FDD Talk 2020: 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 2020 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 2020 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 2017, 2018, and 2019, based on Item 20 of the company’s 2020 FDD

• Section V – Presentation and analysis of Capriotti’s financial performance representations, based on Item 19 of the company’s 2020 FDD, including information on the:

• 2019 average, median, highest, and lowest unit volume for all franchised Capriotti’s Restaurants open during all of 2019, all franchised Capriotti’s Restaurants in “mature markets” as of December 31, 2019, all franchised Capriotti’s Restaurants open more than 2 years as of December 31, 2019, and all franchised Capriotti’s Restaurants open more than 10 years as of December 31, 2019, respectively

• 2019 average, median, highest, and lowest unit volume for all affiliate-owned Capriotti’s Restaurants open during all of 2019, all affiliate-owned Capriotti’s Restaurants in “mature markets” as of December 31, 2019, all affiliate-owned Capriotti’s Restaurants open more than 2 years as of December 31, 2019, and all affiliate-owned Capriotti’s Restaurants open more than 10 years as of December 31, 2019, respectively

• 2019 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 2019

Section I – Background Information

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

Rides Momentum Into 2020 Following a Year of Exceptional Growth

1.  In mid-February 2020, Capriotti’s recapped its successful 2019, which included massive expansion and menu innovation. On top of expanding into new markets and adding new franchise partners to its roster, Capriotti’s also added a wider variety of vegetarian-friendly and innovative menu items to their lineup – including the Impossible Cheese Steak, and more.

2.  2019 was a momentous year, as the fan-favorite sandwich shop expanded into 28 new markets, 10 new states, added 24 new franchisees, and signed a record-breaking amount of deals – reaching a total of 100 last year alone. Within the first six months of the year, Capriotti’s inked 48 deals, setting the stage for an even stronger second half of the year.

3.  This notable growth kickstarts plans to bring the brand’s fresh, fan-favorite subs across the nation in markets like Chicago; El Paso, Texas; Jacksonville, Florida; and Portland, Oregon. This expansion is expected to fuel even further growth into the new year and beyond, pushing the brand to achieve its goal of opening 500 locations by 2025.

4.  Capriotti’s attributes its momentous growth to its loyal fanbase, CAPAddicts, exceptional multi-faceted franchisee support, and an operating model deeply rooted in tradition. At the end of 2019, 72% of Capriotti’s franchise partners were multi-unit owners, confirming the success of the brand’s business model and exceptional support provided by the corporate team.

5.  David Bloom, vice president of franchise development for Capriotti’s, said, “We are thrilled with the impressive growth Capriotti’s has seen not only in 2019, but in the past few years as a whole. By entering 28 new markets and 10 new states, our franchise owners are serving increasingly more communities with high-quality, tasty food that brings guests back for more. We are looking ahead to 2020, and plan to keep the momentum going through exceptional franchisee support and delicious, innovative menu items, such as the onboarding of our Impossible Cheesesteak, new sides for combo meals and more.”

Sees Momentous Growth in First Half of 2020

6.  At the end of July 2020, Capriotti’s announced that it was continuing its nationwide expansion, further positioning itself at the forefront of the fast-casual franchise space. Kicking off the first half of 2020 on a high note, the brand signed 12 multi-unit franchise agreements to bring a total of 46 new restaurants across the United States in the coming years. Growth is only expected to increase as 2020 progresses, with the brand’s sights set on even bigger goals and milestones in the second half of the year.

7.  In the first half of 2020, Capriotti’s signed agreements to expand into brand new markets and expand its presence in existing markets, bringing its fan-favorite sandwiches to the following areas:

• 13 units in New York City;
• 3 units in Baltimore, Maryland;
• 3 units in Tulsa, Oklahoma;
• 3 units in Tucson, Arizona;
• 3 units in Portland, Oregon;
• 3 units in Denver, Colorado;
• 3 units in Colorado Springs, Colorado;
• 3 units throughout Collin County, Texas; and
• 3 units throughout the Inland Empire in Southern California.

8.  This announcement comes on the heels of impressive menu and concept innovation amid the pandemic, which includes new menu rollouts like Impossible Cheesesteak and Wagyu Beef, introducing virtual kitchens, and more. The new menu launches have earned Capriotti’s first-place recognition in Franchise Update Magazine’s Marketing Innovation Awards and recognition in the magazine’s Products & Services Awards.

9.  In addition, this year, Capriotti’s introduced the possibility for franchise partners to explore unique revenue streams with ghost kitchen franchise opportunities.

10.  To date, the brand has inked deals for five franchised locations for a total of seven under development. With goals to open 15 more shops by the end of 2020, Capriotti’s currently has 112 open locations, and more than 180 in progress.

11.  David Bloom, vice president of franchise development for Capriotti’s, said, “Capriotti’s has always been committed to innovation and doing everything it takes to best serve our fans and franchise partners – especially in times of hardship. Capriotti’s fan-base continues to grow and those fans are demanding the convenience of mouthwatering, handmade subs on-demand. We look forward to bringing our award-winning subs to even more communities across the nation through passionate franchise partners and strategic development throughout the rest of 2020 and beyond.”

12.  The brand is backed by a corporate leadership team that offers a continuous support program for franchisees, called CAPMastery. This online and field program provides significant support to franchisees for marketing, retail sales, operations, and growth strategies through every stage of their ownership. Looking ahead, Capriotti’s focus will be to continue being an extraordinary franchise, whose franchise partners earn exceptional returns by selling the best tasting, highest quality food.

Launches First Impossible Cheesesteak Sandwich Nationwide

13.  In mid-February 2020, after several months of testing, Capriotti’s unveiled its new, highly-regarded, plant-based sandwich in its restaurants across the country. The world’s first Impossible Cheese Steak sandwich is now available at participating locations nationwide, bringing the brand’s award-winning Cheese Steak sandwich to more fans than ever before.

14.  Along with launching the Impossible Cheese Steak Sandwich, Capriotti’s was getting ready to roll out an Impossible Meatball Sandwich in the spring. These plant-based options will join the brand’s other vegetarian options, the Veggie Chicken Cheese Steak, Veggie Turkey, and Veggie Cole Turkey sandwiches. Customers will be able to order the sandwiches both in-store and online.

15.  Capriotti’s began testing the Impossible Cheese Steak at select locations in Las Vegas in November of 2019. The new sandwich was an instant hit, garnering rave reviews from both vegetarians and flexitarians alike, turning even the biggest meat-loving Cheese Steak fans into plant-eating addicts.

16.  Developed in partnership with Impossible Foods, the sandwich expands on Capriotti’s already impressive vegetarian menu, bringing the delight of a classic cheese steak to an even wider audience. With fan-favorite ingredients like melted cheese, fried onions and peppers piled on perfectly cooked, 100 percent plant-based protein, guests can enjoy a sandwich just as fresh and delicious as the original.

17.  Ashley Morris, CEO of Capriotti’s, said, “No one should have to sacrifice taste just to eat plant-based. Capriotti’s is so excited to bring our new Impossible Cheese Steak to diners across the country. It’s essential to us that we have flavorful, satisfying options for all guests. This addition to our menu will continue to open those doors to plant-based diners, while also appealing to our meat-loving fans. I am confident this sandwich is by far the best tasting and highest quality Impossible entrée in the fast-casual space.”

Company History

18.  Capriotti’s was founded in 1976 by Lois Margolet and her brother Alan in the Little Italy neighborhood of Wilmington, Delaware. Although sandwich shops were abundant in their neighborhood, Lois wanted to do something different and she and Alan wanted to honor their grandfather, Philip Capriotti, who loved to cook.

19.  The Margolets wanted to create a “real” turkey sandwich that used fresh roasted turkeys. Using fresh roasted turkey as well as high quality meats and cheese, fresh rolls, and produce helped Capriotti’s stand out from the competition.

20.  In 1987, the Maroglets’ cousin, Diane Rizzo, joined the company, and they opened a second Capriotti’s in New Castle, Delaware. A few years later, in 1991, Capriotti’s started franchising. Over the next decade, Capriotti’s expanded beyond Delaware.

21.  In 2004, Ashley Morris and Jason Smylie opened a Capriotti’s franchise in Las Vegas and three years later, Morris and Smylie and a group of investors bought Capriotti’s. At the time, there were only 44 locations open. Today, there are over 100 Capriotti’s restaurants open across 16 states and Washington, D.C.

Entrepreneur’s Franchise 500

22.  Capriotti’s ranked No. 329 on Entrepreneur’s 2020 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 2020 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 2020 FDD.

Section IV – Number of Franchised and Company-Owned Outlets

Franchised

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

2019

• Outlets at the Start of the Year:  85
• Outlets at the End of the Year:  89
• Net Change:  +4

Company-Owned

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

2019

• Outlets at the Start of the Year:  9
• Outlets at the End of the Year:  14
• Net Change:  +5

Section V – Financial Performance Representations (Item 19, 2020 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 2019) and affiliate-owned (a total of 11 in 2019) Capriotti’s Restaurants in the United States that were open and operating during all of 2019.

• It also discloses the average, median, and high/low annual gross sales during 2019 of (i) the franchised (a total of 51 in 2019) and affiliate-owned (a total of 11 in 2019) Capriotti’s Restaurants that operate in “mature markets” (defined in the tables); (ii) the franchised (a total of 63 in 2019) and affiliate-owned (a total of 4 in 2019) Capriotti’s Restaurants that had been open for more than 2 full years as of December 31, 2019; and (iii) the franchised (a total of 38 in 2019) and affiliate-owned (a total of 4 in 2019) Capriotti’s Restaurants that had been open for more than 10 years as of December 31, 2019.

• This financial performance representation does not include the results of 19 Capriotti’s Restaurants: 8 franchised Restaurants that opened during 2019 (and therefore were not open for the full calendar year); 2 franchised Restaurants that closed during 2019; and 7 franchised Restaurants and 2 affiliate-owned Restaurants that operate at non-traditional locations on a more limited basis.

• This financial performance representation also contains the average partial operating financial statement for 2019 for 7 affiliate-owned and operated Capriotti’s Restaurants. Excluded are 3 Capriotti’s Restaurants in Nevada that the franchisor reacquired in 2019 and did not operate for all of 2019, and 1 Capriotti’s Restaurant that the franchisor operates remotely in Northern Virginia.

• 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

2019 Results for All Franchised Restaurants Open During All of 2019

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