chart/bmm; source/QSR magazine

With unusual franchise practices, Chick-fil-A is heads and shoulders above its competitors in store performance. So why aren't franchisors adapting its model of limiting what a franchise owner can own?

Boiled down, Chick-fil-A's system allows the privately held company to be extremely choosy about who runs its restaurants, and to reward them well if they succeed — or get rid of them if they don't. Because it owns all its restaurants — seemingly a contradiction in franchising — Chick-fil-A can move quickly into new products and markets. It can shift strong-performing franchisees to bigger stores or give them more responsibility — much like employees — while firing up their entrepreneurial zeal… The company bankrolls the entire cost of its new restaurants and picks the locations. The only cost its so-called "operator" franchisees shoulder up front is $5,000, but they can't later sell the business or pass it on to their heirs. Chick-fil-A retains ownership of the restaurant, and takes a much bigger cut of each store's revenues and profits than at most franchises. It gets 15 percent of sales, collects rent on the property, and splits the remaining profit with the operator.

The formula seems to have worked well for both sides. Based on franchise disclosure documents and interviews with Chick-fil-A officials, the company's roughly 1,100 operators took home operating profits of about $210 million last year, or an average of $190,000 each. Some make substantially more. Meanwhile, Chick-fil-A collected about $841 million last year in rent, royalties and its share of operating profits from franchisee-operated restaurants — four times what the franchisees got. The company reported a $175 million profit for 2010 on systemwide revenue of $3.4 billion last year. Company officials say Chick-fil-A gets 10,000 to 25,000 applications for roughly 60 to 70 new slots that open each year. [via Atlanta Journal Constitution]

The article quotes restaurant unit analyst John Gordon and me.