Behind Chick-fil-A’s Unconventional Franchise Model | WSJ The Economics Of

Summary

The Chick-fil-A chicken sandwich, America's favorite fast food, is renowned for its unique recipe and high-quality service. With a focus on a small menu and a hands-on franchise model, Chick-fil-A has become the third-largest US restaurant chain. The company's commitment to values, including closing on Sundays for rest and reflection, has contributed to its success and customer satisfaction.

Takeaways

• 🍗 Chick-fil-A's chicken sandwich is considered America's favorite fast food item, according to industry surveys.
• 🏅 Chick-fil-A is the third-largest U.S. restaurant chain by domestic sales, thanks in part to its famous chicken sandwich.
• 🧑‍🍳 The original chicken sandwich recipe, developed by Truett Cathy in 1967, remains unchanged and is kept secret.
• 🍽️ Chick-fil-A focuses on maintaining a simple menu, specializing in chicken sandwiches and keeping consistency across its products.
• 🚗 Chick-fil-A uses innovative ordering methods, like upstream ordering, to enhance drive-thru efficiency and customer satisfaction.
• 🏗️ Chick-fil-A owns all of its locations and hand-picks franchise operators through a highly selective process.
• 📊 On average, Chick-fil-A locations generate more revenue than many competitors, despite slower expansion compared to other chains.
• 🙏 Chick-fil-A's business strategy is rooted in Christian values, and its restaurants are closed on Sundays to give employees a day of rest.
• 🧑‍🤝‍🧑 Employees are trained to provide excellent service, with the signature 'My pleasure' greeting and a focus on warm customer interactions.
• 🎗️ Chick-fil-A has faced scrutiny for its charitable donations, but the company remains committed to serving all customers and focusing on issues like homelessness, hunger, and education.

Q & A

What makes Chick-fil-A's chicken sandwich unique?

Chick-fil-A's chicken sandwich is made with a breaded boneless chicken breast, two pickles, and served on a buttered toasted bun. The recipe was developed using a pressure cooker and peanut oil for faster cooking, and has remained unchanged since 1967.

How does Chick-fil-A ensure consistent quality across its restaurants?

Chick-fil-A uses a unique franchise model where the company owns all the locations and selects operators through a rigorous interview process. This allows the company to maintain control over quality and ensure that each location upholds its standards.

Why does Chick-fil-A focus on a smaller menu compared to other fast food chains?

Chick-fil-A's business model focuses on simplicity, with a small menu centered around chicken sandwiches. This approach helps customers easily decide what they want, and the company believes consistency in its offerings is key to customer satisfaction.

What is upstream ordering, and why does Chick-fil-A use it?

Upstream ordering involves taking a customer's order while they are still in line, typically by employees with tablets. This practice, which started before the pandemic, has become essential for speeding up service in the drive-thru, especially after dining rooms closed.

What is Chick-fil-A's approach to franchising?

Chick-fil-A does not seek passive investors. Instead, it selects a small number of operators who go through a highly competitive and extensive interview process. Operators are responsible for a single location and are deeply involved in the restaurant's daily operations.

How does Chick-fil-A compare to other fast food chains in terms of average restaurant revenue?

On average, Chick-fil-A restaurants make far more revenue per location than most of their competition, despite having fewer locations overall. This is largely attributed to their focus on quality and a hands-on franchise model.

Why are Chick-fil-A restaurants closed on Sundays?

Chick-fil-A's decision to close on Sundays is rooted in its founder Truett Cathy's Christian faith. It allows employees to rest and, if they choose, attend church. The company believes the anticipation of being closed on Sundays helps drive sales the rest of the week.

How does Chick-fil-A's initial franchise investment compare to other fast food chains?

Chick-fil-A requires an initial franchise investment of only $10,000, significantly lower than competitors like McDonald's, which requires $45,000 plus an additional $1.3 to $2.3 million for startup costs.

What role do Christian values play in Chick-fil-A's operations?

Chick-fil-A's business is influenced by Judeo-Christian values, though employees do not have to be Christian. The company emphasizes values like humility, generosity, and creating a positive impact on everyone they serve.

How has Chick-fil-A's growth strategy evolved over time?

Chick-fil-A has been expanding steadily, opening about 100 new stores annually and branching out to Canada and Puerto Rico. While their growth rate is slower than some competitors, they focus on maintaining their values and quality.

Outlines

00:00

🍗 America's Favorite Chicken Sandwich

Chick-fil-A's chicken sandwich is a beloved fast food item in America, with customers across the country waiting in long lines to enjoy the restaurant's signature dish. The chain has become the third-largest U.S. restaurant chain by domestic sales, in part due to its famous chicken. Despite fierce competition, Chick-fil-A continues to grow, with sales up 20% this year.

05:00

📜 The Origins of Chick-fil-A’s Famous Chicken

Chick-fil-A's business was built on a simple yet effective chicken recipe, developed by founder Truett Cathy in 1967. The pressure-cooked chicken sandwich remains a hallmark of the brand, with the original recipe still kept a secret. The focus on quality is a key aspect of the company's identity, symbolized by the capital 'A' in Chick-fil-A, standing for 'top quality.' The chain has maintained a simple menu centered around its iconic chicken sandwich, favoring consistency and customer satisfaction.

🚗 Innovating the Drive-Thru Experience

Chick-fil-A has introduced innovations like upstream ordering, where associates take orders while customers are still waiting in line. This process, which began before the pandemic, became essential during the COVID-19 crisis when dining rooms were closed. The practice enhances order accuracy and customer service, which have been key factors in Chick-fil-A's consistently high customer satisfaction ratings.

🏗️ Chick-fil-A’s Unique Franchise Model

Unlike most fast-food chains, Chick-fil-A operates a unique franchise model where the company owns each location and selects its franchisees, known as operators, through a rigorous selection process. Only a small percentage of applicants are chosen each year, making it more competitive than getting into Stanford. The initial franchise investment is low compared to competitors like McDonald's, with Chick-fil-A focusing on operators who are committed to developing their teams and communities.

💵 Higher Average Sales and Steady Expansion

Chick-fil-A’s restaurants generate more revenue per location than many of their competitors. While their growth rate is slower compared to some chains like Chipotle, they have expanded steadily across the U.S., with about 2,600 locations and plans for international expansion. The company continues to open around 100 new restaurants per year, focusing on maintaining its core values and ensuring a consistent customer experience across locations.

🙏 Chick-fil-A’s Values and Culture

The company's Judeo-Christian values, introduced by founder Truett Cathy, remain central to Chick-fil-A’s operations. Employees are encouraged to show kindness and humility, and Chick-fil-A restaurants are always closed on Sundays to allow staff to rest. Despite occasional criticism for the company’s donations to conservative causes, Chick-fil-A has refocused its charitable giving on homelessness, hunger, and education, while maintaining its mission of having a positive influence on all it serves.

Keywords

💡Chick-fil-A chicken sandwich

The Chick-fil-A chicken sandwich is the restaurant's flagship menu item and is central to its popularity. It consists of a breaded chicken breast, two pickles, and a buttered toasted bun, representing simplicity and quality. The video highlights that it has remained unchanged since its creation in 1967, embodying Chick-fil-A’s commitment to consistency and tradition.

💡Franchise model

Chick-fil-A operates a unique franchise model where the company owns all its locations and selects franchise operators through a rigorous process. Unlike typical franchise models, the operators, called franchisees, are chosen for their leadership and people management skills rather than just their financial investment. This model is credited with contributing to the company's success and maintaining quality across all locations.

💡Upstream ordering

Upstream ordering is a practice used by Chick-fil-A in which associates take customers' orders while they are still in line, often using tablets. This approach reduces errors and speeds up the process, particularly in drive-thrus. The video emphasizes how this system became crucial during the COVID-19 pandemic when dining rooms were closed, allowing Chick-fil-A to maintain high service standards.

💡American Customer Satisfaction Index

The American Customer Satisfaction Index (ACSI) measures customer satisfaction across various industries. Chick-fil-A has consistently ranked high in this index, showing that despite slower drive-thru service times, customers value the quality of food and the overall experience. This reflects the company's focus on customer service and product quality.

💡Truett Cathy

Truett Cathy is the founder of Chick-fil-A and a key figure in shaping the company's business philosophy, including its commitment to Christian values and quality. He developed the original chicken sandwich recipe and established principles such as closing on Sundays for rest and worship. His influence is still felt in the company's culture and operational strategies.

💡Christian values

Christian values are integral to Chick-fil-A's business model, guiding its operations and corporate culture. These values emphasize humility, generosity, and stewardship. Although employees are not required to be Christian, the company's ethos, such as closing on Sundays, reflects these values. The video notes how these beliefs influence not just internal policies but also how the company interacts with customers and the community.

💡Selective operator process

Chick-fil-A has a highly selective process for choosing its franchise operators. Only about 130 operators are chosen each year from over 8,000 applicants, making the acceptance rate lower than prestigious universities like Stanford. This rigorous selection ensures that each operator is highly capable of managing teams and fostering a positive work environment, which is essential to the company’s success.

💡Closed on Sundays

One of Chick-fil-A's most distinctive policies is being closed on Sundays, a practice started by its founder, Truett Cathy. The decision is rooted in the company's Christian values, allowing employees to rest and worship. Despite losing a day of sales, Chick-fil-A believes this policy helps drive anticipation and loyalty, as customers often make a point to visit on other days.

💡Homelessness, hunger, and education

These are the three main areas of focus for Chick-fil-A's charitable efforts, especially through its foundation. In recent years, the company has shifted its donations towards causes addressing these societal issues, aiming to positively impact the communities where it operates. This shift came after controversies surrounding past donations to conservative groups, reflecting the company's evolving approach to philanthropy.

💡Growth strategy

Chick-fil-A's growth strategy involves opening around 100 new stores per year, expanding both within the U.S. and internationally. While its growth rate is slower compared to other fast food chains, such as Chipotle, the company’s careful selection of locations and operators ensures sustainable growth. The video highlights how Chick-fil-A’s deliberate approach has contributed to its success, making it the third-largest U.S. restaurant chain by domestic sales.

Highlights

Chick-fil-A's chicken sandwich is America's favorite fast food according to multiple industry surveys.

Chick-fil-A is the third largest US restaurant chain by domestic sales.

Chick-fil-A's original chicken sandwich recipe, developed by founder Truett Cathy, has remained unchanged since 1967.

Chick-fil-A maintains a small menu focused on chicken sandwiches, which contributes to its business success.

Chick-fil-A consistently ranks high in customer satisfaction, particularly for quality and service, despite slower drive-thru times.

The company employs a unique 'upstream ordering' system to streamline drive-thru service by taking orders before customers reach the speaker.

Chick-fil-A’s franchise model is different from other fast food chains, as the company owns all of its locations.

Chick-fil-A’s rigorous franchise selection process results in a 1.6% acceptance rate, lower than Stanford's admission rate.

Franchisees need only a $10,000 initial investment, significantly lower than other fast food chains like McDonald's.

Chick-fil-A's operator model, where franchisees manage a single restaurant, enables a more hands-on leadership approach.

Chick-fil-A’s stores make more revenue per location than their competitors, thanks to their hands-on approach.

The company has expanded its footprint across the US and internationally, with over 2,600 locations, including in Canada and Puerto Rico.

Chick-fil-A attributes its culture to Judeo-Christian values, including humility and generosity, though employees aren’t required to be religious.

The decision to close all locations on Sundays is rooted in the founder's Christian faith and a desire to provide employees with rest.

Chick-fil-A has faced criticism for charitable donations to conservative groups, but now focuses its giving on homelessness, hunger, and education.

Transcripts

(playful music)

- [Narrator] This is the Chick-fil-A chicken sandwich,

which according to multiple industry surveys

is America's favorite fast food.

Visit a Chick-fil-A anywhere in the United States

and you're likely to see a long line of customers,

patiently waiting to order

the restaurant's flagship menu item.

- There you guys go.

- Thank you so much. - My pleasure.

Y'all have a great rest of your day.

- Thank you. - My pleasure.

- [Narrator] In part thanks to its famous chicken,

today Chick-fil-A is the third largest US restaurant chain

by domestic sales.

- We're still seeing a tremendous growth in our business.

So far this year, we're up about 20%.

- [Narrator] So how did this private Atlanta-based

fast food chain become one

of the most popular restaurants in America?

This is "The Economics of Chick-fil-A."

(upbeat music)

Chick-fil-A has long had a unique approach to business

that the company credits with its success.

From the beginning, Chick-fil-A's business

was built on a recipe.

After testing hundreds of methods,

restaurateur Truett Cathy developed a faster way

to cook boneless chicken

using a pressure cooker and peanut oil.

- It's perfect and so we've kept that locked away in a vault

and we'll continue to use that same recipe.

- None of the employees have access to it,

so it is still shrouded in a lot of mystery.

There are recipe sites where you can try to recreate it

but they have never put it out officially.

- [Narrator] The original chicken sandwich

is the same today as in 1967.

A breaded breast of chicken,

two pickles, both placed on a buttered toasted bun.

♪ Hey, Chick-fil-A today ♪

♪ Chick-fil-A ♪

♪ The boneless breasted chicken we're famous for ♪

- [Heather] Chick-fil-A has long taken pride

for its commitment to selling high-quality product.

- [Narrator] In fact, Chick-fil-A's name

is a take on chicken filet

with a capital A at the end symbolizing top-quality.

While other fast food chains tend

to expand their menu offerings over time

to attract new customers,

Chick-fil-A's business model

has always been to maintain a small menu,

focused on chicken sandwiches.

- They like to say it's simple.

So they want to keep customers knowing

what's on that menu

to be able to easily decipher what they want.

- We think about the way that we serve guests.

That consistency is really important,

that we get hot sandwiches, and cold salads,

and just tasty products.

- [Narrator] Customers seem to agree.

Since its creation in 2015,

the American Customer Satisfaction Index

has been dominated by Chick-fil-A.

- Chick-fil-A often rates very high.

Even though the service in the drive-thru can be slower,

people are very happy with the quality

and the service they get in general.

- [Narrator] Today, many Chick-fil-A restaurants

use a practice known as upstream ordering

where an associate will take a customer's order

while they're still waiting in line.

- This started before the pandemic

but has really proved very important

to the pandemic when they closed their dining rooms,

which really meant the drive-thru

is the major channel of sales.

So if you go to a Chick-fil-A now,

in many locations, you will see workers out

in the drive-thru with tablets.

And so instead of speaking into a speaker box

and kind of mumbling your order

and it maybe getting screwed up,

you're telling this person directly next to your car

what you want.

- [Narrator] To ensure that quality

in every one of its location,

Chick-fil-A uses a different franchise model

than most other fast food chains.

Unlike most chains where the franchisee covers most

of the costs of opening the restaurant,

Chick-fil-A owns every one of its locations.

The company also selects the locations,

and builds the restaurants.

- We really think that that's a key differentiator

in the way that we operate.

We're not looking for a financial investor

or people that wanna buy a big market

and open a bunch of stores.

- [Narrator] Chick-fil-A states on their website,

"Franchising is not an opportunity

for passive financial investment,

working from the sidelines,

or adding to a portfolio of business ventures."

Franchisees are called operators,

and each operator is hand picked by Chick-fil-A

after a rigorous interview process.

- Chick-fil-A likes to say it's about like going

to Harvard MBA.

It can take anywhere from 12 months, 24 months.

So you really have to want to do this,

and be willing to go through the initial paperwork

but then extensive interviews.

- [Narrator] Out of the more than 8,000 applicants

Chick-fil-A receives annually,

the company only selects about 130 new operators a year.

That's an acceptance rate lower than Stanford.

- One of the skills that we really look for

is somebody that's really good at developing people.

A lot of the stores have over 100 employees.

They've gotta be really, really good

at pouring in and developing people

in teams and leadership teams.

- [Narrator] If selected, Chick-fil-A franchisees

needs only an initial investment of $10,000,

which covers the franchise fee

to become an operator.

That's much lower than the startup costs

for a McDonald's franchise,

which requires a $45,000 franchise fee,

as well as 1.3 to $2.3 million

of additional investment.

- If they have 10 or 15 locations,

it's hard to have that market presence

and to really know their team members

and the communities that we serve.

And we've got a lot of interest to become operators,

and feel like that model

is gonna be really important.

It's what's gotten us to where we are.

- [Narrator] Chick-fil-A credits this hands-on approach

with the success of its restaurants,

which on average, make far more off of each location

than their competition.

For years, Chick-fil-A's footprint

was mostly in the southeast,

but today, it can be found across the country.

- They have about 2,600 restaurants

throughout the country.

They're also located in Canada

and they're opening in Puerto Rico.

- We're opening about 100 stores a year right now

and we've got a lot of growth potential here

just domestically in United States

but we're also looking at international as well.

- [Narrator] Since 2007, Chick-fil-A's nearly doubled

its restaurant count to 2,598.

- Compared to a lot of other chains,

that's still slow.

Like a Chipotle is opening 200 restaurants a year.

- [Narrator] No matter which Chick-fil-A location

you eat at,

the company says its values are reflected

in its day-to-day operations.

- It is a very close culture.

They're also invested in its values,

which they do say are based on Judeo-Christian values,

which you don't have to be a Christian to work there

but they do take some of these basic values

of humility and generosity,

and if you wanna go to a prayer service while you're there,

you certainly can.

- [Narrator] From its inception,

founder Truett Cathy's Christian faith played a major role

in the company's business strategy.

It's why Chick-fil-As are never open on Sunday,

not just so workers can attend church

but also so they can rest in general.

- We feel like we make up for the sales

in the Monday through Saturday,

and that anticipation of I can't get Chick-fil-A today,

so I wanna make sure to go first thing Monday morning.

- [Narrator] It's also the reason the company

has never gone public.

- I don't think we'll ever,

actually, I know we'll never go public.

And there's not a real benefit for us to do that.

We've grown conservatively,

and so we don't need a lot of investors

or extra cash to go and to build new stores

or new businesses.

- [Narrator] Part of Cathy's values

are reflected in how employees are treated

and how they're expected to treat customers.

- Thank you. - My pleasure.

Y'all have a great day.

- [Narrator] Although you won't see it in restaurants

where the employees are masked up,

Chick-fil-A has long asked employees

to greet customers warmly with a smile.

- Even if it's just in a very small interaction,

you can share a lot by just the smile

the team member has with guests.

It's just a small little thing

that we can do that makes a difference.

- [Narrator] Occasionally, Chick-fil-A's values

have attracted scrutiny,

especially when the company's foundation donates

to conservative groups or causes.

- There's been some groups perceived as anti-gay

and this has attracted attention from progressive groups.

The company's foundation last year

has focused its charitable giving

on three different areas:

homelessness, hunger and education.

- I think the most important thing for us

being in the restaurant business

is that we serve everybody.

My grandfather, I love how he talked about it with politics.

He would say, "I'm not right wing or left wing,

I'm the whole chicken."

- When you go to headquarters in Atlanta,

there is this rock with a quote from Truett

that is displayed prominently

that says what Chick-fil-A's corporate purpose,

it says, "To Glorify God

by being a faithful steward of all that is entrusted to us.

To have a positive influence on all

who come in contact with Chick-fil-A."

I do think that reflects this very higher noble sense

of company self they have.

They believe they do more

than just serve chicken sandwiches.

- Thank you so much. - My pleasure.

Have a nice one. - Bye.

(lively music)