This article was updated with the 2023 Franchise Disclosure Document
Arby’s is one of the most popular restaurant franchises in the US: they had over 3,400 restaurants across the US in 2022..! Yet, if you’re considering opening a Arby’s franchise, you’ll need to invest a significant amount of money: $1,320,000 on average.
With Average Unit Volume (AUV) of $1,254,000 per year, do the profits justify the (hefty) investment cost? That’s something we look into in this article.
We’ll look into how much profits you can make with a Arby’s franchise, how much it costs, and whether it’s a good investment. Let’s dive in!
Key stats
| Franchise fee | $37,500 |
| Royalty fee | 4.0% |
| Marketing fee | 4.2% |
| Investment (mid-point) | $1,320,000 |
| Average sales | $1,254,000 |
| Sales to investment ratio | 0.9x |
| Payback period* | [franchise_value_investment_payback] |
| Minimum net worth | $1,000,000 |
| Minimum liquid capital | $500,000 |
About Arby’s
Arby’s is a leading American fast-food sandwich chain restaurant with over 3,400 stores in the US.
The chain was founded in 1964 by the Raffel brothers, Forrest and Leroy, and its first restaurant was in Boardman, Ohio.
It originally served roast beef sandwiches, potato chips, and soft drinks. In addition, it offers a deli-style Market Fresh line of sandwiches, Greek gyros, curly fries, and Jamocha shakes.
Arby’s franchising journey began in 1965 with the opening of its first franchise in Akron, Ohio.
Today, Arby’s is voted the second-largest sandwich chain store after Subway.
Headquartered in Sandy Springs, Georgia, the Arby’s franchise is one of the fastest-growing sandwich chain restaurants in the US. It is operated by Arby’s franchisor, LLC, which has 2 parent companies, Inspire Brands and Arby’s Restaurant Group Inc.
Arby’s franchise: pros and cons
Operating an Arby’s franchise, just like any other business, has its advantages and disadvantages.
Pros
- Fast-growing brand: Arby’s brand has grown rapidly in recent years. It was able to open new stores even during the COVID-19 pandemic. Being a vibrant brand, it gives new franchisees an opportunity to establish themselves in potentially profitable locations.
- Wide menu selection: Arby’s is well known for its giant stacks of roast beef on soft buns. In addition, they have expanded their menu to include other delicious foods like deli-inspired sandwiches and complementary side items and desserts. Customers can choose from a wide variety and have a reason to keep coming back for more.
- Eye-catching design: Arby’s constructs its restaurants in an appealing pinnacle design that portrays its famous architectural design. The luxurious designs can fit into any prime location, preserving Arby’s tradition and appealing to its customers in any market location.
- Different franchise models: Arby’s offers investors multiple models to choose from. A franchisee can choose the traditional franchise model, which is either freestanding with full customer service, convenience stores, or a full menu. Secondly, there is the non-traditional model, which means a limited menu, limited size, limited customer service, no or limited seating, reduced services, and reduced space.
- Solid training and support: As a new franchisee, you need maximum support to learn the tricks of the market. Arby’s offers would-be franchisees the necessary training and on-the-job support to grow their business, whether they have prior experience or not.
- Proven operation model: Arby’s brand and culture have been in operation for a long time. They have perfected the culture of serving their customers delicious beef sandwiches with simplicity and affordability. They introduce to new franchisees Arby’s buying, storage, training, and management processes that have worked.
Cons
- Competition: One of the drawbacks of operating an Arby’s franchise is that it faces stiff competition from established brands such as Subway. As a new franchisee, you may record low sales and high advertising costs to stay competitive.
- No financing: The Arby’s franchise does not offer financing to new franchisees. This leaves franchisees with limited financing options. Also, Arby’s does not guarantee a franchisee’s note, lease, or obligation. One can only opt for an SBA loan to fund their investment or expand to multiple units.
- No territory protection: Arby’s does not provide exclusive territory protection. It may only offer a specific and limited protected area to a selected traditional franchise restaurant under certain terms and conditions. This leaves room for Arby’s to grant other competing franchises permission to operate businesses in a territory occupied by its non-traditional franchisees.
How much does a Arby’s franchise cost?
You must invest $1,320,000 to open a Arby’s franchise. This includes the initial franchise fee of $37,500.
This investment amount is an estimated average for both free-standing ($861,950 – $2,451,000) and non-free-standing ($644,950 – $1,324,000) restaurants. Thus, the amount you would invest can vary depending on your choice of restaurant type or location.
The investment cost covers everything you need to begin a fast-food restaurant. These costs include:
- Initial franchise fees: Development fee, license fee and training expenses
- Site and real estate: Real estate property, site costs, landscaping
- Building & construction: civil & architectural drawings, permitting costs, building costs, equipment, décor, signage & drive thru
- Operating costs: Pre-opening wages, opening inventory, insurance, working capital, lease deposits and payments, business licenses, health permits, utilities deposit
The costs vary based on the format of restaurant you choose:
| Type of Expenditure | Free standing | Non free standing |
|---|---|---|
| Initial fees | $42,325 | $42,325 |
| Site and real estate | $279,000 | $33,000 |
| Building & Construction | $1,184,000 | $758,000 |
| Operating Costs | $151,150 | $151,150 |
| Total | $1,656,475 | $984,475 |
What is the AUV of an Arby’s franchise?
An average Arby’s franchise generates more revenue compared to other similar franchises in the US. Indeed, an Arby’s franchised restaurant makes $1,254,000 in sales per year on average (the “Average Unit Volume”).
This mentioned figure is the average for both free-standing and non free-standing restaurants’ annual sales. As per the latest FDD, a free-standing restaurant ($1,272,076) generates more revenue than a non-free-standing restaurant ($1,227,086).
How profitable is a Arby’s franchise?
Luckily, Arby’s is one the few franchisors that gives a lot of details on the financial performance of its restaurants in its Franchise Disclosure Document. For example, we know that, on average, Arby’s restaurants spend 30.8% of their sales in COGS, and 22.80% in labor costs.
This is quite helpful for us to estimate the profitability of Arby’s franchises.
As per our analysis, Arby’s franchisees make $216,000 in profits per year. This corresponds to a 17% EBITDA margin.
| Profit and loss | Amount | % Sales |
|---|---|---|
| Sales | $1,253,804 | 100% |
| COGS | $(386,172) | 30.80% |
| Gross Profit | $867,632 | 69% |
| Labor | $(285,867) | 23% |
| Marketing and royalty costs | $(102,812) | 8% |
| Occupancy | $(112,842) | 9% |
| Other OpEx | $(150,456) | 12% |
| EBITDA | $215,654 | 17% |
Is a Arby’s franchise a good investment?
To assess whether you should invest in a Arby’s franchise, you must compare the initial investment against the profits.
As per our estimates, it would take on average 7 years for a franchisee to reimburse the original investment required to open a Arby’s franchise.
This number is what we call the payback period: the time it takes for a franchisee to recoup her/his investment. 7 years payback for Arby’s is a great payback.
In other words, opening a Arby’s franchise is a great investment (from a financial standpoint), due to a good 7 years payback period. But note that this is based on the average performance of all franchises. There is no guarantee your restaurant will perform as well.
Disclaimer
Disclaimer: This content has been made for informational and educational purposes only. We do not make any representation or warranties with respect to the accuracy, applicability, fitness, or completeness of the information presented in the article. You should not construe any such information or other material as legal, tax, investment, financial, or other professional advice. Nothing contained in this article constitutes a solicitation, recommendation, endorsement, advertisement, or offer to buy or sell any franchises, securities, or other financial instruments in this or in any other jurisdiction in which such solicitation or offer would be unlawful under the franchise and/or securities laws of such jurisdiction.
All content in this article is information of a general nature and does not address the detailed circumstances of any particular individual or entity. Nothing in the article constitutes professional and/or financial and/or legal advice, nor does any information in the article constitute a comprehensive or complete statement of the matters discussed or the law relating thereto. You alone assume the sole responsibility of evaluating the merits and risks associated with the use of any information or other content in this article before making any decisions based on such information or other content.
