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El Pollo Loco Franchise: The Best Mexican Franchise in 2023?
Written by: Parth Parth
Last Updated by
Facundo Bermudez: January 19, 2023
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This article is based on its 2022 FDD.
El Pollo Loco Franchise (Spanish for “The Crazy Chicken”) is the name of two independent restaurant chains that specialize in Mexican-style grilled chicken. Both chains were founded by Juan Francisco Ochoa in Guasave, Sinaloa, Mexico in 1974. Ochoa then expanded his chain into the United States in 1980. He later sold his U.S. restaurants in 1983 while keeping the ones in Mexico.
Table of Contents
How is El Pollo Loco Franchise Positioned in the Food and Beverage Industry?
The food industry has a significant share within regional economies and the U.S. economy. It employs human resources prominently and is a stable industry, providing significant employment and labor income, with around 13% of all U.S. manufacturing employment. The industry responds fast to the needs of the customers and has made significant innovations to satisfy the taste buds of the customers. The American consumer market figures over 320 million American consumers and has 5% of gross domestic product (GDP), 10% of total U.S. employment, and 10% of U.S. consumers’ disposable personal income (DPI). The sales of this market clock at around $1.4 trillion, and around 10% of this figure is generated by the food and beverage industry alone. With the fast delivery systems in place and drone technology being initiated to deliver food, the food and beverage industry shows signs of expansion.
The industry royalty is around 5.3%, marketing expenses are around 2.25%, the stability of units is expected to be over 75%, the growth rate of the industry is more than 15% and the average investment to establish a new unit is $466K.
El Pollo Loco Franchise competes in the Global food market against big brand companies such as Chiptole which has an extensive presence in the whole of the USA.
How Much is an El Pollo Loco Franchise?
The initial El Pollo Loco Franchise Fee is $40,000. You have to pay this upfront fee when opening an El Pollo Loco franchise.
El Pollo Loco Franchise Cost
The estimated total investment necessary to begin the operation of an El Pollo Loco Franchise ranges from $500,000 to $1,900,000. The following costs are part of the upfront costs included in the initial investment for an El Pollo Loco. Many of these are one-time fees that are needed to launch the franchise.
El Pollo Loco Franchise Requirements
You need a minimum of 5 years of restaurant experience as a multi-unit operator, alongside the minimum financial requirements of $1 million net worth per unit and $300,000 per unit in liquid assets.
How much do El Pollo Loco franchise owners make?
El Pollo Loco made $973,000,000 in 2021 from 480 locations, amounting to an AUV of $2,027,083.
2021 El Pollo Loco Median Franchise Sales: $2,027,083
| Initial investment (midpoint) | %Profit margin of median franchise sales | Estimated Profits | Time to recoup investments |
|---|---|---|---|
| $1,200,000 | 10% | $202,708 | 7.5 years |
| 15% | $304,062 | 5.5 years | |
| 20% | $405,416 | 4.5 years |
Based on the median sales provided by El Pollo Loco’s franchise locations, at an average of a 15% profit margin, it will take around 5.5 years to recoup your investment. This is slightly 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 Food and Beverage stores; the extent of market penetration and brand awareness that El Pollo Loco stores have attained in your market. Also, the quality of management and service at your Franchised Store are major factors.
Is the El Pollo Loco Franchise Profit Worth the Franchise Cost?
To assign a valuation multiple for El Pollo Loco 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 $5 Million Net Sales
- Estimated Selling Price = Net Sales * 0.55
When you go to sell an El Pollo Loco franchise based on the median multiple of .55 and net sales in 2021 of $2,027,083, it would sell for $1,114,895. This is slightly lower than the midpoint investment of $1,200,000.
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.
El Pollo Loco (Franchisor) Income Statement Key Insights:
El Pollo Loco Holdings.Inc. Consolidated Statements Of Income
| For the Fiscal Year Ended | |||
|---|---|---|---|
| December 29, 2021 | December 30, 2020 | December 25, 2019 | |
| Revenue | |||
| Company-operated restaurant revenue | $394,733 | $374,064 | $391,112 |
| Franchise Revenue | 33,729 | 29,418 | 28,819 |
| Franchise Advertising Fee revenue | 25,901 | 22,605 | 22,399 |
| Total Revenue | 454,363 | 426,087 | 442,330 |
| Cost of operations | |||
| Food and paper cost | 104,394 | 98,774 | 109,264 |
| Labor and related expenses | 120,308 | 114,455 | 116,703 |
| Occupancy and other operating expenses | 97,557 | 92,422 | 92,005 |
| Gain on recovery of insurance proceeds, lost profits | – | (2,000) | – |
| Company restaurant expenses | 322,259 | 303,651 | 317,972 |
| General and administrative expenses | 39,852 | 35,918 | 40,389 |
| Legal settlements | – | 2,566 | – |
| Franchise Expenses | 32,831 | 28,761 | 27,612 |
| Depreciation and amortization | 15,176 | 16,878 | 17,855 |
| Loss on disposal of assets | 289 | 189 | 266 |
| Recovery of securities lawsuits related legal expenses and other insurance claims | – | (123) | (10,000) |
| Loss on disposition of restaurants | 1,534 | – | 5,058 |
| Impairment and closed-store reserves | 1,087 | 4,691 | 4,852 |
| Total Expenses | 413,028 | 392,531 | 404,004 |
| Income from operations | 41,335 | 33,556 | 38,326 |
| Interest expense, net | 1,824 | 3,292 | 3,687 |
| Income tax receivable agreement expense | 58 | 139 | 57 |
| Income before provision for income taxes | 39,453 | 30,125 | 34,582 |
| Provision for income taxes | 10,332 | 5,651 | 9,682 |
| Net Income | $29,121 | $24,474 | $24,900 |
El Pollo Loco is a very profitable business for the franchisor, with retained earnings of $29.12 million in 2021. Compared to $24.90 million in 2019, they saw an increase of 17% from 2019 to 2021. This is a good indication of high growth as a company overall.
Conclusion
El Pollo Loco is #1 in Mexican QSR restaurants among Popular QSR Brands. With a very high sales value and reasonable payback period, it is an opportunity worth considering. You should talk to 3 – 5 existing franchisees before starting your own El Pollo Loco Franchise.
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.
