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

by Franchise Chatter on December 12, 2016

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

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Arby's Sandwich Photo by mooshee85

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

  • Section I – Background information on the Arby’s franchise opportunity, including relevant news updates
  • Section II – Estimated initial investment for an Arby’s franchise, based on Item 7 of the company’s 2016 FDD
  • Section III – Presentation and analysis of Arby’s financial performance representations, based on Item 19 of the company’s 2016 FDD, including information on the:
  • 2015 average monthly gross sales for the 69 Arby’s Restaurants opened after January 1, 2013, which is the year when Arby’s new management team was put in place and the company refocused its efforts on new licensed restaurant development, and operated for at least 6 full months as of January 3, 2016 (the “New Restaurants”)
  • 2015 average gross sales for the 2,986 Arby’s Restaurants that operated continuously for the full year from December 29, 2014 until January 3, 2016 (the “Mature Restaurants”)
  • 2015 average gross sales; cost of sales; wages and payroll expenses; controllable expenses; advertising; property taxes, insurance, and royalties; and EBITDAR for the 911 affiliate-owned Arby’s Restaurants in the United States that operated continuously throughout the last 5 fiscal years (the “Covered Restaurants”)

Section I – Background Information

Leroy and Forrest Raffel were thinking about getting into the fast food business, but they wanted to do something different. Hamburgers seemed to be about the sum total of what was out there, so the brothers set out to establish a sandwich shop that would produce fresh-sliced roast beef sandwiches as fast as any burger joint.

They started out in Boardman, OH, back in 1964, with the first Arby’s location (the Raffel Brothers = R.B. = Arby’s). People loved it, so they started franchising in 1965. By 1971, the brothers had perfected their recipe for a great roast beef sandwich, and it’s the recipe still used today.

The chain passed the 3,000 locations milestone in 1996 and has stayed there ever since. The number of Arby’s locations declined from its most recent peak of 3,727 in 2008 down to 3,341 in 2015, but has inched back up in 2016 to its current 3,417 (1,007 of which are company-owned, and 119 of which are located outside the U.S. in Canada, Turkey, and Qatar).

In a fast-food industry still largely dominated by hamburgers, here’s how Arby’s keeps slicing things differently in the super-competitive sandwich segment:

Innovative Roast Beef Sandwiches

It’s hard to believe that such a huge chain had very humble beginnings in terms of its menu, which in 1964 consisted of roast beef sandwiches, potato chips, and iced tea!

Now, in addition to a half-dozen variations on basic roast beef sandwiches, Arby’s has a range of signature sandwiches, including the Smokehouse Brisket (smoked roast beef topped with smoked gouda cheese, crispy onions, mayo, and BBQ sauce on an artisan-style roll), the Angus Philly (Angus steak with fire-roasted onions and peppers, melted Swiss cheese, and mayo on a toasted Philly roll), the Angus Three Cheese and Bacon (Swiss cheese, shredded Cheddar cheese, and parmesan peppercorn ranch sauce on top of sliced Angus steak and thick-cut pepper bacon), the Reuben (marbled rye bread filled with freshly sliced corned beef, melty Swiss Cheese, tangy sauerkraut, and creamy Thousand Island dressing), and the Corned Beef ‘n Cheese Slider (thinly-sliced corned beef stacked with melted cheese on a soft, slider roll).

Beyond Beef

Arby’s goes far beyond beef with its menu these days, including six different turkey sandwiches and wraps, seven different chicken sandwiches, and four different ham sandwiches. Other offerings include three different salads, six fried sides (curly fries, loaded curly fries, mozzarella sticks, jalapeño bites, onion rings, and potato cakes), and desserts including milkshakes, turnovers, and cookies.

Riding a Mini Wave

It was only about a year ago that Arby’s introduced its various miniature sandwiches called sliders (something various burger joints have experimented with over the years). The chain saw a significant boost in sales and even won a MenuMasters Award for 2016 from Nation’s Restaurant News.

Sliders include Roast Beef ‘n Cheese, Corned Beef ‘n Cheese, Jalapeño Roast Beef, Ham ‘n Cheese, Chicken ‘n Cheese, and Buffalo Chicken.

Not for Vegetarians

Arby’s has been really pushing its image as highly focused on meats, and its We have the meats slogan has been all over the place since 2014. Now its advertising is highly focused on the more than 20 million hunters in the U.S.

Section II – Estimated Costs

  • Please click here for detailed estimates of Arby’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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