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

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

• Section I – Background information on the Carvel franchise opportunity, including relevant news updates

• Section II – Estimated initial investment for a Carvel 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 Carvel franchise, based on Items 5 and 6 of the company’s 2017 FDD

• Section IV – Presentation and analysis of Carvel’s financial performance representations, based on Item 19 of the company’s 2017 FDD, including information on the:

• 2015 and 2016 average, median, lowest, and highest number of gallons of Mix purchased by the 248 franchised Carvel Full Shoppes that were open continuously during both fiscal years and purchased Mix on an individual basis (the “Sample Shoppes”)

• 2015 and 2016 average number of gallons of Mix purchased, net sales, cost of goods sold, cost of labor, imputed royalty fee, and imputed advertising contribution for the 12 franchised Carvel Full Shoppes that responded to a survey and bought an average of 6,310 gallons of Mix during 2016 (the “Covered Shoppes”) (to ensure that the 2016 Mix purchases from the sample set used to prepare this financial performance representation were representative of the 2016 Mix purchases from all Sample Shoppes)

Section I – Background Information

14 Things You Need to Know About the Carvel Franchise

Targets New Jersey for Expansion

1.  Toward the end of September 2016, Carvel announced its plans for significant expansion across the state of New Jersey, with plans to open up to 20 locations over the next few years. The brand already has 51 franchised locations in the state, but is looking to attract new qualified franchisees.

2.  Carvel invited interested candidates to a Discovery Day event on October 4, so they could learn more about the franchise opportunity and meet one-on-one with company executives. Scott Colwell, president of Carvel, said, “The fact that Carvel continues to grow in the face of the ever-changing frozen treat industry speaks volumes to the passion that consumers and franchisees have for the brand.”

3.  The New Jersey expansion was announced in the midst of the brand’s ongoing roll-out of its new shop design, which is meant to enhance customer experience and spur a new wave of growth for the company.

New Flavor Features Lotus Brand Biscoff Cookies

4.  At the end of March, Carvel launched its newest flavor, which featured Lotus Biscoff (speculoos cookies), “Europe’s favorite cookie.” The cookie has become famous in recent years and has been a featured flavor in desserts from other brands and restaurants.

5.  The Cookie Butter ice cream from Carvel was available from the end of March until May 28 and came in several different forms: Cookie Butter Soft Ice Cream; Cookie Butter Scooped Ice Cream (hand-scooped Cookie Butter ice cream mixed with caramel and Lotus Biscoff cookie crumbles); Cookie Butter Sundae Dasher (layers of Cookie Butter Soft Ice Cream, caramel, and Lotus Biscoff cookie crumbles, topped with whipped cream, drizzled with caramel, and dusted with more cookie crumbles); Cookie Butter Shake; and Cookie Butter Flying Saucer (Cookie Butter Soft Ice Cream sandwiched between two chocolate crackers).

6.  Scott Colwell, president of Carvel, said that Carvel is the first brand to offer official Cookie Butter soft-serve ice cream.

Celebrates Annual Free Cone Day

7.  On April 27, Carvel kicked off the summer season by holding its annual Free Cone Day event. From 3 to 8 p.m. on Free Cone Day, customers who stopped by participating locations received a free junior soft-serve ice cream cone in their choice of vanilla, chocolate, or the brand’s newest limited-time flavor, Cookie Butter.

8.  Carvel also partnered with The American Red Cross for the sixth year in a row to support the charity’s annual Giving Day. While supplies lasted, Carvel offered a $1 coupon book with over $20 worth of Carvel savings, with all proceeds going directly to the American Red Cross.

9.  Scott Colwell, president of Carvel, said, “Free Cone Day is much more than just a ‘freebie’ day. Not only is it the official start of ice cream season, but it’s a special day for us to show genuine gratitude to our loyal guests while coming together to raise funds for a very worthy cause.”

Company History

10.  Tom Carvel founded the Carvel ice cream brand in 1929 and initially sold his products from an ice cream truck in Hartsdale, New York. The first Carvel “store” happened by accident as Carvel’s ice cream truck broke down near the parking lot of a pottery store. The pottery store’s owner allowed Carvel to use the electricity from the store and Carvel opened his parked truck for ice cream sales. Over two days, Carvel sold his entire stock, which was partly melted, and he realized that a fixed location and softer frozen desserts were potentially good business ideas.

11.  Carvel continued to sell ice cream from the pottery store’s parking lot and in 1936, he purchased the actual store and converted it into a roadside ice cream stand. That same year, he officially started the Carvel Brand Corporation and developed a proprietary soft-serve ice cream formula.

12.  He began franchising the Carvel concept in the 1940s after feeling unsatisfied with the way the people he sold ice cream freezers containing his treats ran their businesses – he decided that he would run the freezer operations himself.

13.  In addition to being the first retailer to develop and market soft-serve ice cream, Carvel is credited with popularizing “novelty” ice cream treats such as the Flying Saucer as well as Carvel’s signature ice cream cakes (like Cookie Puss and Fudgie the Whale). Today, there are over 400 Carvel locations around the world.

Entrepreneur’s Franchise 500

14.  Carvel has ranked on Entrepreneur’s annual Franchise 500 list six times in the last ten years (it did not rank in 2007, 2009, 2015, and 2016). The brand’s highest rank was No. 110 in 2014, while its lowest rank was No. 374 in 2017.

Section II – Estimated Costs

• Please click here for detailed estimates of Carvel 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 Carvel’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

Part 1 – Mix Purchases for Sample Shoppes

• As of December 31, 2016, there were 248 Full Shoppes operating in the United States. All of the Full Shoppes buy Mix from Carvel’s approved distributors, who report to Carvel the number of gallons of Mix that each Full Shoppe purchases.

• Carvel currently allows 2 of these Full Shoppes to share or combine their Mix purchases, so Carvel is unable to determine the specific purchases allocable to each of these Full Shoppes. 17 of these Full Shoppes either first opened during 2015 or 2016, the period that this first financial performance representation covers, or were closed temporarily during parts of 2015 or 2016.

• This first financial performance representation reflects the average Mix purchases during Carvel’s 2015 fiscal year (from December 29, 2014 to December 27, 2015) and its 2016 fiscal year (from December 28, 2015 to December 25, 2016) for the 248 Full Shoppes that were open continuously during both fiscal years and purchased Mix on an individual basis (the “Sample Shoppes”).

• The table below separates the Sample Shoppes into quartiles, reflecting first the 62 Sample Shoppes that bought the most Mix during 2016, then the next 62 Sample Shoppes, then the next 62 Sample Shoppes, and finally the 62 Sample Shoppes that bought the least Mix during 2016.

• The table also shows the average Mix gallons that the Sample Shoppes comprising each of those quartiles during 2016 bought during 2015 and the percentage increase in those average purchases from 2015 to 2016.

• The Sample Shoppes operate across the United States, primarily in urban and suburban markets, and the vast majority are in streetside locations, with some in free-standing buildings but most in strip shopping centers. They vary in size and age, and while Carvel does not have specific information about the size of all the Sample Shoppes, they have operated under the Carvel name for an average of 32 years, with the oldest opening in 1967.

• Franchisees operate all of the Sample Shoppes. The Sample Shoppes all offer essentially the same products and services, face the same kinds of competitive challenges, and receive the same level of support from Carvel that it expects new Full Shoppe franchisees will experience after their grand opening periods.

Tier 1 (Top 25%)