Explore the Expenses of Running an A&W Restaurants Franchise

Introduction

Franchising in the fast food industry has seen steady growth in recent years , and for good reason. Consumer demand for fast, convenient and cost-effective food continues to grow. A&W Restaurants is a prime example of an established franchise operating successfully, with 846 locations and annual sales of over 0 million.

Franchising can provide a secure route for business owners to get their foot in the door, investing more efficiently and with less risk. While A&W restaurants offer many benefits, there are also certain expenses that licensees should consider.

In this blog post, we’ll explore the different types of expenses that come with running an A&W Restaurants franchise and how they can be managed.

Operating Expenses

As with any business, running an A&W restaurant franchise comes with many expenses. All of these operating expenses must be taken into consideration when determining the profitability of the business. These expenses include:

• Franchise fees
• Advertising and Marketing
• Cost of menu ingredients
• Equipment maintenance
• Lease or mortgage payments
• Utility costs
• Staff salary and benefits
• Assurance
• Technology and data costs

Franchise fees

Franchising with A&W restaurants is an attractive option for business owners looking to get their foot in the door. The advantage of this type of business structure is that there are many integrated assets that have the opportunity, however, there are also associated costs. Franchise fees are one of the most notable costs to consider when considering the franchise option. It is crucial to understand the operational costs before taking the plunge.

According to the A&W Restaurant website, all traditional A&W Restaurant applicants must pay a franchise fee of up to ,000 . This type of fee is a one-time payment made by each Independent Franchise Owner to A&W Headquarters. The exact fee ultimately depends on a variety of factors, including the location of the restaurant and the size of the establishment’s unit.

The majority of traditional A&W retail outlets are purchased or leased through A&W’s parent company. These monthly rental fees are usually calculated on a percentage of the gross sales produced by the restaurant. This monthly rental fee is calculated using the following equation: 5% of gross sales + royalties . As a result, the cost of royalty fees can be quite expensive and should be taken into consideration before signing a contract.

It is also important to note that a potential franchisee of an A&W restaurant will be asked to pay initial and ongoing marketing fees. These fees are estimated to be around 1-2% of total sales. Marketing fees are used to support the A&W brand and help market the restaurant to its customers. As such, it is essential to include this cost in the budget.

Overall, the cost of franchise fees can be quite expensive, but that shouldn’t deter potential owners from pursuing the A&W restaurant opportunity. With a solid financial plan, costs can be managed and can result in a successful business.

Advertising and Marketing

A&W Restaurants network franchisees are responsible for advertising and marketing costs incurred by their particular restaurant. Occupying a significant amount of the operating budget, owners must plan accordingly, to ensure that their message reaches potential customers. For those with a standalone A&W, the cost of all required signs is also included in their advertising budget.

Advertising and marketing costs for A&W restaurants in 2019 totaled 5 million. These expenses include billboards, newspapers, radio and television advertisements, online campaigns and other creative purchased or produced internally. While franchisees don’t need to spend the same amount of money, they must adhere to the franchise’s minimum marketing standards and work closely with the A&W corporate team.

Today, franchisees are expected to maximize digital platforms to reach the widest audience. This usually involves digital advertising, such as on Google and social media platforms like Facebook and Instagram. It requires an initial outlay to boost awareness and start acquiring foot traffic, but it’s proven to be one of the most cost-effective methods.

When budgeting for advertising and marketing expenses, A&W franchisees need benchmarks to help plan accurate expenses. For example, a standard set budget might be 2-5% of monthly sales. Additionally, more than 150 sales-building activities were added to the A&W marketing calendar in 2019, with more planned this year.

By leveraging existing marketing strategies and staying true to the A&W brand and following franchisor guidelines, franchisees can establish a successful advertising and marketing program. This will lead to increased brand recognition and more conversions, providing greater ROI.

Cost of menu ingredients

A&W restaurants serve an established menu of classic American cuisine. They offer savory menu items like burgers and fries that feature pantry staples and are easy to replicate. Of course, these menu items come at a cost.

According to NRN, The Restaurant Industry Bible, in the first quarter of 2018, the average cost of ingredients for a single meal at a full-service restaurant increased 2.66% year-on-year to a total of .98 .

A&W restaurants operate as a franchise, which means they have operational costs. Franchisees can expect to pay an ongoing royalty fee of 4.5% of gross sales, as well as a marketing fee of 1% of gross sales. However, this fee is relatively small, which means that the main cost load falls on the menu ingredients.

A&W franchisees have access to proprietary ingredients; Therefore, even if, hypothetically, the cost of pantry staples (i.e. potatoes, oil, salt, etc.) increases significantly, A&W franchisees will not be affected in the same way as non-franchised restaurants. This immunity to changes in ingredient costs helps ensure that franchisees remain profitable and can grow their businesses.

Equipment maintenance

Equipment maintenance costs are an important consideration when investing in the A&W Restaurants franchise. According to Statista, in the last fiscal year, the franchise spent an average of ,737 per location on equipment maintenance. This cost includes regular preventive service, repairs and replacement of aging equipment. It’s important to factor this into the cost of opening and running an A&W restaurant.

Equipment maintenance costs for an A&W franchise include, but are not limited to:

• Maintenance of HVAC and refrigeration systems
• Maintain dishwashers
• Repair of ranges, grills and fries
• Floor drainage and cleaning
• Replacement of worn cork insulation
• Cleaning exhaust and hood systems
• Replacement of air filters

Regular maintenance of equipment is important to ensure customer safety and to ensure that the restaurant is operational. Additionally, ensuring that restaurant equipment complies with all applicable laws and energy efficiency standards helps keep operating costs low.

Routine maintenance is also important when it comes to preventive maintenance. A&W restaurants have a Preventive Maintenance Program in place, which helps keep equipment running at peak performance. This program includes wax floors, fry tests, wash floors, and more. Preventative maintenance frequency will depend on location and a number of factors, including trade volume and age of equipment. Equipment maintenance is an important part of running an A&W franchise and should be considered when evaluating the total cost of the business.

Lease or mortgage payments

Owning an A&W Restaurants franchise generally requires the franchisee to make a substantial upfront payment, including rent or the purchase of building or parking. The franchise agreement typically includes leases, which can vary in price depending on location. According to the US Small Business Administration, franchisees typically pay rent between ,000 and 8,000 per year on a lease or mortgage.

In 2017, the average rent for an A&W franchise ranged from ,500 to ,000 per month. In 2020, the average rent was ,000 per month. Additionally, franchisees are also required to pay for any necessary equipment and renovations a store needs to open. It can vary from ,000 to 0,000. Franchisees must also pay for advertising and professional fees which can range from ,000 to ,000.

In addition to rent or mortgage payments, franchisees must make annual royalty payments to the franchisor. Royalty payments are usually a percentage of revenue. A&W’s royalty rate is typically 5% of gross sales, but may vary by location. This can vary greatly and can range from thousands of dollars to several hundred thousand dollars per year. Together, total operating costs for an A&W Restaurants franchise can range from 0,000 to nearly million, including franchise fees.

Utility costs

When considering the costs of operating an A&W restaurant franchise, utility costs should not be overlooked. Utility costs are necessary expenses to power a restaurant and vary from location to location. The cost of electricity, water and natural gas depends on the size of the restaurant, its occupancy rate and the average bills in the franchise area. According to the US Energy Information Administration, in 2019 the national average cost of electricity was .13 per kilowatt-hour and the average cost of natural gas was .23 per thousand cubic feet. Also, the monthly water bill for a restaurant is usually around ,000.

It is estimated that 4-5% of a typical A&W franchise’s annual revenue is allocated to utility costs. As a franchise owner, your most effective way to reduce utility costs is to reduce the amount of energy and water wasted in your restaurant. Homeowners often use appliances and plumbing fixtures, and businesses should do the same. This may include updating outdated equipment and replacing insulation and air filters. Additionally, it is important to prioritize preventive maintenance, as failure to do so can easily lead to costly repairs or loss of utilities.

A great method to monitor your energy consumption is to use an energy monitoring system. This system tracks energy usage for some or all of your restaurant’s major items. It can help focus energy efficiency efforts, budget energy costs, identify energy, and assess energy performance. By using an energy monitoring system, you can be more aware of how energy consumption is being used and make proactive decisions about utility costs. Ultimately, reducing energy consumption not only saves money, but can also help the environment.

Staff salary and benefits

The salary and employee benefits associated with owning and operating an A&W franchise can vary widely, depending on the size and location of the franchise. Nevertheless, costs associated with staff salaries and benefits can traditionally represent a large portion of total operating costs. On average, the most recent statistics in the United States suggest that owners can expect to pay around ,000 per year in staff salaries, or an average of .85 per hour per employee based on an average of eight employees. It is also important to consider the cost of benefits that must be provided to full-time staff members.

When it comes to benefits, A&W franchisees are responsible for providing vacation, sick leave, health and dental insurance, and retirement contributions, according to the U.S. Bureau of Labor Statistics. On average, owners can expect to pay anywhere from ,000 to ,000 per year for the standard benefits package. However, individual franchisees may choose to offer additional benefits to their employees, including but not limited to bonuses, counseling, and additional health or retirement options.

In addition to these costs, it’s important to keep in mind that minimum wage also varies on a state basis. Currently, the national minimum wage rate is set at .25 per hour in 2021, but many states have enacted their own minimum wage laws. Therefore, it is important that potential franchisees familiarize themselves with the minimum wage rates in their area, as failure to do so could result in costly fines.

Assurance

When researching potential franchise opportunities, researching the associated operating costs is an essential step. When it comes to A&W Restaurants franchises, one of the biggest operational costs to consider is insurance. This can often be one of the largest ongoing expenses for any franchise, and understanding exactly how much it will cost is critical.

When establishing the cost of insurance for a restaurant franchise, there are a number of factors that need to be considered. Key considerations when buying insurance include the size of the deductible, any property that needs to be insured, the company’s fleet of vehicles, and any other business operations that need to be insured. For an A&W franchise, the franchisee must consider liability insurance, workers’ compensation insurance, property insurance, vehicle insurance, and any other important coverage they deem necessary.

On average, a franchise can expect insurance costs to be around 3% of gross revenue . For example, in 2018, the median insurance cost for a restaurant franchise was estimated to be around ,600 for a franchise with annual gross sales of .2 million. This figure does not include any special considerations such as workers’ compensation insurance costs, which can be quite substantial depending on the region and any potential risk.

It is therefore essential for any potential franchisee to research local insurance policies and costs before embarking on the franchise journey. Understanding both current costs and potential risks can help ensure that all financial estimates are accurate and realistic. When obtaining a deductible, it’s always a good idea to ask for examples of previous insurance expenses so that you clearly understand what to expect.

Technology and data costs

As a national fast food chain, A&W invests heavily in their technology setup, aiming to give their customers the best possible experience. According to the most recent statistics of 2018, A&W’s technology and data costs amounted to 0 million in the same year. Of these costs, A&W attributes a significant portion to investing in updated hardware and software, digital capabilities, and IT staff.

As for hardware, A&W franchisees typically purchased updated equipment such as digital menus, cash registers, and digital scales, with the average cost of each piece of hardware totaling ,000 . On the other hand, software costs are relatively cheaper, with standard packages ,000-,000 per month.

Additionally, A&W franchisees must also invest in staff to manage their computer systems. This includes operations staff to install, maintain and troubleshoot new systems, as well as IT staff to update and optimize existing systems. The average cost of these operations is ,000-,000 per year depending on their level of experience, while salaries for specialized IT staff start at ,000 . Additionally, franchisees should also allocate budget for outsourcing services such as cloud storage, online ordering systems, and third-party support websites.

Overall, A&W estimates technology and data costs to be approximately 0,000-0,000 annually, depending on franchise size and number of customers. This cost is expected to increase with the ever-increasing popularity of digital technology and the need for A&W to remain competitive in the industry.

Conclusion

Running an A&W Restaurants franchise comes with many costs and expenses, however, these are easily manageable with the right strategies. Choosing the right supplier to minimize ingredient costs, budgeting enough to cover staff salaries, and having a contingency budget in case of repairs are just a few of the ways licensees can keep their cost under control.

By keeping expenses organized and tracked, it is possible to maximize profits and minimize losses , creating a sustainable and successful business. With the right management, A&W restaurants can be a great source of income for any budding business owner.