Chick-Fil-A: The Top-Performing Fast-Food Chain
Chick-Fil-A has been the envy of the Fast Food Industry, achieving the highest average sales per store of any fast-food chain.
What is the secret recipe?
Background
From one restaurant originally named “Dwarf Grill” in Hapeville, Georgia, Truett Cathy invented a recipe for a chicken sandwich in 1964 and with that, Chick-Fil-A was born. Today, there are more than 1,900 Chick-Fil-A restaurants in 42 states (1). In 2014, the chain collectively received $5.8 billion dollars in sales, which is an average of $3.1 million per store (2). This is the highest sales per store in the fast-food industry — greater than traditional powerhouses such as McDonald’s ($2.5 million) and Wendy’s ($1.6 million), but also greater than popular newcomers such as Chipotle ($2.5 million) and Panera Bread ($2.5 million) (2). These impressive numbers lead many to wonder how Chick-Fil-A has achieved this, especially considering its company-wide policy to close on Sundays (1).
Business Model
Its implied business model is to provide high-quality chicken products with superior customer service to command premium prices in the fast-food industry.
Success Story: Business Model and Operating Model Working Together
I think the company has been very successful thus far because of the alignment between its business and operating models. Specifically, I found four main areas of its business or operating models that integrate well together: superior product, unique franchise model, execution of customer service, and focus on brand building.
Superior Product
First, the company aims to create both differentiated and quality products. These products can command higher prices. Operationally, Chick-Fil-A has aligned with this strategy by implementing a very thorough product development program (3). This emphasis on creating a quality product began with its founder, who took years developing the perfect recipe for the original chicken sandwich (1). While Chick-Fil-A holds the exact product development processes secret, we can get a sense of how important this operation is to Chick-Fil-A by observing allocated resources. The company spent $50 million dollars and took 11 years to develop the recipe and cooking method for the new grilled chicken sandwich (3). Clearly, the new product operations seem tightly aligned with the strategy to produce a quality, differentiated product.
Original Chicken Sandwich Grilled Chicken Sandwich
Unique Franchise Model
Second, Chick-Fil-A has employed a unique franchise model to allow for controlled growth that aligns with the company’s goals. Unlike most fast-food franchises that typically allow franchisees to own their stores with up-front capital, Chick-Fil-A owns all of its operating stores. Rather than requiring franchisees to provide significant capital, Chick-Fil-A requires potential franchisees to provide $10,000 up front (versus the hundreds of thousands or millions typically required) and to go through a selective screening process (4). Chick-Fil-A reported that it receives approximately 20,000 applications per year while only selecting 75-80 new franchise operators (.4% acceptance rate) (5). This kind of selectivity allows Chick-Fil-A to differentiate between franchisees not by a minimum amount of capital, but by quality of character and fit within the organization. It looks for those committed to its mission and who will be actively involved in the day-to-day store management (5). This is important because these are the types of operators who can obtain and sustain high levels of customer service – a critical piece of the business model. Video 1 shows an operator and her commitment to the organization.
Video 1
Customer Service
Third, Chick-Fil-A is highly committed to customer service (6). Employees undergo training to contribute to a culture of understanding and happiness – see video 2 below for a glimpse of the training.
Video 2
https://www.youtube.com/watch?v=xulYGHMt1FE
Employees are taught to learn customers’ names, hold conversations with them, and ask if they need anything while they are sitting down to eat (7). Training on and adherence to this level of customer service is unique in the fast-food industry and directly addresses the superior service aspect of the business model.
Brand Building
Last, Chick-Fil-A focuses on building a strong brand with its customers. Aside from the high quality product and service in stores, every Chick-Fil-A store is actively involved in its local community in some way as part of its operations (8). In the last three years, Chick-Fil-A operators have donated $68 million dollars to more than 700 charitable or educational organizations (8). This involvement brings meaning to the work of store operators and employees, builds relationships with local communities, and reinforces the positive, happy, and caring atmosphere experienced in Chick-Fil-A stores by employees and customers alike (See Video 1).
Chick-Fil-A’s business model to provide high-quality products with exceptional service at a premium price is greatly complemented by its operations. It has built a strong competitive advantage not only by creating a superior product, but also by superior customer service. The integration and interaction of its business and operating models have led to this success.
Sources
(1) http://inside.chick-fil-a.com/about/
(2) http://www.businessinsider.com/how-chick-fil-a-is-dominating-fast-food-2015-8
(3) http://inside.chick-fil-a.com/new-grilled-recipe-entree-lineup-2014/
(4) http://www.chick-fil-a.com/Company/Franchise-Opportunity
(5) http://www.chick-fil-a.com/Company/Careers-Franchise-Application
(7) See various stories from videos http://www.chick-fil-a.com/Story/Video
(8) http://www.chick-fil-a.com/Company/Responsibility-Overview
Video 1 https://www.youtube.com/watch?v=7GvDYc1kJy0
Video 2 https://www.youtube.com/watch?v=xulYGHMt1FE
Pictures from chick-fil-a.com
This is a great overview of Chick-fil-A’s unique way of doing business. Isn’t it amazing that Chick-fil-A tops the QSR industry despite only being open 6 days per week? I recently had the chance to ask an executive at the company if they believe it is a competitive advantage or disadvantage to be closed on Sundays. He said it was certainly a competitive advantage, because it gives their employees a chance to rejuvenate and creates a lot of public relations buzz that they don’t have to pay for. Interestingly, the policy was industry norm several decades ago, but as the QSR industry evolved, Chick-fil-A chose to hold fast to its values. I think this level of commitment sets the company up for success and is the foundation for all of the operating strategies you reviewed. Nice analysis!
Yes, it is amazing. I didn’t know that they consider it a competitive advantage, but I buy it…commit to the employees and they will in turn commit to you and to customers.
Great article, definitely want to go and try out Chick-Fil-A now!
I think they have effectively solved for the three important stakeholders – employees, customers and community.
As mentioned by David above, having 6 days a week allows employees to rest and alongwith that it also gives them a point of difference from other fast food chains in the eyes of the customer. Having such a great focus on the product quality and trying to know about their customer’s life stories helps them convey their customer focus and also to capture the value generated due to the high customer satisfaction. Engaging with the broader community through scholarships and other events, helps them create their brand in the region and get word of mouth awareness as well.
Thanks Sidharth. You do need to try it! There are a couple in the greater Boston area. Agree with your points above.
Great overview! I still remember the excitement generated when the first Chick-Fil-A opened in Southern California (they were just in the South before). In terms of process, I don’t think Chick-Fil-A’s service is meaningfully faster than that of McDonald’s or other fast food restaurants, and perhaps that is a good thing. McDonald’s elicited a lot of criticism from consumers when they instituted their 30 seconds or less drive-thru service because employees keep messing up the order. Employees also felt extremely stressed by this guarantee. Therefore, I think it’s smart that Chick-Fil-A has chosen to compete on great service (the employees respond “my pleasure” whenever you say “thank you”) and safe, comfortable environment.
As you pointed out, brand equity is a key strength of the companies. One of my former colleagues had in his office a Chick-Fil-A calendar that he cherished. Just goes to show that people are even willing to buy their merchandise and apparel because they are such fans of the company/product!
Thanks Christine. I think you make an interesting point in regards to service time. I didn’t find anything about that on their site and from personal experience, it doesn’t seem like they push that too much. My guess is that as long as it’s not considerably longer than other places, customers probably won’t care that much about time, but will care more about quality and friendly service/atmosphere. Funny story about your colleague… I definitely know some die hard Chick-Fil-A fans too.
Great post. While as huge fan of Chick-Fil-A I was aware of some of the business model cornerstones you highlighted, I was surprised to learn how tightly they control their franchise model. It seems it has really helped them accelerate growth accordingly and maintain their key attribute of high quality service by selecting the right partners. A few months ago Chick-Fil-A opened its first free-standing store in Manhattan (three blocks from my old apartment a week after I moved out, talk about bad timing…), and it will be really interesting to see how well the 6-day model succeeds with such exorbitant real-estate expenses as well as how it informs their urban market expansion strategy going forward.
Thanks Mark. I think it will be interesting as well to see how the Chick-Fil-A does in NYC too.