Chili’s Franchise Costs, Profits and More! (2024)
Like some of you, many of us are not familiar with the American restaurant chain industry, despite being significantly aware of its ever-growing popularity. Its strong performance and widespread presence across the country has consequently gauged the interest of many ambitious entrepreneurs who are now considering an investment into a franchise within this industry, such as Chili’s.
How is Chili’s Franchise Positioned in the Food and Beverage Industry?
The Chili’s franchise is a quick-service restaurant chain that currently operates 1,600 units worldwide, out of which 40% of them are franchised. Chili’s was founded in Texas in 1975 and is currently owned by Brinker International. The restaurant offers an American and Tex-Mex-influenced menu that includes burgers, ribs, fajitas, and vegetarian options.
From an industry perspective, according to the Food and Beverage Page, the food industry accounts for 13% of total employment and employs around 1.46 million people. This figure is estimated to increase to 1.6 million by 2027. At the present time, the restaurant franchise chain is equivalent 36% of the total franchises in the US.
How much is a Chili’s Franchise?
The initial Chili’s Franchise Fee is between $40,000 to $60,000. It is important to note that this fee must be paid upfront when opening a location.
Chili’s Franchise Cost
The estimated total investment necessary to begin the operation of a Chili’s Franchise ranges from $ 3,748,195 to $ 5,653,695. The following costs are part of the initial investment for a Chili’s and it is important to note that many of these are one-time fees that are needed to launch the franchise. Review the table below to see costs in further detail:
Estimated Initial Investment
| Type of expediture | Amount | To Whom Payment Is To Be Made | |
|---|---|---|---|
| Low | High | ||
| Initial Franchise Fee | $40,000 | $60,000 | Brinker |
| Leasehold Expense | $7,500 | $28,000 | Lessor |
| Pre-Construction | $50,000 | $300,000 | Suppliers |
| Construction Costs | $2,000,000 | $2,500,000 | Contractors/suppliers |
| Site Work | $300,000 | $800,000 | Contractors/suppliers |
| Exterior Signage | $20,000 | $80,000 | Contractors/suppliers |
| Furniture/Fixtures/Sound System/TVs | $100,000 | $120,000 | Suppliers/equipment financers |
| Kitchen/Bar/Equipment | $350,000 | $400,000 | Contractors/suppliers |
| Opening Advertising | $5,000 | $10,000 | Suppliers |
| Initial Training | $65,000 | $250,000 | Suppliers of food, lodging, transportation |
| Opening Team Costs | $65,000 | $100,000 | Brinker/suppliers of food, lodging, transportation |
| Working Capital | $20,000 | $30,000 | Contractors/suppliers |
| Inventory | $75,000 | $100,000 | Suppliers |
| Bar/Kitchen Accessories | $50,000 | $60,000 | Suppliers |
| Liquor License | Varies | Varies | Government Agencies, your attorneys or other third party |
| Computer POS System/Kitchen display system/Installation | $75,000 | $90,000 | Suppliers |
| Online Ordering | $695 | $695 | Supplier |
| Additional Funds (3 months) | $525,000 | $725,000 | Lessor/Suppliers |
| TOTAL | $3,748,195 | $5,653,695 | |
Franchise Requirements
Chili’s franchising requirements are flexible, and although not mandatory, the franchisor often favors candidates who have previous experience of at least 5 years within the restaurant industry
Ongoing Fees
Royalty Fee 1.25% of Gross Sales
Technical Services Fee 2.75% of Gross Sales
Advertising Production Fee 0.5% of Gross Sales
Typically, the royalty fees in the restaurant industry range from 1% to 4% of revenue, here we can see that they are considerably low. Besides, The Technical Services Fee is paid as consideration for your right to use the System. It has a cost of 2.75% of gross sales similar to many other franchises in the industry. In addition, the average percentage of Advertising Fees ranges from 1% to 4% in the industry, however, Chili’s is much lower at 0.5%. We also need to consider that some franchisors may not have advertising fees at all.
How much do Chili’s Franchise owners make?
Chili’s does not make any projections of its franchisee’s future financial performance, nor does it disclose the past financial performance of company-owned and franchised outlets. According to FSR Magazine, “Chili’s average weekly sales per unit were $59,500 ($3.1 million annualized AUV)”. With an estimated 12% profit margin, Chili’s franchise owners can expect to make an EBITDA between $300,000 to $400,000. If you invested $4+ million to open your Chili’s and took out a loan, most of your profits will go to debt servicing and it could take 10+ years to recoup your initial capital investment.
With that said, through our analysis of the Franchisor income statement, it was found that Chili’s saw a significant revenue decrease in 2020 & 2021 which was due to the emergence of the COVID-19 Pandemic as well as the fact that many restaurants were unable to open and operate as normal. As seen on the income statement included below, Chili’s sales have begun to increase which shows the company has been steadily recovering from the impacts of the pandemic.
Income Statement (Franchisor) Key Insights
| Fiscal Year Ended June 30, 2021 | ||||
|---|---|---|---|---|
| Chili’s | Maggiano’s | Other | Consolidated | |
| Company Sales | $3,005.7 | $273.3 | $- | $3,279.0 |
| Royalties | 30.3 | 0.2 | – | 30.5 |
| Franchise fees and other revenues | 23.9 | 4.4 | – | 28.3 |
| Franchise and other revenues | 54.2 | 4.6 | – | 58.8 |
| Total Revenues | $3,059.9 | $277.9 | $- | $3,337.8 |
| Food and Beverage Costs | 803.5 | 64.3 | – | 867.8 |
| Restaurant labor | 1,014.2 | 94.0 | – | 1,108.2 |
| Restaurant expenses | 765.6 | 92.1 | 0.8 | 858.5 |
| Depreciation and amortization | 124.3 | 13.8 | 12.1 | 134.8 |
| Other (gains) and charges | 12.7 | 1.4 | 4.9 | 19.0 |
| Total operating costs and expenses | $2.747.7 | $271.4 | $119.4 | $3,138.5 |
| Operating income (loss) | 312.2 | 6.5 | (119.4) | 199.3 |
| Interest expenses | 5.6 | 0.2 | 50.4 | 56.2 |
| Other income, net | (0.5) | (1.6) | (2.1) | |
| Income (loss) before income taxes | $307.1 | $6.3 | $(168.2) | $145.2 |
| Segment assets | $1.911.8 | $223.2 | $139.9 | $2,274.9 |
| Payments for property and equipment | 82.9 | 2.6 | 8.5 | 94.0 |
Chili’s is a very profitable business for the franchisor who retained earnings of $307.1 million in 2021. If we compare this figure to $163.2 million from 2020, this is a good indication of high growth as a company overall. We need to take into consideration that the effect of COVID-19 explains their weak performance throughout 2020.
How many Units have Opened and Closed?
In the last three years, franchising units have decreased. However, company-operated stores have been increasing. Immediately, we found that stores closed at a rate of 3.3 units per year. This is an indicator that either their franchise locations have not been performing strongly or that their franchise agreements have expired, and a limited number of franchisees have sought to renew them
| Outlet Type | Year | Outlets at the Start of the Year | Outlets at the End of the Year | Net Change |
|---|---|---|---|---|
| Franchised | 2020 | 298 | 174 | -124 |
| 2021 | 174 | 171 | -3 | |
| 2022 | 171 | 101 | -70 | |
| Company-Owned | 2020 | 944 | 1059 | +115 |
| 2021 | 1059 | 1064 | +5 | |
| 2022 | 1064 | 1131 | +67 | |
| Total Outlets (United States) | 2020 | 1242 | 1233 | -9 |
| 2021 | 1233 | 1235 | +2 | |
| 2022 | 1235 | 1232 | -3 |
Conclusion
Chili’s offers investors the chance to be a part of a highly profitable business with amazing knowledge and experience in different markets. We can conclude that despite the high investment required to open a franchise in their system, Chili’s is indeed a successful business to enter overall.
While this may be the business for you, make sure also to check out other companies offered on Vetted Biz and in the Food and Beverage Industry.
