FDD Talk 2018: Tilted Kilt Franchise Review (Financial Performance Analysis, Costs, Fees, and More)

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

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

• Section II – Estimated initial investment for a Tilted Kilt franchise, based on Item 7 of the company’s 2018 FDD

• Section III – Initial franchise fee, royalty fee, marketing fee, and other fees for a Tilted Kilt franchise, based on Items 5 and 6 of the company’s 2018 FDD

• Section IV – Number of franchised and company-owned Tilted Kilt outlets at the start of the year and the end of the year for 2015, 2016, and 2017, based on Item 20 of the company’s 2018 FDD

• Section V – Presentation and analysis of Tilted Kilt’s financial performance representations, based on Item 19 of the company’s 2018 FDD, including information on the:

• 2017 average, median, high, and low weekly unit volume for the top third tier, middle third tier, and lower third tier of the 49 franchisee-owned Tilted Kilt restaurants open in the United States as of December 31, 2017

• 2017 average weekly unit volume for the 2 company-owned Tilted Kilt restaurants open in the United States as of December 31, 2017

Section I – Background Information

14 Things You Need to Know About the Tilted Kilt Franchise

Owner of Dick’s Wings & Grill Announces Plans to Acquire Tilted Kilt

1.  Around the beginning of June 2018, ARC Group Inc., parent to the Dick’s Wings & Grill casual-dining concept, announced its plans to acquire the Tilted Kilt Pub & Eatery franchise. In a press release, ARC said that it wants to complete the purchase of Tilted Kilt within the next three months, but needs to get the financing to do so.

2.  As an intermediary step, Tilted Kilt has executed sale agreements with SDA Holdings LLC, a company owned by Fred W. Alexander, who is a member of ARC’s board. SDA is funding the purchase with a loan from Seenu Kasturi, ARC Group’s chairman, primary owner, and chief financial officer.

3.  Rick Akam, CEO of ARC Group Inc., said that ARC bought Dick’s Wings & Grill in 2013 and turned the struggling franchise around. Akam hopes that ARC will be able to do the same for Tilted Kilt, “which has struggled the past few years with identity, store closures and unsatisfied franchisees.” He also believes that although Tilted Kilt has shuttered about half of its franchise system since 2014, the brand still has name recognition.

4.  Akam added, “They have restaurants scattered throughout the U.S., which is harder to manage but, from an identity standpoint, they are in a lot of different regions. We felt we had a good opportunity to grow those regions strategically and maybe get away from the single-ownership philosophy.”

Unveils New 2018 Menu

5.  At the end of May 2018, Tilted Kilt Pub & Eatery rolled out a new menu highlighting handcrafted burgers and classic comfort dishes. The brand said that the 100 percent Angus beef patty on a brioche bun will be the star of its new menu. Some of the notable new burgers include the Wicked Boston Burger, the Chili Cheeseburger, the Jalapeno Pepper Jack, the Pub Double, and the Holy Guacamole.

6.  In addition to the wide variety of burgers, Tilted Kilt has added several new items to the menu including Fried Chicken, Chicken Parmesan, Turkey Reuben, and Ma! The Meatloaf.

7.  Ron Lynch, president of Tilted Kilt, said, “We know today’s diner likes to have the option about where they eat and what they eat, so we wanted to ensure our guests have carryout options and access to a variety of mouthwatering dishes. Our goal is to meet the growing demand of both families and businesses looking to simplify needs by offering affordable, yet delicious options the entire guest list will enjoy.”

Celebrates 10th Anniversary of Tilted Kilt Calendar

8.  In the Fall of 2017, Tilted Kilt celebrated the 10th anniversary of the brand’s annual Tilted Kilt Calendar featuring its Kilt Girls. For this milestone anniversary, Tilted Kilt decided to recognize the success of Kilt Girls from past years who leveraged Tilted Kilt scholarships to pursue their long-term career goals.

9.  Ron Lynch, president of Tilted Kilt, said, “It’s been an amazing experience to celebrate the 10th anniversary of our Calendar and the incredible accomplishments of our Kilt Girls. We hear success stories like Presley Rhodes, 2016 Calendar Girl, who was able to leverage her scholarship to attend Arizona State University and pursue digital marketing. It’s stories like these that bring a smile to my face and we can’t wait to debut the 2018 Calendar featuring this year’s hardworking Kilt Girls.”

10.  Each year, more than 20,000 Kilt Girl fans vote online for Kilt Girl finalists who entered into the running to be a Calendar Girl. Twelve girls are invited to participate in the famed calendar shoot and become eligible for the Tilted Kilt scholarship. Those who serve a full calendar year in good standing receive a monetary scholarship to attend college and further pursue their career goals.

11.  Two-time Calendar Girl Taylor Mock said, “Being a Calendar Girl is a dream come true in more ways than one. The Kilt Girls became my family and it was amazing to see my community come together and support me in this accomplishment. The uplifting experience built my confidence and motivated me to achieve my goals. I was able to use the Tilted Kilt scholarship to attend the University of Tampa, majoring in mass communication and broadcast television, which helped land my job broadcasting for Monster Jam airing on Fox Sports1.”

Company History

12.  Tilted Kilt Pub & Eatery was founded in 2003 by restaurateur Mark DiMartino and his business partners Shannon Reilly and John Reynaud. The first Tilted Kilt opened in the Las Vegas Rio Hotel and Casino and was staffed by female servers wearing mini skirts styled like kilts. According to Tilted Kilt, the restaurant’s concept is “contemporary, Celtic themed sports bar, staffed with beautiful servers.”

13.  Although DiMartino, Reilly, and Reynaud did not originally plan to franchise the Tilted Kilt concept, the restaurant caught the eye of Ron Lynch, an experienced restaurant and franchise developer. Lynch convinced the business partners to start franchising Tilted Kilt in 2006 and the company relocated its headquarters from Las Vegas to Tempe, Arizona. Tilted Kilt still operates out of Arizona with Lynch serving as president.

Entrepreneur’s Franchise 500

14.  Tilted Kilt Pub & Eatery did not rank on Entrepreneur’s 2018 Franchise 500 list.

Section II – Estimated Costs

• Please click here for detailed estimates of Tilted Kilt franchise costs, based on Item 7 of the company’s 2018 FDD.

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

• Please click here for detailed information on Tilted Kilt’s initial franchise fee, royalty fee, marketing fee, and other fees, based on Items 5 and 6 of the company’s 2018 FDD.

Section IV – Number of Franchised and Company-Owned Outlets

Franchised and Licensed

2015

• Outlets at the Start of the Year:  89
• Outlets at the End of the Year:  87
• Net Change:  -2

2016

• Outlets at the Start of the Year:  87
• Outlets at the End of the Year:  82
• Net Change:  -5

2017

• Outlets at the Start of the Year:  82
• Outlets at the End of the Year:  49
• Net Change: -33

Company-Owned

2015

• Outlets at the Start of the Year:  2
• Outlets at the End of the Year:  2
• Net Change:  0

2016

• Outlets at the Start of the Year:  2
• Outlets at the End of the Year:  2
• Net Change:  0

2017

• Outlets at the Start of the Year:  2
• Outlets at the End of the Year:  2
• Net Change:  0

Section V – Financial Performance Representations (Item 19, 2018 FDD) and Analysis

• The information in this Item 19 reflects Average Weekly Unit Volume (“AWUV”) for the 2017 calendar year. Any Restaurant, franchised or company-owned, open as of December 31, 2017, that was open for any portion of the 2017 calendar year, and was located in the United States is included in this Item 19.

• Unit volume was calculated in the same manner as you will calculate Gross Sales under the Franchise Agreement.

• “Gross Sales” means the aggregate amount of all sales of products, services, merchandise, or activities of every kind or nature sold at, from, through, or otherwise in connection with the operation of a Restaurant, whether for cash or credit, including, without limitation, revenue from admissions, event charges, cover charges, vending machines, jukeboxes and gaming devices, lottery tickets, video games and coin-operated games, less returns for which refunds are made (not to exceed sale price), and excluding (i) all federal, state, or municipal sales or service taxes collected from customers and paid to the appropriate taxing authority, and (ii) other discounts (including the amount of employee discounts) and exclusions as may be authorized in writing by Tilted Kilt.

• “Gross Sales” includes gift card redemptions, condemnation awards, all insurance proceeds received for loss or interruption of business due to a casualty or similar event at the Restaurant, and the fair market value of any services or products received in barter or exchange for services and products.

• All comps, or parts or all of a meal offered to customers on the house in excess of 2% of Gross Sales shall be included in Gross Sales except during the first 90 days after the Restaurant commences operation.

• With respect to franchised Restaurants, the data used to calculate the Restaurants’ unit volume was obtained either from reports submitted by franchisees or by Tilted Kilt’s polling the information directly from the franchisees’ point-of-sale systems.

• Neither Tilted Kilt nor its affiliates have undertaken an independent investigation to verify the amounts reported by franchisees.

Part 1 – Average Weekly Unit Volume for Franchisee-Owned Restaurants in 2017

• There were 51 Tilted Kilt Restaurants open in the United States as of December 31, 2017. Of these 51 Restaurants, 49 Restaurants were franchisee-owned and operated, 1 Restaurant was owned and operated by Tilted Kilt affiliates, and 1 Restaurant was owned by an entity in which the franchisor owns 70% of the membership interests.

• Each of the 49 franchisee-owned Restaurants is included in the data set that Tilted Kilt used to prepare the tables below.

• 41 of the 49 Restaurants were open for all 52 weeks in 2017, and 8 were open for fewer than 52 weeks.

• Tilted Kilt calculated a given Restaurant’s AWUV by taking each Restaurant’s Gross Sales for all of 2017 and dividing that figure by the number of weeks that the Restaurant was open in 2017.

• Tilted Kilt then separated the Restaurants into three tiers based on each Restaurant’s AWUV. It calculated AWUV within each tier by adding the AWUV for all Restaurants within a given tier and dividing by the number of Restaurants within that tier.

• There are 16 Restaurants in the top third and middle third tiers and 17 Restaurants in the lower third tier.

• Tilted Kilt has also listed in the table below, for each tier, the highest and lowest AWUV that a Restaurant obtained within that tier and the median unit volume.

Top Third