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

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

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

• Section II – Estimated initial investment for a Lenny’s Sub Shop franchise, based on Item 7 of the company’s 2016 FDD

• Section III – Presentation and analysis of Lenny’s Sub Shop’s financial performance representations, based on Item 19 of the company’s 2016 FDD, including information on the:

• 2015 average sales, total labor, cost of sales, total rent, utilities, all other expenses, total expense, and EBITDA (plus total Restaurant count and number of Restaurants inside and outside the Greater Memphis area) for the top 5, top 50%, bottom 50%, and all 68 franchised Lenny’s restaurants that originally opened before January 1, 2014; remained open as of March 31, 2016; had the same franchise owner since January 1, 2014; and submitted information in time for publishing the 2016 franchise disclosure document

Section I – Background Information

Bringing Philadelphia Style Subs to the South

The first Lenny’s Sub Shop location was opened by Leonard Moore and his wife Sheila in 1998 in Memphis, Tennessee. Moore wanted to bring Philadelphia style sub sandwiches to the South. The couple had initially only intended to run the one shop, however Lenny’s drew a lot of interest. Over the next few years, the Moores continued to open Lenny’s Sub Shops in the Memphis area.

Franchising officially began in 2001. By that same year, the chain had 20 locations throughout the Southeastern U.S.

In 2004, Moore sold majority ownership of Lenny’s to a group of private investors. Moore remained with the company until his death in 2008, as a franchisee. The Moores brought Lenny’s to the Houston, Texas area.

In 2013,  Rick Johnson and Kevin Martin bought Lenny’s Sub Shop and have taken several steps to grow the brand.

Today, Lenny’s has over 100 locations throughout the United States.

Lenny’s Revitalizing Its Brand

Since Rick Johnson and Kevin Martin acquired the brand in 2013, the duo has been implementing changes to help revitalize the company. Martin and Johnson brought on Randy Hough as Senior Vice President of Operations in 2016. Hough worked for Dominos for 13 years and was present during Dominos’ successful re-branding. The new leadership team hopes to take Lenny’s Subs in the same direction and breathe new life into the franchise.

Martin and Johnson have focused on three key initiatives:  improving guest count, improving unit economics, and systematizing the company’s processes across all franchises. Sales are growing now that changes have been implemented. Before the new leadership, Lenny’s sales had been down for a few years. In 2015, Lenny’s saw a 7 percent increase in guest count and same-store sales.

In April 2016, Lenny’s made changes to the look, menu, and name of the company-owned location in Highland, TN. The test location has a modern red and yellow color scheme instead of the original blue. The new interior will eventually be implemented at all Lenny’s locations. Additionally, Lenny’s is testing a new menu at the company-owned location that includes salads and soups.

In addition to the new menu and interior, the company is testing a new name, Lenny’s Grill and Subs, at the company location and a few other units. So far the new name has helped increase dinnertime traffic. Lenny’s has not yet stated whether all locations will eventually be rebranded with the new name, but all new locations are being branded as Lenny’s Grill and Subs.

Lenny’s Pushing Expansion

Lenny’s new leadership has stated a desire to rapidly expand the brand. The company had plans to open several new locations in its home state of Tennessee by the end of 2016. Lenny’s currently has over 50 locations throughout Tennessee. The franchise has plans to open an additional 25 locations in 2017.

After selling the company in 2004, original owner and founder Leonard Moore brought Lenny’s to Texas. Early this year, the brand announced plans to continue to expand throughout the state. There are currently 5 locations in the San Antonio area, but the company hopes to open more locations.

All the new locations will have the Lenny’s Grill and Subs branding. Kevin Martin, CEO and President is confident that the new branding will help Lenny’s successfully expand through 2017.

Lenny’s Celebrates Sale of 25 Millionth Philly Cheesesteak Sandwich

Lenny’s #1 selling sandwich has always been the Philly Cheesesteak. On July 8, 2016, Lenny’s sold its 25 millionth Philly Cheesesteak at one of its San Antonio, Texas locations. The customer who bought the sandwich received a $250 gift card. The company launched a special promotion to celebrate the occasion. Later in the month, on July 26th, customers received 25% off their Philly Cheesesteak sandwich.

Due to the success of Lenny’s original Philly Cheesesteak, the company has added new variations of the sandwich. Lenny’s now offers an A1 Steak Sauce Philly, veggie Philly, and more chicken Philly options.

Not Ranked on Entrepreneur’s Franchise 500

Lenny’s Sub Shop did not rank on Entrepreneur’s annual Franchise 500 list for 2017. In fact, the franchise has not ranked on the list since 2014. That year, Lenny’s ranked at No. 333.

Section II – Estimated Costs

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

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