Published on 29 Mar 2022 Time 11 min read Last update by 8 Jan 2024

Whataburger Franchise Make Large-Scale Profits (2024)

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This article is based on the video featured above, originally recorded for the Vetted Biz YouTube channel.

Whataburger is a Texan burger chain that specializes in hamburgers. It was founded by Harmon Dobson and Paul Burton in Corpus Christi, TX in 1950. There are more than 670 Whataburger stores in TX and over 150 in New Mexico, Arizona, Colorado, and the southern United States, of which 126 are franchised.

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The Whataburger Franchise Story

In 1950, Harmon (an adventurous and determined entrepreneur) had an idea to serve a burger so big that it took two hands to hold. And this burger was so good that after a single bite, customers couldn’t help but exclaim, What a burger! Afterward, he opened his first burger stand on Ayers Street in Corpus Christi, Texas, and named it “Whataburger!”.

By 1960, Harmon had opened 17 restaurants scattered across Texas, Florida, and Tennessee and has since expanded to over 800 locations across other southern states: New Mexico, Louisiana, Arizona, Oklahoma, Arkansas, Mississippi, Georgia, and Alabama. The company has also started to open stores in Colorado and Kansas. This indicates its growing influence in the hamburger industry. In 1967, Hamon Dobson, unfortunately, died in a plane crash. Therefore, the Dobson family rallied around Hamon’s wife, Grace, as she took over the business.

Driven by Harmon’s original vision, Whataburger continues to offer hot, fresh, and large burgers made of 100% beef and served on a big, toasted five-inch bun.

 

Ed Nelson has served as the Chief Executive Officer of Whataburger since August 2020. His stint at the company spans 17 years. There, he started as a Controller in December 2004. Also, he served as the Chief Financial Officer from 2008 to 2019, and then as President from 2019 to August 2020. Then, he became CEO.

Whataburger offers franchise opportunities in Jackson TN, DMA, and Northern Mississippi. The company competes with huge fast-food chains in the US such as Burger King, Mcdonald’s, and Arby’s.

How Is Whataburger Franchise Positioned in the Food and Beverage Industry?

The Food and Beverage industry in the USA accounts for 13% of all manufacturing employment in the country. There are around 1.46 million people employed in this industry. Food franchises make up 36% of the total franchise establishments in the USA. And there are expectations that it will 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.

Whataburger competes in the Burger and Sandwich market against big brand companies such as McDonald’s, Arby’s, Burger King, etc. Its locations also compete against other nearby Whataburger locations.

Whataburger Franchise Cost

The estimated total investment necessary to begin the operation of a Whataburger Franchise ranges from $2 million to $2.5 million. Below, we have the costs that are a part of the upfront costs included in the initial investment for a Whataburger. Many of these are one-time fees that are needed to launch the franchise.

 

Whataburger Franchise Requirements

You are required to have at least $5 million in liquid assets and $12.5 million in net worth. You are also required to develop a minimum of 5 restaurants.

How Much Do Whataburger Franchise Owners Make?

Because Whataburger financials are not publicly available, we estimate that the Average Unit Volume for each of Whataburger’s 873 locations is $3,539,518.

2021 Whataburger Median Franchise Sales: $3,539,518

Initial investment (midpoint) %Profit margin of average franchise sales Estimated Profits Time to recoup investment
$2,225,000 10% $353,951 8.25 years
15% $530,927 5.50 years
20% $707,903 4.75 years

Based on the median sales provided by Whataburger franchise locations, at an average of a 15% profit margin, it will take around 5.5 years to recoup your investment. This is similar to 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 Whataburger stores have attained in your market. Also, the quality of management and service at your Franchised Store are major factors.

Is the Whataburger Franchise Profit Worth the Franchise Cost?

To assign a valuation multiple for Whataburger franchises, we leverage estimates from DealStats. It is 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 * 0.34

Over $5 Million Net Sales:

Estimated Selling Price = Net Sales * 0.86

When you go to sell a Whataburger franchise (based on the median multiple of .34 and 2021 median net sales of $3,539,518), it would sell for $1,203,436. This is significantly lower than the midpoint investment of $2,225,000.

However, as a Whataburger franchisee, you will own at least 5 Whataburger franchises. As such, you do have the ability to make a profit. Owners in the Food and Beverage Industry with over $5 million in sales have a median multiple of .86. Therefore, if you had 5 Whataburger franchises, this would be $17,697,590 in sales. This would sell for $15,219,927, which is a significant profit on the initial investment of $11,125,000.

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

 

How Many Whataburger Units Have Opened and Closed?

14 new Whataburger franchises opened in 2021. This might come out as a bad sign because the number is minuscule compared to the total network of 873 restaurants. But it makes complete sense, considering the very small geographic territory that Whataburger is offering franchises in. You should also keep in mind the high number of company-owned Whataburger locations.

What Are Alternatives to a Whataburger Franchise?

McDonald’s

Locations

McDonald’s is the quintessential American fast-food chain restaurant. It was founded in 1940 as a restaurant operated by Richard and Maurice McDonald in San Bernardino, California, United States. Since then, they have been serving hamburgers, chicken nuggets, french fries, milkshakes, and ice cream. In the present day, it has over 36,000 locations in over 100 countries around the world.

Chris Kempczinski is the current President and Chief Executive Officer of McDonald’s Corporation. He joined the company in 2015 overseeing global business strategy, business development, and innovation. In addition to this, he previously served as the President of McDonald’s USA. He also was responsible for the business operations of approximately 14,000 McDonald’s franchises in the US.

Profit Margins

The total investment to begin the operation of a traditional McDonald’s franchise ranges from $1,366,000 to $2,450,000. This includes an initial franchise fee of $45,000 – that must be paid to the franchisor.

With a profit margin of 10% or more, it would take about 8.5 years or less to recoup your initial investment.

There are over 36,000 McDonald’s franchises around the world, with about 13,000 of them in the United States. The company has a long history of franchising dating back to 1955, which has played a big role in its success over time.

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With an average initial investment of about $1.8 million, it would take you 8.5 years or less to recoup your investment with a 10% or more profit margin. These figures come from the 2020 average median net sales from a McDonald’s franchise in the US, which is about $2.9 million.

The number of franchised outlets has continued to increase in the US apart from 2019 and 2020 when 207 outlets closed down. The reason for this could be the negative economic effects of the COVID-19 pandemic, which saw a lot of small businesses around the country shut down. To the franchisor, McDonald’s is a very profitable business with net incomes averaging over $2 billion annually.

Arby’s

Arby’s headquarters are 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. It serves classic 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.

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.

 

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.

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 in opening up an Arby’s store.

Burger King

Burger King is a franchise with over 18,000 locations worldwide, of which about 7,000 are in the U.S. alone. It was founded in 1954 in Florida and is based in Miami. It is an indirect subsidiary of Burger King Worldwide, located in Delaware.

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 to set up your location inside another commerce (like a supermarket or a gas station). And you can co-brand to reduce costs as well. They call these non-traditional stores. By doing this, they reduce the initial investment to a rough estimate of $220,000—$1,450,000.

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. This depends on how well you run the business, 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  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. 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.

To keep in mind:

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 a profit through real estate rather than the franchise itself, as otherwise, it can take you 15 years to recoup your initial investment.

We suggest that you do not open a Burger King franchise if you are looking to make a 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.

Harmon Dobson believed in valuing his employees which has guaranteed the company’s success over several decades.

Conclusion

 Whataburger is not to be confused with “What-A-Burger”, a group of restaurants in mid-Atlantic states. It’s important to note that Whataburger is a regional brand with outlets only in the southern states of the United States. We advise that you speak to at least 5 franchisees to learn more about their business before deciding to own one. Due to the small territory, we have recommended some other franchises above that might better suit you if you are outside of those regions.

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.

 

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