FDD Talk 2019: Capriotti’s Franchise Review (Financial Performance Analysis, Costs, Fees, and More)

In this FDD Talk post, you’ll learn the following:

• Section I – Background information on the Capriotti’s franchise opportunity, including relevant news updates

• Section II – Estimated initial investment for a Capriotti’s franchise, based on Item 7 of the company’s 2019 FDD

• Section III – Initial franchise fee, royalty fee, marketing fee, and other fees for a Capriotti’s franchise, based on Items 5 and 6 of the company’s 2019 FDD

• Section IV – Number of franchised and company-owned Capriotti’s outlets at the start of the year and the end of the year for 2016, 2017, and 2018, based on Item 20 of the company’s 2019 FDD

• Section V – Presentation and analysis of Capriotti’s financial performance representations, based on Item 19 of the company’s 2019 FDD, including information on the:

• 2018 average, median, highest, and lowest unit volume for all franchised Capriotti’s Restaurants open during all of 2018, all franchised Capriotti’s Restaurants in “mature markets” as of December 31, 2018, all franchised Capriotti’s Restaurants open more than 2 years as of December 31, 2018, and all franchised Capriotti’s Restaurants open more than 10 years as of December 31, 2018, respectively

• 2018 average, median, highest, and lowest unit volume for all affiliate-owned Capriotti’s Restaurants open during all of 2018, all affiliate-owned Capriotti’s Restaurants in “mature markets” as of December 31, 2018, all affiliate-owned Capriotti’s Restaurants open more than 2 years as of December 31, 2018, and all affiliate-owned Capriotti’s Restaurants open more than 10 years as of December 31, 2018, respectively

• 2018 average and median total sales, prime cost, cost of goods sold, store level salary, store level bonus – salary, payroll and related expenses, operating expense, non-controllable expense, rent, royalty fee, national marketing fees, local marketing cooperative fees, and EBITDA for the 7 affiliate-owned Capriotti’s Restaurants in Clark County, Nevada that operated during all of 2018

Section I – Background Information

19 Things You Need to Know About the Capriotti’s Franchise

Debuts New Store Design

1.  In early October 2018, Capriotti’s debuted its new restaurant design prototype in Lehi, Utah. The new design features reclaimed wood, exposed brick, and concrete floors. Founded over 40 years ago, Capriotti’s has seen an evolution of restaurant designs, beginning with the concept’s original classic diner feel with white and black tiles. Since then, the brand has progressed and as it saw national expansion, began using raw materials and a rustic style, creating a modern, updated feel.

2.  Along with the warm wood, brick, and concrete, the new prototype features an updated layout, including moving the turkey ovens and refrigerators to the front of the restaurants, providing guests with more transparency as to how their food is made fresh daily.

3.  Ja Haddad, Capriotti’s director of design and construction, said, “At Capriotti’s, we don’t take shortcuts and are dedicated to staying true to our roots. This not only includes our food that is made fresh in house daily, but our new design prototype. We’ve chosen to use real bricks and reclaimed materials to ensure our locations continue to have an authentic feel and are welcoming and comfortable places to dine for our loyal fans. We pride ourselves on the care that goes into each turkey we roast, and every sandwich we make. That’s why we decided to move our food processes to the front of the restaurants to show fans the dedication that goes into their favorite menu items.”

4.  The new prototype also allows franchise partners more real estate options, as the footprint can flex to fit into a variety of layouts to fit the needs of the area. Capriotti’s is also moving towards a smaller footprint of about 1,400 square feet versus the previous 1,800 square foot layout. This smaller option, created to accommodate more delivery and pick-up orders and less dine-in customers, allows franchise partners to have lower rents and maximize return on their investments.

5.  According to David Bloom, Capriotti’s chief development officer, “Capriotti’s has seen impressive growth in recent years, and we wanted to find a design that appealed to Capriotti’s loyal fans as well as creates a more efficient and profitable model for our franchise partners. This updated style appeals to the modern consumer – foodies who are eager to see how their meal is made and be involved in the cooking process. We’re proud to show off our processes to our fans and are confident our authentic and hardworking style will continue to grow Capriotti’s nationwide.”

Closes Out 2018 With Over 100 Shops in Development

6.  At the beginning of January 2019, Capriotti’s stated that it had closed 2018 on a high note. During the past year, Capriotti’s showed impressive developments, including rapid growth, a new restaurant design, an updated consumer-facing rewards app, various charitable initiatives, and more.

7.  In 2018, Capriotti’s opened 10 new shops in markets such as Chicago, Minneapolis, Sioux Falls, and Salt Lake City. Additionally, the brand signed franchise development agreements for 29 new shops, with over 100 in the pipeline under area development agreements. Capriotti’s plans to open 15 additional stores in 2019, entering multiple new markets.

8.  The growth in large-part can be attributed to the brand staying loyal to its 40-year-old roots, while also innovating to stay ahead of industry trends and catering to new and loyal fans alike. Capriotti’s also debuted a refreshed store design last year, featuring a clean, modern interior, as well as convenience factors such as in-store pick-up cubbies, drive-up windows, and additional partnerships with third-party delivery services. Additionally, Capriotti’s launched an updated version of the CAPAddicts Rewards app in late 2018.

9.  David Bloom, Capriotti’s chief development officer, said, “Looking back on 2018, it’s amazing to see the leaps and bounds our brand has taken, and how our fans have positively reacted to our innovations and continuous growth. We were able to bring our famous sandwiches to seven new markets, provide additional resources for our franchise partners in real estate development and training, as well as work with our fans to raise money for local and national charities. We’re looking forward to leveraging this momentum into 2019, and continue to build our Capriotti’s fan base across the country and overseas.”

Launches New Rewards App

10.  In mid-December 2018, Capriotti’s launched its new customer rewards app, CAPAddicts Rewards. The CAPAddicts Rewards app will make it easier for Capriotti’s fans nationwide to earn more points on their favorite sandwiches and reap the rewards of their loyalty.

11.  Ashley Morris, CEO of Capriotti’s, said, “Something I love most about Capriotti’s is our brand’s loyal fandom. We have CAPAddicts who travel hours to get a Bobbie, fans who get Capriotti’s turkey tattoos, and people who come in every single day on their lunch break. We are excited to launch the new CAPAddicts Rewards app and reward these fans for their continued dedication, along with welcoming new Capriotti’s fans to the brand.”

12.  The new CAPAddicts Rewards app will be based on a points system, where users earn one point per dollar spent in-app, online, or in-shop. Once a user reaches 100 points, they will unlock a $10 reward to apply to any future purchase. The app will offer Double Point Days, points instead of visits, and more.

13.  The app also has several upgrades from Capriotti’s previous rewards app, including improvements with navigation, readability, and functionality. Earning and cashing in points is now easier than ever. Capriotti’s fans nationwide can download the new CAPAddicts Rewards app through the Apple App Store and Android Store.

14.  The rollout of the new rewards app comes amid other recent company innovations, including a new interior restaurant design prototype, the rollout of online ordering conveniences such as a mobile order pick-up window and in-store cubbies, along with rapid growth of the brand. At the time of the announcement, Capriotti’s had opened new units in Chicago, Minneapolis, Salt Lake City, and Las Vegas. The company also signed an additional 50 franchise agreements last year and plans to expand to 500 locations by 2025 through franchising.

Company History

15.  Capriotti’s was founded in 1976 by Lois Margolet and her brother Alan in Wilmington, Delaware. The first sandwich shop was opened beneath the Margolets’ apartment and named after their grandfather, Philip Capriotti.

16.  Although the Margolets lived in a neighborhood with numerous sandwich shops, Lois wanted to create something unique. To stand out from everyone else, the Margolets roasted whole fresh turkeys overnight. The Margolets’ fresh roasted turkey sandwiches were a hit and Capriotti’s amassed a sizeable number of regulars.

17.  In 1987, the Margolets’ cousin, Diane Rizzo, joined Capriotti’s and opened the second location in New Castle, Delaware. Two years later, the Margolets started officially franchising the Capriotti’s concept. Over the years, Capriotti’s purposefully kept its growth small and opened a few new locations each year in the United States.

18.  In 2004, Ashley Morris and his childhood friend Jason Smylie opened a Capriotti’s franchise in Las Vegas after falling in love with the restaurant while they attended the University of Nevada, Las Vegas. Four years later, Morris and Smylie assembled an investment group to buy Capriotti’s from the Margolets so they could accelerate the company’s growth. Morris now serves as Capriotti’s CEO, while Smylie is the company’s president.

Entrepreneur’s Franchise 500

19.  Capriotti’s ranked No. 241 on Entrepreneur’s 2019 Franchise 500 list.

Section II – Estimated Costs

• Please click here for detailed estimates of Capriotti’s franchise costs, based on Item 7 of the company’s 2019 FDD.

Section III – Initial Franchise Fee, Royalty Fee, Marketing Fee, and Other Fees

• Please click here for detailed information on Capriotti’s initial franchise fee, royalty fee, marketing fee, and other fees, based on Items 5 and 6 of the company’s 2019 FDD.

Section IV – Number of Franchised and Company-Owned Outlets

Franchised

2016

• Outlets at the Start of the Year:  83
• Outlets at the End of the Year:  84
• Net Change:  +1

2017

• Outlets at the Start of the Year:  84
• Outlets at the End of the Year:  83
• Net Change:  -1

2018

• Outlets at the Start of the Year:  83
• Outlets at the End of the Year:  85
• Net Change:  +2

Company-Owned

2016

• Outlets at the Start of the Year:  13
• Outlets at the End of the Year:  16
• Net Change:  +3

2017

• Outlets at the Start of the Year:  16
• Outlets at the End of the Year:  11
• Net Change:  -5

2018

• Outlets at the Start of the Year:  11
• Outlets at the End of the Year:  9
• Net Change:  -2

Section V – Financial Performance Representations (Item 19, 2019 FDD) and Analysis

• This historical financial performance representation discloses the average, median, and high/low annual gross sales of all franchised (a total of 76 in 2018) and affiliate-owned (a total of 9 in 2018) Capriotti’s Restaurants in the United States that were open and operating during all of 2018.

• It also discloses the average, median, and high/low annual gross sales during 2018 of (i) the franchised (a total of 59 in 2018) and affiliate-owned (a total of 7 in 2018) Capriotti’s Restaurants that operate in “mature markets” (defined in the tables); (ii) the franchised (a total of 68 in 2018) and affiliate-owned (a total of 9 in 2018) Capriotti’s Restaurants that had been open for more than 2 full years as of December 31, 2018; and (iii) the franchised (a total of 37 in 2018) and affiliate-owned (a total of 3 in 2018) Capriotti’s Restaurants that had been open for more than 10 years as of December 31, 2018.

• This financial performance representation does not include the results of 19 Capriotti’s Restaurants: 9 franchised Restaurants that opened during 2018 (and therefore were not open for the full calendar year); 8 franchised Restaurants and 1 affiliate-owned Restaurant that closed during 2018 (the latter of which operated only seasonally); and 1 franchised Restaurant that operates at a non-traditional location (which operates less than 30 hours per week).

• This financial performance representation also contains the actual average and median partial operating financial statement for 2018 for the 7 affiliate-owned and operated Capriotti’s Restaurants.

• The franchisor obtained the gross sales information for franchised Restaurants from sales reports submitted by franchisees. The franchisor has not independently audited that information.

• “Gross Sales” is defined in the Franchise Agreement as the total of all revenue derived from operating the Restaurant, whether from sales for cash or credit, and irrespective of collection, including sales of merchandise, products, and services, but excluding sales tax, proceeds from the sale of equipment not in the ordinary course of business, and franchisor pre-approved promotional discounts (provided physical evidence of the promotion/coupon is retained) and food purchased by employees for their own consumption as outlined in the Manual.

Part 1 – Sales Volume Information

Franchised Restaurants

2018 Results for All Franchised Restaurants Open During All of 2018

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