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

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

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

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

• 2017 average gross sales, cost of goods sold, gross profit, other operating expenses, and EBITDA for the top 25%, bottom 25%, and all 10 franchised Chronic Tacos restaurants located in Los Angeles County and Orange County, California that were open and operating for more than one year as of December 31, 2017. These 10 franchised Chronic Tacos Restaurants were selected because the information was available to the franchisor and believed to be complete, accurate, and reliable.

• 2017 median gross sales, cost of goods sold, gross profit, other operating expenses, and EBITDA for the 10 franchised Chronic Tacos restaurants in the sample

Section I – Background Information

19 Things You Need to Know About the Chronic Tacos Franchise

Prepares for Continued Expansion

1.  In the spring of 2017, Michael Mohammed, president and CEO of Chronic Tacos, discussed how the company is preparing for its future growth. Mohammed and his brothers acquired Chronic Tacos in 2012 and around 2015, they envisioned that Chronic Tacos would open its 100th store by 2018 (as of the time of this writing, Chronic Tacos has not yet reached this goal).

2.  In order to move toward this goal, Mohammed knew that Chronic Tacos had to change. He said, “Our method was to start acting like a 100-store chain at that point. We weren’t going to just say we want to open 100 restaurants. If we say it, we’re going to act that way, too.”

3.  Mohammed charted a new path for the company and put together the right team, proper operations manuals, and correct infrastructure. “We wanted to have everything in place that a chain with 100-plus units open would have. And we want to have that now because that’s how we’re going to get to those higher numbers,” said Mohammed.

4.  The CEO believes this mindset is the reason behind the brand’s growth in recent years. In 2016, Chronic Tacos increased franchise locations by 50 percent, a number it projected for 2017 as well. At the time of the interview, Chronic Tacos had 41 locations, with plans to open more than 20 new stores by the end of 2017.

5.  When Mohammed took over Chronic Tacos in 2012, the company had about 30 stores and Mohammed knew that there was a lot of room to grow. After refining Chronic Tacos’ design and systems, Mohammed relaunched the franchising initiative in 2014. Around a year later, it started to gain steam. A couple of shops opened and more and more deals were signed. 2016 is really when the deals started to flow. All in all, Mohammed says there are 60-plus projects in the pipeline with no break in sight.

6.  Mohammed added that Chronic Tacos doesn’t shy away from its unique, creative, and edgy branding while maintaining its commitment to serving authentic food. In November 2016, the chain announced its “Nothing To Hide” campaign. The goal was to highlight Chronic Tacos’ commitment to traceability in its supply chain, and its promise to use all-natural proteins and eco-friendly products across all locations. This included non-GMO corn tortillas and eco-friendly paper products that are compostable and biodegradable.

7.  Right now, Chronic Tacos is approaching its growth in three-year chunks. After 100, Mohammed says it will start thinking about 300 units. All the while, the company will remain ingrained in its local communities, where Chronic Tacos has built a reputation for philanthropy. Through a partnership with The ECO-Warrior Foundation, Chronic Tacos organizes local beach cleanups and cultivates wholesome, active lifestyles for underprivileged youth.

Celebrates 50th Restaurant Opening

8.  At the beginning of November 2017, Chronic Tacos celebrated the opening of its 50th location at UC Riverside in California. This milestone is a big achievement for the brand as it continues to expand across North America and into Japan.

9.  Michael Mohammed, president and CEO of Chronic Tacos, said, “Reaching this milestone for Chronic Tacos is a direct result of our customers embracing The Taco Life and no matter how big we grow, that’s always at the cornerstone of what drives us forward. We have worked hard to get here and now we’re looking ahead at the next 50 locations.”

New Menu Items

10.  In early February 2018, Chronic Tacos expanded its menu offerings to include Tater Tots and Jalapeno Queso Blanco. After testing the Tots and Queso at select stores, Chronic Tacos has rolled them out to all 50 locations across North America. A side order of Tater Tots will include 18 Tots for $2 and a side order of Jalapeno Queso Blanco will include 3.25 oz. for $1.50-$2 (price may vary depending on location).

11.  Michael Mohammed, president and CEO of Chronic Tacos, said, “We put a lot of thought into every item on our menu to make sure it fits with the high expectations our customers have come to know Chronic Tacos for. We had a lot of fun adding these new items to The Taco Life offering.”

12.  More recently, at the beginning of June, Chronic Tacos rolled out a new featured menu item. To kick off the summer season and add more SoCal flair to the menu, Chronic Tacos introduced the highly-anticipated steak and shrimp Surf & Turf Burrito. After careful testing of protein pairings and ingredient blends, Chronic Tacos has decided to roll out the Surf & Turf Burrito at all locations across North America.

13.  Mohammed said, “We strive to offer items to our customers that they can truly get excited about. Featuring a Surf & Turf Burrito during this summer season will bring the SoCal coastal influence to The Taco Life, regardless of a customer’s location.”

Company History

14.  The first Chronic Tacos shop was opened in 2002 by Randy Wyner and Dan Biello in Newport Beach, California. Wyner wanted to open a taco shop that served authentic Mexican food and was closer to where he lived. Since Wyner and Biello had no restaurant experience, they asked Wyner’s childhood friend Jason Bonilla for help.

15.  The recipes used by Chronic Tacos come from Bonilla’s family and stem back to early 20th century Mexico. Over time, Chronic Tacos has incorporated some California influence into these traditional Mexican recipes, but the core of the recipes, ingredients, and flavors have stayed the same.

16.  Chronic Tacos was well received and with the help of Biello’s brother Mike Biello, Chronic Tacos Enterprises was formed. Franchising started in 2006.

17.  Mohammed brothers Michael, Dave, Dan, and Joey first became involved with Chronic Tacos when they helped finance the first Canadian location (in Vancouver) in 2010. The brothers eventually bought the company in 2012.

18.  Today, Chronic Tacos has locations outside of California, including Arizona, North Carolina, Washington state, Colorado, Nevada, Utah, Alabama, and Canada.

Entrepreneur’s Franchise 500

19.  Chronic Tacos ranked No. 354 on Entrepreneur’s 2018 Franchise 500 list.

Section II – Estimated Costs

• Please click here for detailed estimates of Chronic Tacos 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 Chronic Tacos’ 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:  25
• Outlets at the End of the Year:  28
• Net Change:  +3

2016

• Outlets at the Start of the Year:  28
• Outlets at the End of the Year:  37
• Net Change:  +9

2017

• Outlets at the Start of the Year:  37
• Outlets at the End of the Year:  47
• Net Change:  +10

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:  3
• Net Change:  +1

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

Table 1 – 2017 Average Gross Sales, Cost of Goods Sold, Gross Profit, Other Operating Expenses, and EBITDA for 10 Franchisee-Owned Taco Restaurants

• Table 1 includes actual historical unaudited information the franchisor has accumulated for 10 Chronic Tacos Restaurants that were owned and operated by its franchisees in 2017. All 10 franchised Chronic Tacos Restaurants included in Table 1 are located in Los Angeles County and Orange County, California.

• All of these franchised Chronic Tacos Restaurants are operations similar to the franchise offered in the Disclosure Document.

• The figures in Table 1 are taken from reports submitted to the franchisor by certain Chronic Tacos franchisees on their Gross Sales, Cost of Goods Sold, Gross Profit, Other Operating Expenses, and EBITDA.

• On December 31, 2017, there were a total of 45 franchised Chronic Tacos Restaurants owned and operated by franchisees. Ten franchised Chronic Tacos Restaurants are included in Table 1, which is 22% of the 45 franchised Chronic Tacos Restaurants in operation on December 31, 2017.

• The 10 franchised Chronic Tacos Restaurants included in Table 1 were selected because the information was available to the franchisor and believed to be complete, accurate, and reliable. Similar information for the remaining 35 franchised Chronic Tacos Restaurants was either unavailable to the franchisor or believed to be incomplete, inaccurate, or unreliable. All information is unaudited.

• Percentages (%) to the immediate right of each category represent that category’s value as a percentage of Gross Sales.

• All 10 franchised Chronic Tacos Restaurants included in Table 1 were open and operating for more than one year as of December 31, 2017.

• Gross Sales means the aggregate of the total revenues derived from sales of any nature or kind whatsoever from each Chronic Tacos Restaurant included in Table 1, whether evidenced by cash, services, property, barter, or other means of exchange, including orders taken in or from the Chronic Tacos Restaurants although filled elsewhere.

• Gross Sales includes the full value of meals the franchisees provided to their employees as incident to their employment (less the value of any discounts against Gross Sales given during the month in which the meals were provided) and all proceeds from the sale of coupons, gift certificates, or vouchers.

• Gross Sales excludes the amount of bona fide returns paid to customers and the amount of sales or use taxes actually paid to any governmental authority and the retail price of any coupons, gift certificates, and vouchers when they are redeemed.

• Cost of Goods Sold means the franchisees’ expenses for food, beverages, and paper goods.

• Gross Profit means Gross Sales less Cost of Goods Sold.

• Other Operating Expenses means the franchisees’ expenses for all other expenses related to the operation of the Chronic Tacos Restaurants (other than expenses for food, beverages, and paper goods), including labor and rent.

• EBITDA means the franchisees’ net earnings before interest expenses, taxes, depreciation, and amortization are subtracted.

• Chronic Tacos Restaurants operating in low population density areas will also have lower sales than locations in high population density areas. Your results will vary based on your regional demographic density, competitive factors, and your ability.

• Chronic Tacos Restaurants located outside of Southern California may also have lower sales than the 10 franchised Chronic Tacos Restaurants included in Table 1.