FDD Talk 2018: Pieology 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 Pieology franchise opportunity, including relevant news updates

• Section II – Estimated initial investment for a Pieology 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 Pieology franchise, based on Items 5 and 6 of the company’s 2018 FDD

• Section IV – Number of franchised and company-owned Pieology 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 Pieology’s financial performance representations, based on Item 19 of the company’s 2018 FDD, including information on the:

• 2017 average, median, lowest, and highest gross sales for the 16 company-owned Pieology Restaurants that had been in operation in established Pieology markets (all in California) for at least two years as of the end of the 2017 fiscal year

• 2017 average, median, lowest, and highest gross sales for the 33 franchised Pieology Restaurants that had been in operation in established Pieology markets (all in California) for at least two years as of the end of the 2017 fiscal year

Section I – Background Information

15 Things You Need to Know About the Pieology Franchise

Restructuring to Focus Solely on Franchising

1.  Early on in Pieology’s history, the company’s founder Carl Chang wanted to maintain corporate growth, with at least 30 percent of the system remaining in company hands. However, the brand recently announced (in 2018) that it would be shifting its focus to franchising. As a result of Pieology’s restructuring, the company has closed several corporate locations, including six in Northern California, at the end of March 2018. Pieology said that the closures “will allow Pieology company operations to invest in new and existing markets.”

2.  In another press release, Pieology said it is shifting its business strategy “to focus on a primarily franchised business model both domestically and internationally.” The brand hopes the shift to franchised units will allow Pieology to better serve and support local communities. Franchising will also help Pieology grow more easily both domestically and internationally.

3.  The brand has recently opened locations in Utah, Iowa, and California. Pieology will also be entering the New York City market sometime in 2018, with locations slated for Brooklyn and Manhattan. In addition to its domestic openings, Pieology announced in late March 2018 that it will launch in Spain, its second international market.

Launches Mobile App

4.  At the end of July 2018, Pieology launched its Pie Life Rewards app. The new mobile app allows customers to explore the menu, create custom pizzas, and order their favorite menu items directly through the app. Pie Life Rewards users earn 1 point for every dollar spent; the points go towards the redemption of free pizza.

5.  As a special rollout offer, new users can also enjoy a free Ooey Gooey Cheese Bread for downloading the app and creating a Pie Life account. In addition to the free cheese bread, for a limited time, app users who invite their friends to download and share in the fun will be entered to win free pizza for a year. Referred friends who join will receive a free lemonade for downloading the app.

6.  Other features of the app allow customers to view their order history, locate the nearest Pieology, and access exclusive discount coupons, upcoming offers, and company news.

7.  Chad Bailey, vice president of marketing for Pieology, said, “As we continue to address consumer preferences, we are excited to officially launch the first Pieology app. We’ve spent a lot of time testing and perfecting this app in markets across the country to bring fans dynamic access to all things Pieology. We look forward to introducing them to this new rewards app and continuing to deliver the level of service and quality that Pieology lovers have come to expect.”

Launches Research and Development Restaurant

8.  In early October 2017, Pieology announced its newest addition to the Pieology portfolio, Pieology Pizzeria R&D. The restaurant is located in Aliso Viejo, California and serves as the brand’s epicenter for research and development for Pieology restaurants across the country. This custom restaurant concept will aid the brand in its pursuit to stay on the cutting edge of product innovation and consumer preferences within the fast-casual pizza market. The R&D location will feature Pieology’s standard menu as well as a rotating menu of new offerings and concepts.

9.  Clay Sanger, chief operating officer of Pieology, said, “While some brands plateau in success, we want to continue to think outside the box and push our limits. Pieology R&D is a direct reflection of our investment in research and development to explore new creations and offerings. We want to hear directly from consumers what they want to see from Pieology. No idea is too wild or flavor combination too bold—we want to explore it all with the help of our loyal customers.”

10.  World-renowned chef Glenn Cybulski will be leading the culinary team at Pieology Pizzeria R&D. Cybulski is an award-winning chef and certified Italian Pizzaiolo with over 25 years of restaurant experience.

11.  Pieology Pizzeria R&D will offer the brand the rare opportunity to receive a continuous flow of consumer feedback, while allowing consumers to have a voice in the brand’s decision-making journey. Each dining experience will tap the customers’ creativity to gain insights and feedback that will in turn affect the restaurant’s decisions and offerings. Each table at the restaurant will have consumer feedback cards, in addition to a URL survey option, to share feedback directly with the brand.

Company History

12.  Pieology was founded in 2011 by Carl Chang – brother and former coach of professional tennis star Michael Chang, who is a significant investor in Pieology – in Southern California. Chang got the idea for Pieology after he observed a problem in the pizza industry, saying “Pizza for us was somewhat broken. Pizza used to be a celebration when you were with family and friends…now it somewhat has become a bit more [of a] convenience food or a coupon food if you will.”

13.  He believed that offering customers the opportunity to fully customize their pizzas in the style of Chipotle’s business model would revitalize the pizza industry. From the beginning, Chang wanted Pieology to be a place where people would be inspired to make unique pizzas – he calls everyone who dines at Pieology a “pieologist.”

14.  Originally, Chang was interested in only growing the company through corporate locations, but increased competition in the customizable pizza segment led him to start franchising in 2012. Since then, Pieology has continued to grow and now has locations across the U.S., Mexico, and Spain.

Entrepreneur’s Franchise 500

15.  Pieology did not rank on Entrepreneur’s 2018 Franchise 500 list.

Section II – Estimated Costs

• Please click here for detailed estimates of Pieology 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 Pieology’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

2015

• Outlets at the Start of the Year:  31
• Outlets at the End of the Year:  62
• Net Change:  +31

2016

• Outlets at the Start of the Year:  62
• Outlets at the End of the Year:  97
• Net Change:  +35

2017

• Outlets at the Start of the Year:  97
• Outlets at the End of the Year:  111
• Net Change:  +14

Company-Owned

2015

• Outlets at the Start of the Year:  11
• Outlets at the End of the Year:  16
• Net Change:  +5

2016

• Outlets at the Start of the Year:  16
• Outlets at the End of the Year:  33
• Net Change:  +17

2017

• Outlets at the Start of the Year:  33
• Outlets at the End of the Year:  33
• Net Change:  0

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

• There were 144 Pieology Restaurants operating as of December 25, 2017, 33 of which are company-owned and operated. During the fiscal year ended December 25, 2017, there were 49 Pieology restaurants (the “Covered Restaurants”) that had been in operation in established Pieology markets (all in California) for at least two years as of the end of that fiscal year.

• None of the Covered Restaurants is located at a Non-Traditional Location, and the sales figures in this Item 19 are not derived from, based on, or otherwise related to any Restaurant located in a Non-Traditional Location.

• Restaurants that have been in operation for at least two years are considered to have reached operational maturity and have established trade identity in the market in which they operate.

• As used in this Item 19, “established Pieology markets” means contiguous population areas where there is a concentration of at least 5 operating Pieology restaurants, which is the minimum number of restaurants required to be developed pursuant to a Development Rights Agreement.

• Franchisees operated 33 of the Covered Restaurants (the “Franchised Covered Restaurants”), and Pieology operated the other 16 Covered Restaurants (the “Company-Owned Covered Restaurants”).

• These financial performance representations reflect the historical average Gross Sales for the Franchised Covered Restaurants and the Company-Owned Covered Restaurants during fiscal 2017.

• Pieology breaks its fiscal years into 13 “Periods,” with four weeks in each Period.

• The Covered Restaurants had higher average Gross Sales during fiscal 2017 than the average for all other Pieology Restaurants, which were not in established Pieology markets and were not in California.

• All of the sales figures in the following table pertain to Gross Sales that occurred during Pieology’s fiscal year 2017 from Company-Owned Covered Restaurants or from Franchised Covered Restaurants, as indicated.

Company-Owned Covered Restaurants