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FDD Talk 2016: The Papa Murphy’s Franchise Opportunity (Financial Performance Analysis, Estimated Costs, and Other Important Stuff You Need to Know)

by Franchise Chatter on May 9, 2016

in FDD Talk 2017: Food Franchises, Franchise Earnings, Pizza Franchises

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Papa Murphy's Store Exterior Photo by PRO-TECT TINT LV

In this FDD Talk 2016 post, you’ll learn the following:

  • Section I – Background information on the Papa Murphy’s franchise opportunity, including relevant news updates
  • Section II – Estimated initial investment for a Papa Murphy’s franchise, based on Item 7 of the company’s 2016 FDD
  • Section III – Presentation and analysis of Papa Murphy’s financial performance representations, based on Item 19 of the company’s 2016 FDD, including information on the:
  • 2015 average, high, and low net sales for the top third, middle third, and lower third of the 1,358 domestic Papa Murphy’s Take ‘N’ Bake Pizza stores, both franchisee-owned and company-owned, that were open and operating for all of the trailing 52 weeks ending September 28, 2015
  • 2015 average net sales, cost of goods sold, labor costs, advertising expenses, occupancy costs, other store expenses, royalties, and store contribution for the 777 Papa Murphy’s stores that were open and operating for all of the trailing 52 weeks ending September 28, 2015, and submitted profit and loss statements in the appropriate format for this period
  • 2015 average weekly net sales during the first 12 full operating weeks for the 60 Papa Murphy’s stores that opened in fiscal year 2015 and had 12 or more full operating weeks as of the week ended December 28, 2015

Section I – Background Information

Back in 1995, Terry Collins bought up two different pizza chains in Oregon and California – Papa Aldo’s and Murphy’s Pizza, merging them into the single brand of Papa Murphy’s. The concept is creating pizzas that customers take home and bake themselves. Customers say what they want on their pizza, much like you would have a sandwich made at Subway.

Growing slowly but steadily over the last decade, the number of locations is currently at 1,488 (1,335 franchised, 119 company-owned, and 34 outside the U.S.). That makes Papa Murphy’s not only the largest take-and-bake chain, but also the fifth largest pizza chain overall.

Here’s how Papa Murphy’s gives people what they want in the comfort of their own homes in the take-and-bake pizza segment:

Good Enough to Go Public

Papa Murphy’s went public in 2014, which is always a huge milestone for any restaurant chain. Its IPO (Nasdaq ticker FRSH) raised $64.1 million, slightly shy of the hoped-for $70 million.

Award-Winning Pizza

In 2003, Papa Murphy’s was ranked Best Pizza Chain in America by Restaurants and Institutions Magazine. It won the platinum award for Consumers’ First Choice in pizza chains in 2006, and Chain of the Year in 2001, 2006, 2008, and 2009 by Pizza Today. Zagat’s Fast-Food Service Survey respondents rated it the #1 Pizza Chain in 2010, 2011, and 2012.

More recently, Papa Murphy’s received the Technomic Consumer Brand Metrics 2016 Consumers’ Choice award for best food quality among QSRs as well as the highest Convenience/Takeout score among all 138 brands in the study. Clearly, the chain is doing a lot of things right.

Unhappy Franchisees

Despite its success, Papa Murphy’s has been dealing with lawsuits from franchisees for a long time. The unhappy franchisees claim they were misled about how much money was needed to run the business as well as how successful they would be as owners of Papa Murphy’s locations. Franchisees in Southern and Southeastern states seem to be the ones with the biggest complaints, especially about the required local marketing expenditures being in some cases twice what they expected.

A Great Model

Since locations aren’t baking the pizza on-site or providing eat-in dining, the whole take-and-bake concept means much lower costs, allowing the chain to pretty drastically undercut the traditional pizza chain market.

Keeping Up Online

Papa Murphy’s just overhauled its digital ordering system. The new website mimics the in-store experience, allowing customers to build the pizza they want and pick it up when they want it. The new ecommerce platform developed in partnership with Deloitte Digital provides the redesigned experience across desktops, smartphones, and tablets.

Pizza and Sports

Pizza has a unique relationship to sports like football and basketball, where championship games mean lots of take-out pizza orders. The chain leverages such events with promotions like its Take ‘N’ Bake Bracket Sweepstakes for college basketball and its Touchdown-Worthy Eats on Your Timetable for the Big Game for the Superbowl.

Section II – Estimated Costs

  • Please click here for detailed estimates of Papa Murphy’s franchise costs, based on Item 7 of the company’s 2016 FDD (updated).

Section III – Financial Performance Representations (Item 19, 2016 FDD) and Analysis

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