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FDD Talk 2017: What You Need to Know About the Del Taco Franchise Opportunity (Financial Performance Analysis, Costs and Fees)

by Franchise Chatter on September 26, 2017

in FDD Talk 2017: Food Franchises, Franchise Earnings, Mexican Restaurant Franchise



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Del Taco Restaurant Exterior Photo by Hazboy

In this FDD Talk 2017 post, you’ll learn the following:

  • Section I – Background information on the Del Taco franchise opportunity, including relevant news updates
  • Section II – Estimated initial investment for a Del Taco franchise, based on Item 7 of the company’s 2017 FDD
  • Section III – Initial franchise fee, royalty fee, marketing fee, and other fees for a Del Taco franchise, based on Items 5 and 6 of the company’s 2017 FDD
  • Section IV – Presentation and analysis of Del Taco’s financial performance representations, based on Item 19 of the company’s 2017 FDD, including information on the:
  • 2016 and 2015 average net sales, food and paper costs, labor costs, benefits, utilities, repairs and supplies, miscellaneous expenses, total controllable expenses, controllable profit, advertising, local advertising, insurance, and operating profit before rent and real estate taxes for all freestanding company-operated Del Taco restaurants that the company has operated for at least one year

Section I – Background Information

14 Things You Need to Know About the Del Taco Franchise

New Chief Marketing Officer



1.  In early August, Del Taco welcomed Barry Westrum as the company’s new Chief Marketing Officer. Before joining Del Taco, Westrum was the Executive Vice President of Marketing for International Dairy Queen, Inc. and prior to that, spent 17 years with Yum! Brands, working his way up from Associate Manager of Field Marketing at Taco Bell Corp. to Senior Director of Brand Marketing.

2.  As Chief Marketing Officer, Westrum will lead Del Taco’s global marketing strategy and will report to John D. Cappasola, Jr., President and Chief Executive Officer of Del Taco. In the press release announcing the appointment, Cappasola said, “As we look to further embed our QSR+ positioning to continue to drive brand momentum, Barry’s strong track record in our category will be an asset to our leadership team.”

Premium Queso Blanco

3.  At the end of August, Del Taco announced the addition of its newest premium offering, the Queso Blanco. The latest addition to Del Taco’s menu is made with real cheese, real milk, jalapenos, and heavy cream and will now be served at all of its locations. The Queso Blanco, which will replace Del Taco’s nacho cheese, has no artificial colors, flavors, or preservatives.

4.  Barry Westrum, Del Taco’s Chief Marketing Officer, said that replacing the old nacho cheese with the Queso Blanco is a “step that aligns with Del Taco’s guest promise to serve quality and flavorful menu items at an unbeatable value.”

5.  To introduce the Queso Blanco to its customers, Del Taco launched a few new menu items that feature the cheese: the Queso Crunch Taco, Queso Loaded Nachos, Queso Bean Burrito, Queso Fries, and Chips & Queso Dip.



Continued Franchise Growth in the Southeast

6.  Toward the end of April, Del Taco signed a multi-unit franchise development agreement that will extend the brand’s presence in Tennessee. Restaurateur Tom Getz will lead the new development efforts with plans to open the first seven units in the broader Chattanooga area by 2019.

7.  Getz said, “No other quick-service concept in the greater Chattanooga area offers the same level of freshness and quality of food with the value and convenience of a drive-thru, and we’re confident new guests will love having Del Taco close by.”

8.  According to Laura Tanaka, Director of Franchise Development, “Del Taco has been strategically expanding its presence in the Southeast” and the company hopes to continue this momentum. Del Taco plans to continue to expand in Florida, Georgia, and Tennessee.

Company History

9.  The first Del Taco restaurant was opened in 1964 by Ed Hackbarth and David Jameson in Yermo, California. After the success of the first location, Hackbarth and Jameson opened a few more locations around California.



10.  The duo brought in Dick Naugle in 1966 after he expressed interest in the business while installing kitchen equipment at the Corona, California location. After Naugle joined the company, the trio formed Red-E-Food Systems, Inc. with the idea of franchising the Del Taco brand. Franchising officially began in 1967. The original Del Taco sun logo was created that same year, and Del Taco introduced its famous bean and cheese burrito with green or red sauce around the same time.

11.  Naugles left the company in the early 1970s, and the franchisor changed its name from Red-E-Food Systems, Inc. to Del Taco, Inc. Although the business was doing well, Hackbarth and Jameson sold Del Taco to a group of investors in 1976.

12.  Over the next decade, Del Taco continued to expand throughout the U.S, but its restaurants were still mostly in California. In the early ’90s, Del Taco announced plans to grow the chain to 500 locations by 1995. However, in 1993, the company filed for protection under Chapter 11 in U.S. Bankruptcy Court. Because of this development, Del Taco scaled back its growth plans and by the end of the ’90s had over 320 stores across 12 states.

13.  Del Taco has since recovered and today, there are over 550 Del Taco restaurants in 16 states.

Entrepreneur’s Franchise 500

14.  Del Taco has appeared on Entrepreneur’s annual Franchise 500 list four times in the past decade. The company’s highest rank was No. 136 in 2014 and 2015, while its lowest rank was No. 483 in 2016.

Section II – Estimated Costs

  • Please click here for detailed estimates of Del Taco franchise costs, based on Item 7 of the company’s 2017 FDD.

Section III – Initial Franchise Fee, Royalty Fee, Marketing Fee, and Other Fees

  • Please click here for detailed information on Del Taco’s initial franchise fee, royalty fee, marketing fee, and other fees, based on Items 5 and 6 of the company’s 2017 FDD.

Section IV – Financial Performance Representations (Item 19, 2017 FDD) and Analysis

  • The following amounts represent the average sales and operating figures of all freestanding company-operated Del Taco restaurants for the 53 and 52 weeks ended January 3, 2017 and December 29, 2015, respectively, that the company has operated for at least one year.
  • In fiscal year 2016, of the 286 restaurants, 137 restaurants (48%) had sales in excess of the $1,459,541 average, and 144 restaurants (50%) had operating profit before rent and real estate taxes in excess of the $410,858 average. The freestanding company-operated Del Taco restaurants operate in Arizona (3), California (239), Georgia (6), Nevada (36), and Oklahoma (2).
  • In fiscal year 2015, of the 281 restaurants, 143 restaurants (51%) had sales in excess of the $1,376,622 average, and 143 restaurants (51%) had operating profit before rent and real estate taxes in excess of the $390,935 average. The freestanding company-operated Del Taco restaurants operate in Arizona (3), California (237), Georgia (5), Nevada (34), and Oklahoma (2).
  • At the end of its most recent fiscal year ended January 3, 2017, Del Taco had a total of 310 company-owned restaurants. Of those, 300 constitute freestanding restaurants, 286 of which it has operated for more than one year.

Average Sales and Operating Expenses of Del Taco’s Company-Owned Restaurants (2016 and 2015)

  • Del Taco’s 2016 fiscal year was a 53 week period ended January 3, 2017. Del Taco’s 2015 fiscal year was a 52 week period ended December 29, 2015.

2016



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