In this FDD Talk post, you’ll learn the following:
- Section I – Background information on the Penn Station East Coast Subs franchise opportunity, including relevant news updates
- Section II – Estimated initial investment for a Penn Station East Coast Subs 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 Penn Station East Coast Subs franchise, based on Items 5 and 6 of the company’s 2017 FDD
- Section IV – Presentation and analysis of Penn Station East Coast Subs’ financial performance representations, based on Item 19 of the company’s 2017 FDD, including information on the:
- 2016 average net sales, food and paper costs, wages and payroll taxes, rent, other overhead costs, operating income, general manager salary, and EBITDA for the 294 franchised Penn Station East Coast Subs units that were in operation all of calendar year 2016
- 2016 average net sales and EBITDA for the 10 company-owned Penn Station East Coast Subs units that were in operation all of calendar year 2016
- 2016 average monthly net sales, operating income, manager’s salary, and EBITDA for the Penn Station East Coast Subs units that were in operation all of calendar year 2016 and had annual monthly sales of $30,000 and below, $30,001 to $55,000, and $55,001 and above, respectively
Section I – Background Information
12 Things You Need to Know About the Penn Station East Coast Subs Franchise
Launches Incentive Program for New Units
1. In early 2017, Penn Station East Coast Subs announced its first ever store opening incentive program. Through the program, new locations in designated markets that signed a lease in 2017 received royalty abatement for one year from the opening date. The program applied only to new franchise agreements and/or leases, and all franchisees must remain in good standing.
2. Markets eligible for the program must have a population of at least 150,000 and allow for the development of at least two locations. Some of the eligible markets included Kansas City, Atlanta, Chicago, Pittsburgh, Nashville, and Raleigh.
3. According to Craig Dunaway, president of Penn Station East Coast Subs, “Our 2017 growth goals are focused on building out our underdeveloped markets and entering new markets that fit within a concentric circle from our home base in Cincinnati. We hope the program will give developing franchisees extra cash flow to re-invest in their business, especially in grand opening and local store marketing.”
Selects Curiosity Advertising as Marketing Agency of Record
4. In mid-July, Penn Station East Coast Subs announced that it had hired Curiosity Advertising as its new marketing agency of record. Curiosity will handle consumer marketing and advertising for the brand’s 300-plus restaurants. Penn Station president Craig Dunaway said, “We are excited to update our consumer marketing campaign with Curiosity. Their creativity should provide a boost for our franchisees and drive new and existing customers into our stores. Curiosity was carefully chosen after a lengthy process, and we’re ready to get started.”
5. Matt Fischer, CEO of Curiosity Advertising, added that the menu at Penn Station East Coast Subs is “truly unique and sparks a passion in its fans unlike any other fast casual restaurant in the category, which is saying a lot considering how cut throat competition is in this sector.” Fischer also said that Curiosity is excited to help Penn Station grow as it continues to expand into new markets.
Adds Franchise Qualification Specialist
6. As Penn Station East Coast Subs continues to grow, it has added new members to its corporate headquarters, including Heather Stoffer, the brand’s new franchise qualification specialist. Prior to joining Penn Station, Stoffer served as the marketing manager for Innominds. She is also the co-vice president of YP and development for the Cincinnati chapter of the American Marketing Association.
7. Penn Station president Craig Dunaway said, “Heather is a great addition to our development team, and she’ll help bring in and qualify franchise leads. Her background in marketing, business development, customer acquisition, and project management makes her a perfect fit for this new position.”
Brought Back Annual Limited-Time Cheesesteak in November
8. For the third year in a row, Penn Station East Coast Subs added its Founder’s Choice sandwich to its menu during the month of November. The sandwich was created by Penn Station’s founder and CEO Jeff Osterfeld and features the brand’s signature Philadelphia cheesesteak with extra cheese and a splash of teriyaki sauce. The Founder’s Choice was available at all Penn Station locations in November and was also the monthly special, meaning customers could order a six-inch Founder’s Choice with small fresh-cut french fries and a drink for about $7.99.
9. Craig Dunaway, president of Penn Station, said, “We’ve been doing the Founder’s Choice LTO for three years, and customers look forward to it every year. It’s a twist on our famous Philadelphia cheesesteak that is perfect for fall.”
10. Penn Station East Coast Subs was founded in 1985 by Jeff Osterfeld in Cincinnati, Ohio. Prior to opening the first Penn Station sub shop, Osterfeld opened “Jeffrey’s Delicatessen” in 1983 in Dayton, Ohio after he graduated from college. During a trip to Philadelphia, Osterfeld realized just how popular cheesesteak sandwiches were, and so he added his own version to his menu.
11. The first Penn Station location sold four sandwiches, including the cheesesteak, as well as fresh-cut french fries and fresh-squeezed lemonade – both of which are now signature Penn Station items. Over the next two years, Osterfeld opened several more Penn Station restaurants around the Cincinnati area and started franchising in 1987. Today, there are over 300 Penn Station East Coast Subs locations across 15 states.
Entrepreneur’s Franchise 500
12. Penn Station East Coast Subs has ranked on Entrepreneur’s annual Franchise 500 list every year for the past 10 years, except in 2008. The company’s highest rank was No. 136 in 2013, while its lowest rank was No. 206 in 2009.
Section II – Estimated Costs
- Please click here for detailed estimates of Penn Station East Coast Subs 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 Penn Station East Coast Subs’ 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
- Below are tables (referred to in this Item 19 as a “Unit Financial Data Document”) of historical, financial data of 294 Penn Station Restaurants (293 franchised and 1 company-owned) (referred to in the disclosure document as “Units Open All of 2016”) that were in operation all of calendar year 2016.
- The Unit Financial Data Documents are based on information for the calendar year ended December 31, 2016 and contain the annual averages of net sales, controllable costs, overhead costs, operating income, other costs, and EBITDA of the Units Open All of 2016.
- For purposes of this Item 19, the one company-owned Restaurant is substantially similar to the Restaurants for which Penn Station is offering franchises in the disclosure document, and its services and products are the same as those to be offered and sold by franchised Restaurants. That one company-owned Restaurant is operated at a location and in a market similar to the locations and markets of Penn Station’s franchised Restaurants.
- Nine other Restaurants are categorized as company-owned Restaurants because they are operated by franchisees who are (a) persons listed in Item 2 of the disclosure document, (b) immediate family members of persons listed in Item 2 of the disclosure document, or (c) business entities owned by any persons listed in Item 2 of the disclosure document.
- There were 15 Restaurants that opened during 2016 that were not included in the Units Open All of 2016. No data from franchisees was excluded from this Item 19 as a result of termination or the closure of their Restaurants during their first year of operation.
- The information Penn Station used to create the Unit Financial Data Documents is taken from monthly, unaudited, compiled operating income statements submitted by Penn Station’s franchisees to it (the “Franchisee Financial Statements”) and from Penn Station’s books and records with respect to its one company-owned Restaurant.
- Neither the Franchisee Financial Statements nor the Unit Financial Data Documents make all of the disclosures or expense accruals required, and neither of them present information in the format prescribed, by generally accepted accounting principles.
- For example, no expense item is shown in the Unit Financial Data Documents for a franchise owner’s salary, benefits or expenses, multiple unit overhead, interest and debt service, or for non-cash items such as depreciation and amortization expense and organizational expenses.
- Moreover, certain expenses such as utilities, insurance, and personal property taxes are recorded on a cash versus an accrual basis.
Part 1 – Penn Station Statement of Unit Sales and Expenses for the Year 2016
All 284 Franchised Units Open All of 2016