Important pros and cons of the company-operated restaurant model

Adam Jones - Author

Jul. 15 2014, Updated 9:00 a.m. ET

The company-operated model

In the last part of this series, we looked at the franchise model. Let’s now take a look at the company-operated restaurant model.

In a company-owned restaurant, the company is responsible for every aspect of the business. Examples of these restaurants include Chipotle Mexican Grill (CMG), Noodles & Co. (NDLS), and Texas Roadhouse (TXRH). The company bears all costs—like food, beverage, rent, and utilities. The company also bares all employee-related responsibilities—from hiring to termination. This means the company takes on the risk of litigation, which companies under the franchise model may not have to do. This also means the company keeps all the revenues.

Pros and cons

The pros of this model are that the company keeps all its profits, has full control over the operations, and can protect its brand value.

The cons are that there’s a significant burden of capital to open additional locations, resulting in slow expansion.

You can gain exposure to the restaurant industry through the exchange-traded funds PEJ and PBJ. You can also buy individual stocks like McDonald’s (MCD), The Cheesecake Factory Incorporated (CAKE), and Chipotle Mexican Grill (CMG).

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