The restaurant with the famous logo is usually not owned by the company whose logo it is. Understanding that one fact explains most of what is otherwise confusing about chain pricing, including why the same brand can charge different amounts a mile apart.
What a franchisee actually buys
Not a restaurant. A licence to operate one under a brand, plus a system for doing it. Typically that includes:
- The brand and trade marks, for a defined term and a defined territory.
- The operating system: recipes, equipment specifications, kitchen layout, staffing model, training programme.
- Supply-chain access, usually with approved-supplier obligations.
- Site approval and territorial protection, to varying degrees.
- National marketing, funded by a levy the franchisee pays.
What the franchisee takes on is everything physical and everything risky: the lease or the freehold, the fit-out, the equipment, the staff, the local marketing, and the losses if the site underperforms.
How the money moves
| Payment | Basis | Who receives it |
|---|---|---|
| Initial franchise fee | One-off, on signing | Franchisor |
| Ongoing royalty | Percentage of gross revenue | Franchisor |
| Marketing levy | Percentage of gross revenue | National marketing fund |
| Rent | Fixed or turnover-linked | Landlord, sometimes the franchisor |
| Supply purchases | Per unit | Approved suppliers |
| Refurbishment obligations | Periodic, capital | Contractors, to brand specification |
The critical detail is in the second column. Royalties and marketing levies are charged on revenue, not profit. A franchisee having a difficult year still pays them in full, which is why franchisee margins are much thinner than the headline revenue of a busy restaurant suggests.
The franchisor's income is a share of the top line. The franchisee's income is whatever survives the bottom.
Why prices vary within one country
Franchisees generally set their own prices, within limits set by the franchise agreement and any national promotion the brand is running. That is why:
- An airport or station outlet costs more - The rent is a different universe.
- A motorway service area costs more - Captive demand and a high fixed cost base.
- A tourist-site outlet costs more - The same reasons, plus lower repeat business.
- Two suburban outlets a mile apart can differ - Different leases, different operators.
Why our prices are "national reference" prices
Because a single true price does not exist. We publish the national reference figure a brand promotes for a market, and it will not match every outlet. Airport, mall, motorway and resort sites are routinely higher. That limitation is stated on every menu page and explained on the methodology page.
The international layer changes everything
Across borders the structure is usually different again. Rather than franchising site by site, brands typically grant a master franchise or form a joint venture covering a whole country. That partner then develops the market, sometimes operating directly and sometimes sub-franchising within it.
The consequence is significant: pricing, menu and expansion decisions for an entire country sit with a local company whose incentives are local. That is a large part of why the same brand can be a value option in one market and a premium import next door - See why the same burger costs different amounts and master franchise agreements.
Why brands franchise at all
Capital and speed. Opening a restaurant requires substantial capital per site; opening a thousand requires capital the brand would rather not tie up. Franchising transfers that burden to operators who also bring local knowledge, local property relationships and a direct financial stake in each site working.
The cost is control. A franchised estate is a network of independent businesses that have to be persuaded, incentivised and occasionally litigated with - Which is why franchise agreements are long, detailed and heavily weighted toward standardisation.
Reading the directory with this in mind
Our brand directory shows each chain across the markets we track, and the variation between those markets is largely the variation between the companies actually operating them. McDonald's, KFC, Subway, Starbucks, Burger King, Pizza Hut and Auntie Anne's each appear in all eleven markets we hold, and no two of those markets look the same on the board.
For a worked example of what it takes to buy into one of these systems, our blog covers opening a Pizza Hut franchise in detail.
