Arby's Franchise Cost Worth The Profits? (2023)

This article is based on its 2022 FDD.

Arby’s is headquartered in Sandy Springs, Georgia, and operates restaurants that cater to customers with sandwiches and desserts along with side items. A chain with more than 3300 restaurants, and considered one of the longest chains in the sandwich pie with the third position in terms of revenue. Arby’s is owned by Inspire Brands and was renamed Arby’s Restaurant Group, Inc. (ARG). In 2018, ARG took over the ownership of Buffalo Wild Wings. Arby’s menu is a classic. It serves Arby’s Roast Beef and Beef ‘n Cheddar sandwiches, a deli-style Market Fresh line of sandwiches, Greek gyros, Curly Fries, and Jamocha Shakes. In 2019, there were 3,472 restaurants with locations in Canada, Mexico, Turkey, Egypt, South Korea, and Yemen in addition to the US.

Arby’s was founded in Boardman, Ohio, by the Forrest brothers and Leroy Raffel in 1964, who wanted to call their restaurants “Big Tex”, but continued with the Akron business which was later changed to “Arby’s,” based on R.B., the initials of Raffel Brothers. Arby’s history starts with the Roark Capital Group acquiring 81.5% of Arby’s Restaurant Group in 2011, forming the major share of ownership with The Wendy’s Company having a stake of 18.5% in Arby’s.

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Arby's Franchise in the Food and Beverage Industry

The Food and Beverage industry in the USA accounts for 13% of all manufacturing employment in the country. Around 1.46 million people are employed in this industry. Food franchises make up to 36% of the total franchise establishments in the USA and it is expected to create 1.6 million more jobs by 2027. The annual growth rate in the industry is around 2% and the EBITDA multiplier is around 3x for a single restaurant. Multiples can go up to 7x for 5+ restaurants.

How Much is an Arby's Franchise?

The initial Arby’s Development Fee is between $6,250 to $12,500 paid at the time of the signing of the Development Agreement. A further $0 to $37,500 License Fee is paid upon commencement of construction. You have to pay these upfront fees when opening an Arby’s franchise.

Cost of Arby's Franchise

The estimated total investment necessary to begin the operation of an Arby’s Franchise ranges from $637,950 to $2,306,000. The following costs are part of the upfront costs included in the initial investment for Arby’s. Many of these are one-time fees that are needed to launch the franchise. Review the chart below to see how much it costs to buy an Arby’s franchise in 2022.

Initial Investment

Type of Expenditure	Free-Standing Leased Amount
Development Fee	$6,250 – $12,500
License Fee	$0 – $37,500
Fees and Expenses During Training	$5,000 – $23,400
Total Development & License Fees/Training	$11,250 – $73,400
Real Property/Occupancy Charge	Variable/Footnote
Site Costs	$0 – $451,000
Landscaping	$0 – $63,000
Total Site and Real Estate (excluding purchase/lease)	$0 – $514,000
Civil & Architectural Drawings/Professional Fees	$40,000 – $219,000
Zoning/Permitting Costs	$1,000 – $112,000
Building Costs	$234,000 – $731,000
Equipment	$183,000 – $262,000
Computer Hardware and Software/ POS	$32,000 – $55,000
Décor Package	$11,000 – $45,000
Signage & Drive Thru	$44,000 – $88,000
Total Building/Construction/Equipment	$545,000 – $1,512,000
Pre-Opening Wages	$21,300 – $41,200
Opening Inventory	$18,000 – $26,000
Insurance	$8,400 – $14,400
Working Capital/Additional Funds	$33,000 – $100,000
Lease Deposits and Payments	Variable/Footnote
Business Licenses, Health Permits, Utilities Deposits	$1,000 – $25,000
Total Pre-Opening/Operating Deposits	$81,700 – $206,600
Total Estimated Initial Investment (excluding purchase/lease)	$637,950 – $2,306,000

Arby's Franchise Requirements

Prospective franchisees are required to have a minimum of $500,000 as liquid capital with a net worth of over $1,000,000.

Owning an Arby's Franchise Requires Ongoing Fees

Royalty: 4.0% of gross sales for traditional restaurants and 6.2% for nontraditional ones.

Marketing Fee: 4.2% of gross sales

Local Marketing: 2.3% of gross sales

These fees are lower than the industry averages.

Arby's Franchise Owner Salary

		Average Unit Volume (AUV)
Type of Restaurant	Number of U.S. Restaurants	Average	Median	Highest	Lowest	#/% Rest. Above Avg.	Top 3rd	Middle 3rd	Bottom 3rd
Freestanding
Inspire	782	$1,338,033	$1,296,616	$3,399,299	$446,839	359/46%	$1,813,707	$1,312,318	$917,741
Pinnacle/PM	923	1,301,370	1,244,949	4,209,291	462,014	414/45%	1,765,594	1,244,386	893,943
Others – Free Standing	145	1,249,021	1,123,993	3,087,128	438,732	56/39%	1,830,349	1,145,706	780,764

We will use the Inspire type for our analysis as the other types make almost the same sales and cost almost the same to open.

2021 Arby’s Median Franchise Sales: $1,296,616

Initial Investment (midpoint)	%Profit margin of average franchise sales	Estimated profits	Time to recoup investment
$1,471,975	10%	$147,197	14 years
	15%	$220,796	10 years
	20%	$294,395	8.25 years

Based on the median sales provided by Arby’s franchise locations, at an average of a 15% profit margin it will take around 10 years to recoup the investment. This is longer than other franchise opportunities. You may not get a 15% profit margin which would elongate getting a return on your investment.

Many factors affect the sales, costs, and expenses of your Franchised Store. Such as the Franchised Store’s size, geographic location, menu mix, and competition in the marketplace. The presence of other Sandwich stores; the extent of market penetration and brand awareness that Arby’s stores have attained in your market. Also, the quality of management and service at your Franchised Store are major factors. As Arby’s stands second in terms of operating through an organized setup, the presence of existing stores is also important to consider.

Is the Arby's Franchise Profit Worth the Franchise Cost?

To assign a valuation multiple for Arby’s franchises, we leverage estimates from DealStats, a database of acquired private company transactions sourced from U.S. business brokers and SEC filings. We reviewed the larger franchise industry as well as selling price multiples for larger systems where more transaction data is available.

Under $1 Million Net Sales

Estimated Selling Price = Net Sales – 0.31

$1 Million – $5 Million Net Sales

Estimated Selling Price = Net Sales – 0.34

Over $5 Million Net Sales

Estimated Selling Price = Net Sales – 0.86

When you go to sell an Arby’s franchise based on the median multiple of .34 and net sales in 2020-21 of $1,296,616 it would sell for $440,849. This is lower than the midpoint investment of $1,471,975.

However, as an owner of multiple Arby’s franchises, you do have the ability to minimize resale loss. Sandwich shop owners with over $5 million in sales have a median multiple of 0.86. So, if you had 5 Arby’s stores, amounting to $6,483,080 in sales, selling your multiunit franchise system would amount to $5,575,448. This is going to minimize your loss, as it would cost around $7,359,875 to get this network running.

The more franchises you own, the more earning potential you have as private equity firms become interested in your business instead of individual owner-operators.

Profitable Metro Atlanta Arby’s Restaurant For Sale

Atlanta, GA (Fulton County)

Asking Price:	$150,000	Cash Flow:	$96,943
Gross Revenue:	$829,941	Inventory:	N/A
EBITDA:	N/A	Rent:	$6,500
FF&E:	$0	Established:	1996

The EBITDA multiple for Arby’s franchises is around 2x and deals usually close for 85% – 95% of the asking price in this industry.

Arby's (Franchisor) Income Statement Key Insights:

Statements Of Income (Loss)

	For the Year Ended
	January 2, 2022	January 3, 2021	December 29, 2020
Revenues:
Franchise fees and royalty revenues	$111,362	$101,798	$95,586
Franchise fees and royalty revenues from affiliates	82,427	79,728	70,896
Other revenues	2,977	2,191	1,746
Total revenues	196,766	183,717	168,228
Costs and expenses:
Management fee to affiliate	29,824	28,662	30,503
General and administrative	(55)	51	178
Amortization	435	435	435
Total costs and expenses	30,204	29,148	31,116
Operating income	166,562	154,569	137,112
Other (income) expense, net	(49)	26	8
Net income	166,611	154,543	137,104
Other comprehensive income (loss):
Foreign currency translation adjustment	(1)	(1)	(2)
Comprehensive income	$166,610	$154,542	$137,102

Arby’s is a very profitable business for the franchisor with retained earnings of $166.61 million in 2021. Compared to $137.1 million in 2019, they saw an increase of 21.16% from 2019 to 2021. This is a good indication of high growth as a company overall.

Arby's Locations

How many Arby’s units have opened and closed?

Outlet Type	Year	Outlets at the Start of the Year	Outlets at the End of the Year	Net Change
Franchised	2019	2,195	2,168	-27
	2020	2,168	2,173	5
	2021	2,173	2,291	118
Company-Owned	2019	1,132	1,189	57
	2020	1,189	1,192	3
	2021	1,192	1,116	-76
Total Outlets (United States)	2019	3,327	3,357	30
	2020	3,357	3,365	8
	2021	3,365	3,407	42

Over the last three years, the company has increased its outlet presence from 3327 in 2019 to 3407 in 2021, which is a significant indicator of growth during the pandemic period. Both franchising units and company-operated stores have increased. This indicates a growing presence of Arby’s.

Conclusion

As there has been a growth in Arby’s presence during the pandemic period, the brand of the company surely has an acceptance. With one of the largest networks of stores, the top-of-the-mind awareness among the customers should be high. The long-standing business also keeps its operations with the times. Prospective franchisees should consider business presence in the area where they are interested to open up an Arby’s store.

While this may be the business for you, make sure to also check out other businesses offered on Vetted Biz and in the Food and Beverage Industry.

Arby’s Franchise Cost Worth The Profits? (2023)

Written by: Parth Parth

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