FDD Talk: What You Need to Know About the Hot Dog on a Stick Franchise Opportunity (Financial Performance Analysis, Costs and Fees)

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

• Section I – Background information on the Hot Dog on a Stick franchise opportunity, including relevant news updates

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

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

• 2014 average gross sales for the Top 25%, Middle 50%, and Bottom 25% (based upon total annual sales) of affiliate-owned Hot Dog on a Stick Stores that were open for the entire calendar year as of December 31, 2016

• 2015 average gross sales for the Top 25%, Middle 50%, and Bottom 25% (based upon total annual sales) of affiliate-owned Hot Dog on a Stick Stores that were open for the entire calendar year as of December 31, 2016

• 2016 average gross sales for the Top 25%, Middle 50%, and Bottom 25% (based upon total annual sales) of affiliate-owned Hot Dog on a Stick Stores that were open for the entire calendar year as of December 31, 2016

Section I – Background Information

11 Things You Need to Know About the Hot Dog on a Stick Franchise

Appoints New Executive Vice President

1.  At the beginning of September 2017, Global Franchise Group (GFG), the parent company of Hot Dog on a Stick, named Jeremy Roy the new executive vice president of Hot Dog on a Stick. Roy was a franchisee of Great American Cookies (another company owned by GFG) for 13 years. He is also the founder and former CEO of Dough Rollers LTD, a franchise entity of Great American Cookies and Pretzelmaker with 21 high performing locations. In his new role, Roy will lead Hot Dog on a Stick as it continues to grow through franchising.

2.  Chris Dull, president and CEO of GFG, said, “Hot Dog on a Stick is showcasing strong success and has shown system-wide Same Store Sales growth each year since GFG’s acquisition of the brand in 2014. To build on our strong foundation, we wanted a dynamic leader to help us drive brand growth. Jeremy, being one of our highest performing multi-unit franchise owners, is the perfect fit for this position as he understands the mechanics of franchisee profitability, the value of simple operations, and what it takes to build successful stores!”

Launches New Breakfast Offerings

3.  On March 14, 2017, Hot Dog on a Stick started offering two new all-day breakfast items: Sausage on a Stick served with Maple Syrup, and Tater Tots. The breakfast items are now available at all Hot Dog on a Stick locations during regular business hours. The Sausage on a Stick features a pork breakfast sausage, dipped in Hot Dog on a Stick’s famous batter.

4.  According to Lisa Merrell, vice president of Hot Dog on a Stick, the brand tested out the new products before rolling them out nationally and the initial response from customers was positive.

5.  To celebrate the launch of the breakfast items, the brand came up with the Hot Dog on a Stick Breakfast Contest on its social media channels, including Facebook, Instagram, and Twitter. The contest gave customers a chance to win a free breakfast.

Gives Back to Customers With Free Items on Special Days

6.  Hot Dog on a Stick often runs special promotions on national holidays and special occasions. In 2017, the brand offered all customers (at participating locations) a free Original Turkey Dog on Tax Day, which was on April 18. Lisa Merrell, vice president of Hot Dog on a Stick, said, “Tax Day can be a little hard to stomach, but not at Hot Dog on a Stick.”

7.  Hot Dog on a Stick also celebrated National Lemonade Day on August 20. Each participating  location gave away free souvenir cups filled with lemonade to the first 50 customers. Additionally, all customers received a free Original Turkey Hot Dog on a Stick with a lemonade purchase. Jeremy Roy, vice president of Hot Dog on a Stick, said, “Hot Dog on a Stick is proud to stick a smile on our customers’ faces with our famous lemonade. Being the only national restaurant with genuine hand-stomped fresh lemonade, we believe it’s truly the best around.”

Company History

8.  Hot Dog on a Stick was founded in 1946 by Dave Barham at the original Muscle Beach location next to the Santa Monica Pier in California. The food stand was originally called Party Puffs and it initially served lemonade and ice cream cones. Barham started using his mom’s cornbread recipe to batter hot dogs and called the new product Hot Dog on a Stick. To highlight this new menu staple, Barham changed the name of his stand to Hot Dog on a Stick.

9.  Barham’s products grew in popularity and he started selling them at county fairs across the United States. After that, the Hot Dog on a Stick concept became a mall food court staple and the company started franchising in 1997. In 2014, Hot Dog on a Stick was acquired by Global Franchise Group, which also operates Great American Cookies, Marble Slab Creamery, and Pretzelmaker.

10.  Today, there are nearly 100 Hot Dog on a Stick locations in the United States, the Philippines, and South Korea.

Entrepreneur’s Franchise 500

11.  During the past 10 years, Hot Dog on a Stick has appeared on Entrepreneur’s annual Franchise 500 list only once, at No. 432 in 2018.

Section II – Estimated Costs

• Please click here for detailed estimates of Hot Dog on a Stick 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 Hot Dog on a Stick’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

• Set forth below is information concerning the historical financial performance for Stores that were under the ownership of HDOS Enterprises during the fiscal years ending December 31, 2014, December 31, 2015, and December 31, 2016.

• For the fiscal year ending December 31, 2014, the Stores were under the ownership of HDOS Enterprises from January 1, 2014 through August 20, 2014 and under the ownership of HDOS Acquisition from August 21, 2014 through December 31, 2014.

• For the fiscal year ending December 31, 2016, all company operating Stores (a total of 67) were also divided into three groups based upon total annual sales: (a) the top 25% Stores (17 Stores), (b) the bottom 25% Stores (16 Stores), and (c) the remaining 50% Stores in the middle (34 Stores).

• The figures in the tables below represent Stores that were open for the entire calendar year as of December 31, 2016; this means that five Stores were excluded because they were not open for the full year.

• All of the Stores included in this analysis were affiliate-owned (that is, none were franchised).

• The franchisor has also excluded the 8 franchised Stores open as of December 31, 2016 because they do not use its designated point-of-sale system required for new franchisees at this time. Due to this, the franchisor does not currently have gross sales data for these franchised Stores.

• Most of the Stores are located in shopping mall food courts and share common seating with other restaurants in the same mall food court.

• The length of time that these Stores have operated varies from a few months to 66 years.

• Unless you are purchasing an existing Store from the franchisor, your Store(s) will vary, in that they will not be company-owned and they will not have been open as long as the franchisor’s average Store. Additionally, depending on where you open your Store, you may not be located in a shopping mall food court.

• The sales level for each Store was highly dependent on traffic level in the surrounding mall, and was largely independent of demographics (or other factors) influencing the area outside the mall.

• For example, if an anchor tenant in a mall closes and the space remains vacant for some time, traffic in the mall typically declines, even if the demographics of the surrounding area remain unchanged. When traffic in the mall drops, the sales level of the Store also drops. Once a new tenant moves into that space, traffic in the mall (and consequently the sales of the Store) tend to recover.

• The average annual sales for each group of Stores identified above is set forth in the following table.

• Just as average annual sales varies depending on traffic in the surrounding mall, the monthly sales level of each Store varies considerably over the course of the year, and is greatly affected by the traffic level in the surrounding mall (for instance, sales tend to be higher during the summer — June through August — and again during the holiday-shopping season, especially December).

• As a consequence, it is not the case that sales during any particular month are approximately one-twelfth of the average annual sales. Depending on the month, the monthly sales are likely to be either much higher or much lower.

• As noted above, these averages are based on the Stores that operated on December 31, 2016, which excludes Stores that closed or were sold during the three-year period, but includes Stores that opened during the three-year period.

• The method of calculation may have had some effect on the average sales numbers reported, but the franchisor has not calculated the effect on these averages.

Average Gross Sales by Year

2014