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

by Franchise Chatter on October 2, 2017

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

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

  • Section I – Background information on the Cinnabon franchise opportunity, including relevant news updates
  • Section II – Estimated initial investment for a Cinnabon 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 Cinnabon franchise, based on Items 5 and 6 of the company’s 2017 FDD
  • Section IV – Presentation and analysis of Cinnabon’s financial performance representations, based on Item 19 of the company’s 2017 FDD, including information on the:
  • 2016 average, median, high, and low net sales for franchised Cinnabon bakeries (full and express) in enclosed malls, convenience stores, travel plazas, and airports (respectively), which were in operation continuously throughout Cinnabon’s fiscal year 2016 and were not co-branded
  • 2016 average, median, high, and low net sales by quartile for franchised Cinnabon bakeries (full bakeries only) in enclosed malls, which were in operation continuously throughout Cinnabon’s fiscal year 2016 and were not co-branded
  • average, median, high, and low net sales by fiscal year (2012 to 2016) for franchised Cinnabon bakeries in enclosed malls, which were in operation continuously throughout the applicable fiscal year and were not co-branded
  • 2016 average net sales, cost of goods sold, gross profit, labor, rent, other expenses, total expenses, and net operating income by region for franchised Cinnabon bakeries in enclosed malls, which were in operation continuously throughout Cinnabon’s fiscal year 2016 and were not co-branded

Section I – Background Information

14 Things You Need to Know About the Cinnabon Franchise

New Line of Signature Drinks

1.  To kick off the summer season, Cinnabon launched a new line-up of its frozen blended drinks called Chillattas. The brand reformulated its signature line of drinks, making them creamier and richer in flavor, with flavors such as Signature Cinnamon Roll, Strawberries & Cream, Oreo Cookies & Cream, and Double Chocolate Mocha (made with Ghirardelli Chocolate). Cinnabon also released a seasonal summer flavor, Peaches & Cream.

2.  Jill Thomas, Vice President of Global Marketing for Cinnabon, said that the Chillattas provide the brand with “a new and exciting opportunity to make [its] mark in the world of beverages.”

3.  To celebrate the arrival of the new line of Chillattas, Cinnabon “froze” its website on June 19 and invited customers to virtually scrape the icy frost off their device’s screen for a chance to win prizes, including buy one get one free Chillatta, Cinnabon swag, and even free Cinnabon for a year.

4.  The brand even used Twitter and Instagram “influencers” to promote the new drinks. To pick the fan favorite flavor, each influencer was assigned a Chillatta flavor based on their personality and asked to encourage their followers to vote for the flavor they were assigned.

Thanks Nurses During Annual Nurses Week Promotion

5.  From May 6 to 12, Cinnabon celebrated its annual National Nurses Week giveway. During those dates, participating locations offered nurses who presented their medical ID badge their choice of a free Cinnabon Classic Roll, Minibon, or a four count of its newest treat, BonBites.

6.  Cinnabon first partnered with The Daisy Foundation, an organization that was created to give thanks to nurses for the compassionate care they provide, in 2000. According to Joe Guith, President of Cinnabon, the brand has given away over a million cinnamon rolls since its first National Nurses Week.

Celebrates Third Season of AMC’s Better Call Saul

7.  Since the very first episode of AMC’s Better Call Saul, Cinnabon has been featured in the show numerous times as the titular character’s undercover persona is a Cinnabon bakery manager named Gene.

8.  Prior to the premiere of the third season, Cinnabon invited fans to unlock an exclusive sneak preview of the show by entering their email address on Cinnabon’s website, which also earned them an entry into the brand’s Better Call Saul Sweepstakes. Those who posted on social media using the hashtags #BetterCallSaul and #Sweeps received additional entries.

9.  The grand prize was a replica of Saul’s briefcase filled with an undisclosed amount of cash and some of the character’s personal belongings. The contest took place from March 30 to April 23, with the winner announced on April 24.

10.  In addition to the contest and season 3 sneak peek, participating Cinnabon bakeries hosted a BonBites giveaway for all customers who came in between 5 and 7 p.m. on April 10. Customers were able to snag a free four count of the BonBites. They were also invited to take a selfie with a life-sized cutout of Saul and share it on Facebook, Instagram, and Twitter for more entries to the sweepstakes.

Company History

11.  The first Cinnabon was opened in 1985 in a mall in Federal Way, Washington. Cinnabon was launched by Restaurants Unlimited, a Seattle-based multi-chain restaurant operator owned by Richard Komen. With help from Dennis Waldron, a Restaurants Unlimited officer and investor, Komen developed the Cinnabon concept and began franchising it in 1986.

12.  Throughout the rest of the 1980s and 1990s, Cinnabon expanded across the United States, Canada, and Mexico. By 1995 there were more than 300 locations in operation. Due to Cinnabon’s success, Restaurants Unlimited decided to make Cinnabon an independently-owned and operated company in 1996.

13.  Two years later, the company was sold to AFC Enterprises, Inc. for $65 million. Cinnabon was sold again in 2004 to FOCUS Brands, Inc. for $30.3 million with FOCUS Brands remaining as Cinnabon’s parent company today. There are currently over 1,300 Cinnabon locations around the world.

Entrepreneur’s Franchise 500

14.  Cinnabon has ranked on Entrepreneur’s annual Franchise 500 list every year in the past decade. The company’s highest rank was No. 24 in 2015, while its lowest rank was No. 244 in 2007. Cinnabon also appeared on Entrepreneur’s Fastest Growing Franchises list in 2015 at No. 65.

Section II – Estimated Costs

  • Please click here for detailed estimates of Cinnabon 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 Cinnabon’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

  • As used throughout Item 19, the following definitions apply:
  • Net Sales – Net Sales includes, without limitation, monies, gift card redemptions, or credit received from the sale of food, beverages, and merchandise, from tangible property of every kind and nature, promotional or otherwise, and for services performed from or at a Bakery, including, without limitation, off-premises services such as catering and delivery.
  • Net Sales will not include the initial sales or reloading of gift cards, coupon discounts, the sale of food or merchandise for which refunds have been made in good faith to customers, the discounted portion of employee meals, the sale of equipment used in the operation of the Bakery, nor will it include sales, meals, use or excise tax imposed by a governmental authority directly on sales and collected from customers; provided that the amount for the tax is added to the selling price or absorbed therein, and is actually paid by the operator to a governmental authority.
  • Cost of Goods Sold – Cost of Goods Sold (COGS) is a figure which reflects the cost of materials used to produce the products you sell to your customers. It includes the cost of food ingredients (dough, frosting, beverages, etc.), paper products (cups, napkins, bags, straws, etc.) and retail items (Cinnabon cinnamon, etc.).
  • Gross Profit – Gross Profit is Net Sales minus Cost of Goods Sold.
  • Operating Expenses – Operating Expenses are the day-to-day costs incurred in conducting normal business operations.
  • Labor – Labor includes wages paid to your employees and payroll taxes paid for your employees. Labor does not include actual wages and related expenses you pay to yourself.
  • Rent – Rent includes the base rent for your lease including extra charges, such as common area maintenance (CAM) charges, real estate taxes, percentage rents, etc.
  • Other Expenses – Other expenses include such things as utilities (electric, telephone), Royalty Fee, Advertising Contribution, advertising, insurance (Workers’ Comp, property, casualty, liability, health, etc.), licenses, permits, repairs, uniforms, store supplies, etc.
  • Total Expenses – The total of Labor, Rent, and Other Expenses.
  • Net Operating Income – Gross Profit minus Total Expenses.
  • Excluded Venues – Franchised Bakeries that are located in casinos, concession trailers/trucks, farmer’s markets, seasonal locations, strip malls, grocery stores, military bases, amusement parks, train stations, entertainment venues, hotel food courts or lobbies, colleges and universities, or other non-traditional locations. Excluded Venues also include Express Bakeries located in a Schlotzsky’s Restaurant. Excluded Venues do not include Bakeries located in airports, convenience stores, or travel plazas.
  • Enclosed Mall Franchises – Franchised Bakeries that are located inside an enclosed mall. Enclosed Mall Franchises do not include Bakeries located in airports, convenience stores, travel plazas, or Excluded Venues or Bakeries that have been co-branded with another restaurant. Approximately 28% of all Bakeries (Full and Express) operating at a given point in time are Enclosed Mall Franchises.

Cinnabon Stores By Region

  • Cinnabon’s four Regions, and their respective states, are used in the information presented in Item 19. These four Regions comprise the entire group of Regions within the Cinnabon system:
  • Northeast Region:  (i) Connecticut; (ii) District of Columbia; (iii) Delaware; (iv) Maryland; (v) Massachusetts; (vi) New Hampshire; (vii) New Jersey; (viii) New York; (ix) Pennsylvania; (x) Rhode Island; (xi) Virginia; and (xii) West Virginia.
  • Southeast Region:  (i) Alabama; (ii) Arkansas; (iii) Florida; (iv) Georgia; (v) Louisiana; (vi) Mississippi; (vii) North Carolina; (viii) South Carolina; (ix) Tennessee; and (x) Texas.
  • Midwest Region:  (i) Iowa; (ii) Illinois; (iii) Indiana; (iv) Kansas; (v) Kentucky; (vi) Michigan; (vii) Minnesota; (viii) Missouri; (ix) North Dakota; (x) Nebraska; (xi) Ohio; (xii) Oklahoma; (xiii) South Dakota; and (xiv) Wisconsin.
  • Western Region:  (i) Alaska; (ii) Arizona; (iii) California; (iv) Colorado; (v) Hawaii; (vi) Idaho; (vii) Montana; (viii) New Mexico; (ix) Nevada; (x) Oregon; (xi) Utah; (xii) Washington; and (xiii) Wyoming.
  • The information presented in Item 19 excludes sales information from (a) affiliate-owned Bakeries; (b) Excluded Venues; (c) co-branded Bakeries; and (d) Bakeries that submitted late, incomplete, or illegible financial information, experienced hardware or software technical issues that inhibited proper reporting, or submitted such information in an unacceptable format (“Incomplete Information”).
  • Due to the types of venues comprising Excluded Venues, Bakeries in Excluded Venues are generally smaller in size than typical Bakeries, consumer traffic flow is significantly reduced, and operating hours are generally substantially less than the operating hours of the four venues included in this table. As a result, Bakeries operating in Excluded Venues have been excluded from this table.
  • Parts 1 through 4 present Net Sales or average Net Sales, average expenses, and average Net Operating Income figures for the fiscal year ended December 25, 2016 (“fiscal year 2016”), obtained from reported sales or the unaudited profit and loss statements submitted by Cinnabon franchisees in the venues represented in the tables.

Part 1 – Net Sales Range Fiscal Year 2016 – Various Venues (Franchised Bakeries – All Regions)

  • The Bakeries in this chart do not include Excluded Venues or any Bakeries that are co-branded with another restaurant.
  • The Bakeries whose results are reflected in this table are all Bakeries (Full and Express) which were in operation continuously throughout Cinnabon’s fiscal year 2016 in the four venues represented. Results of Bakeries that either opened or closed during fiscal year 2016 are not included.
  • Bakeries included in this table may have operated under multiple owners during fiscal year 2016.

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