	+16
	2020	7,346	7,081	-265

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.

Conclusion

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.

Burger King Franchise Cost & Revenue Will Surprise You (2022)

Written by: Dylan Tymkiw

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