Chick-fil-A Chief Operating Officer Dan Cathy’s recent reiteration of his long-time support of “the biblical definition of the family unit” in “The Biblical Recorder” caused a national controversy.
Gay marriage proponents called for boycotts and staged ’kiss-ins” at restaurants. Several politicians announced plans to block Chick-fil-A’s applications to open new restaurants in their jurisdictions. And company supporters turned out in record numbers for a Chick-fil-A
Appreciation Day Aug. 1.
Standing at ground zero of the controversy were more than 1,600 franchise owners of Chick-fil-A restaurants in 38 states plus the District of Columbia. Orange County has 14 units.
Chick-fil-A is the latest example of the intertwined relationship — for good or bad — between franchisors and their franchisees. Companies that have good relationships and communications with franchisees weather such storms, several experts said. Those that don’t, have bigger problems than the immediate dustup.
Consider Econo Lube N’ Tune, once based in Newport Beach. In 1999, the state Dept. of Consumer Affairs sued the company for stations doing shoddy and unnecessary work. The accused stations were company owned, but the franchisees suffered financially because of the bad publicity. The company eventually filed for bankruptcy.
By comparison, the impact on Chick-fil-A franchisees – the company calls them operators and the relationship is not traditional franchising – has been mild so far and may be positive.
The Torrance Chick-fil-A was hit by negative graffiti, and many opponents posted angry comments, articles and videos online. Brandindex, which tracks online perceptions of brands, said that as of Aug. 3, Chick-fil-A’s score has dropped 55 percent since the article quoting Dan Cathy was published.
However, privately held Chick-fil-A, which does not release financial data, said the Aug. 1 Appreciation Day “was a record-setting day” for sales.
John A. Gordon, principal at Pacific Management Consulting Group in San Diego, projects that the average Chick-fil-A had a 29.9 percent spike in sales to $10,320 and 367 more customers on Appreciation Day than on an average Wednesday.
He noted that when companies have a one-day promotion, it tends to take sales and traffic away from other days. But in Chick-fil-A’s case, the appreciation event was not created by the company’s marketing department. Supporters of the company and First Amendment free speech rights showed up and spent money without coupons or special discounts, although the long-term impact on franchisees’ business remains to be seen.
“CFA gained a lot of free publicity and energized its base customers, at least for now,” Gordon said. “It also did not discount (to attract business on Appreciation Day). Its hard for other (quick service restaurants) to get that kind of daily pop without a discount or giveaway of some sort.”
Chick-fil-A was already doing well financially. Pacific Management Consulting, whose reports on franchise performance are widely watched nationwide, has estimated that in 2010 Chick-fil-A had the industry’s highest average annual sales per unit of $2.7 million. By comparison, McDonald’s had $2.4 million and El Pollo Loco, $1.4 million.
Chick-fil-A does not use the standard franchising model of growing by using other people’s money, which includes initial fees in the tens of thousands of dollars and royalties plus franchisee ownership of real estate, said Don Sniegowski at Blue MauMau. A new Chick-fil-A operator pays $5,000 and the company finds and pays for the location and restaurant. The company gets 15 percent of sales, collects rent and splits remaining profit with the operator.
Chick-fii-A wants hands-on, single unit operators, not multi-unit franchisees as some other companies seek.
Sniegowski estimates that Chick-fil-A operators average $190,000 a year take-home profit and “some make substantially more,” based on franchise disclosure documents, which must be filed in some states, and other information. However, operators cannot sell their franchise or pass it on to heirs.
Still, that strong financial return “allows Chick-fil-A to be extremely choosy about who runs its restaurants,” he added. “Company officials say Chick-fil-A gets 10,000 to 25,000 applications for roughly 60 to 70 new (operators) each year.”
And none of the people who make it through the selection process to become an operator should be surprised about the owners’ Christian worldview. The company website states that the corporate purpose is ’to glorify God by being a faithful steward of all that is entrusted to us.” All restaurants are required to close on Sunday.
Still, some operators did not want to be embroiled in the Dan Cathy controversy. No local franchisees would comment for this story, but Mark and Heather Howery, operators of the Chick-Fil-A restaurant in Fullerton, posted on their Facebook page, “… The company COO shared his personal views on marriage and family when asked about it in an interview. He does not speak for us as independent owners just as your boss does not speak for you as individuals. As the business owners we do not take issue with any group of people including the gay community.”
Franchise consultant Ed Teixeira, president of FranchiseKnowhow, LLC, said few franchisees in any organization would criticize the company because it might impact the value of their own business. “Franchisees are principally concerned about their own finances… Among the 1,600 (Chick-fil-A) locations, some may not agree with the company but I haven’t read anything about that. That goes back to the strength of the company’s relationship with franchisees and (the controversy) didn’t hurt franchisees financially.”