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

• Section I – Background information on the Einstein Bros. Bagels franchise opportunity, including relevant news updates

• Section II – Estimated initial investment for an Einstein Bros. Bagels franchise, based on Item 7 of the company’s 2016 FDD

• Section III – Presentation and analysis of Einstein Bros. Bagels’ financial performance representations, based on Item 19 of the company’s 2016 FDD, including information on the:

• 2015 average gross sales for the 50 franchised and 338 company-owned Einstein Bros. Bagels Restaurants (with and without a drive-thru) that were open for the entire year during the company’s last fiscal year, which started on December 31, 2014 and ended on December 29, 2015

• 2015 average gross revenue, discounts, gross sales, cost of products sold, gross margin, labor expenses, other operating expenses, profit after operating expenses, non-operating expenses, cash flow, imputed royalties, and adjusted cash flow (after franchisee expenses) incurred at the 338 company-owned Einstein Bros. Bagels Restaurants that were open for all 52 weeks of the company’s last fiscal year

Section I – Background Information

From One Location to the Largest Retail Bagel Eatery in the U.S.

Einstein Bros. Bagels began life as part of Boston Chicken’s (now Boston Market) plan to develop a national bagel eatery. In 1995, Boston Chicken purchased three retail bagel chains:  Offerdahl’s Bagel Gourmet (Fort Lauderdale), Bagel & Bagel (Kansas City), and Brackman Brothers (Salt Lake City), and formed Progressive Bagel Concepts, Inc. (PBCI).

PBCI opened the first Einstein Bros. Bagels location in Ogden, Utah in June 1995. After experimenting at this first location, PBCI sought expansion and registered Einstein Bros. Bagels for trademark status.

Over the next year, Einstein Bros. Bagels continued to expand as they acquired smaller bagel chains. In 1996, after they acquired Noah’s New York Bagels, Einstein Bros. Bagels became the number two bagel retailer in the U.S. behind Bruegger’s Bagels. Noah’s New York Bagels founder Noah Alper became Vice Chairman of Einstein Brothers Bagels, Inc.

Shortly after acquiring Noah’s New York Bagels, the company launched an IPO and changed its name to Einstein/Noah Bagel Corp. A year later, in 1997, Einstein Bros. Bagels opened its 500th location and surpassed Bruegger’s to become the number one retail bagel eatery in the U.S.

Despite succeeding at the store level, Einstein/Noah Bagel Corp. declared bankruptcy in 2000. New World Coffee bought the company out of bankruptcy for $190 million. Today, Einstein Bros. Bagels is owned by Einstein Noah Restaurant Group, Inc., which was acquired by JAB Holding Company and BDT Capital Partners in 2014.

Einstein Bros. Bagels currently has over 685 locations.

Closing Underperforming Locations

A year after the JAB Holding acquisition in 2014, Einstein Bros. Bagels closed 36 underperforming locations across the U.S.

Locations were closed in 11 states including California, Colorado, Georgia, Illinois, Indiana, Missouri, New York, Pennsylvania, Texas, Washington, and Wisconsin. Illinois was hit the hardest as 11 locations in the Chicago area were shut down.

In a statement announcing the closures, Einstein Bros. Bagels stated, “The company will continue to focus on its high-performing restaurants to ensure the future growth and success of the business.”

Co-Branding With Caribou Coffee

In 2015, Einstein Bros. Bagels announced that it would be opening co-branded locations with Caribou Coffee. The co-branding was made possible when JAB Holding acquired Einstein Bros. Bagels, as the firm already owned a majority stake in Caribou Coffee.

The first locations were opened in the two companies’ home states of Colorado (Einstein Bros. Bagels) and Minnesota (Caribou Coffee).

The co-branding is an effort to enter markets where one brand already has a loyal following. For example, with the co-branding, Caribou Coffee will be entering two new markets, Arizona and Florida, where Einstein Bros. Bagels already has a presence.

The new co-branded locations are being called Coffee & Bagels. The menu for the co-branded locations is a scaled down version of what both chains have to offer. As of this writing, Coffee & Bagels has 42 locations and an additional 4 locations will have been opened by the end of 2016.

Recently, a third brand Argo Tea has been added to a few Coffee & Bagels locations in Minnesota. JAB Holding has a licensing deal with Chicago-based Argo Tea. Caribou Coffee is currently in the testing phase with Argo Tea products and more tri-branded locations may be opened in the future.

New Menu Items

Over the summer of 2016, Einstein Bros. Bagels released new menu items called Bagel Toppers. The new items are toasted open-faced bagels topped with a variety of topping combinations.

At the time of the Bagel Toppers’ launch, there were four flavors including Spicy Devil, Nutty Monkey with Nutella, the Herbivore, and Berry Goodness. Currently, Berry Goodness has been removed from the lineup while the other three are now a permanent part of the menu.

Partnering with No Kid Hungry

During the summer of 2016, Einstein Bros. Bagels launched two limited-time flavors of its fresh-cracked egg sandwiches. To celebrate the launch, Einstein Bros. Bagels partnered with No Kid Hungry, which aims to end childhood hunger in the U.S.

On August 16th, Einstein Bros. Bagels gave a free egg sandwich to customers who came in with a coupon printed from the company’s website and made any purchase. For each free sandwich Einstein Bros. Bagels gave out that day, the company donated a meal to No Kid Hungry.

The sandwiches offered that day included two new flavors, the Farmhouse and Chorizo Sunrise, and French Toast Egg, which is a permanent part of the menu.

Section II – Estimated Costs

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

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