When it comes to owning their locations or franchising them, restaurant chains tend to choose a lane and stick to it.
Among those that are gung ho for franchising, for example, is McDonald’s, which owns just 5.2% of its US locations in 2022, (693 of 13,444), according to QSR magazine.
Others lean into the franchise model even more:
- Chick-fil-A owned only 2.6% (73 of 2,837) in 2022.
- KFC owned 1.2% (46 of 3,918).
- Those owning below 1% include Dunkin’, at 0.33% (31 of 9,370), Dairy Queen at .05% (2 of 4,307), and Subway, which owned none of its 20,576 locations.
But the company-owned model has its devotees as well. Many chains eschewing franchising and owning all their locations, including Chipotle, Shake Shack, Sweetgreen, In-N-Out Burger, and White Castle.
Starbucks licenses locations including colleges, hospitals, and grocery stores to sell its offerings, but those are not franchise agreements. And that, according to Starbucks founder Howard Schultz, is all about control.
“To me, franchisees are middlemen who would stand between us and our customer,” Schultz wrote in his 1997 book, Pour Your Heart Into It. Baristas at company-owned stores, he continued, “understand the vision and value system of the company, which is seldom the case when someone else’s employees are serving Starbucks coffee.”
What’s rare is for restaurants not to pick a lane but rather cruise along happily in both, which is the case with Panera Bread. It ended 2022 owning 45% (946 of 2,102) of its locations.
Franchise with that? In his new book, Know What Matters: Lessons from a Lifetime of Transformations, Panera founder Ron Shaich, who helped pioneer the fast-casual category, argues against companies putting all their eggs in either basket.
“Some people are committed to all company stores because, ‘Oh my god, nobody can operate our stores but us,’” Shaich told Retail Brew.
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Publicly traded companies, meanwhile, can face pressure to adopt a predominantly franchised model.
“In the last 20 years, the mantra driven by Wall Street was asset-light, franchise everything, [and] own nothing,’” said Shaich, who stepped down as CEO after selling Panera for $7.5 billion in 2017. “‘Just collect that royalty [fee from franchisees] and it will give you a higher return on capital.’”
At Panera, Shaich told us, “I didn’t want all company stores, because when you have all company stores, your volatility is extraordinarily high on comp store sales, and therefore your stock price is very volatile for everybody.”
“On the other hand, I didn’t want all franchise stores, because I want to have enough skin in the game to transform that company and evolve it when I needed to,” Shaich continued. “And without that, you don’t have the credibility with your franchise community.”
In good company: But Panera remains an outlier in how it Goldilocksed its store-ownership balance.
Among QSR’s Top 25 restaurants, no other chain is as balanced as Panera’s mix of 45% company-owned and 55% franchise-owned. The closest are Arby’s (32.5% company-owned vs. 67.5% franchise-owned) and Little Caesars (14% company-owned vs. 86% franchise-owned.)
Would-be franchisees, meanwhile, look longingly at the chains that have eschewed the franchise model.
Under the headline, “Top Five Restaurants People Wish Were Franchises,” the website Franchise Help stated, “Americans are desperate to open their own Chipotle.” But “the only way that they can become owners is by buying stock!”
Even that’s not an option, though, for White Castle, which is family-owned and not publicly traded.
“Your best chance to own a piece of White Castle,” Franchise Help advised, “is through marriage!”