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

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

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

• 2017 average, median, high, and low revenues for the 18 company-owned, 11 franchised, and 29 company-owned and franchised (combined) PizzaRev Restaurants that had been in operation for at least 18 months as of December 31, 2017

Section I – Background Information

15 Things You Need to Know About the PizzaRev Franchise

Adds to Franchise Development Team to Enhance Franchisee Support and Drive Growth

1.  In early 2018, PizzaRev announced recent additions to its franchise development leadership team. The individuals comprising the enhanced development leadership team were chosen to advance the brand’s growth initiatives as the popular chain receives continued interest from prospective franchise partners. The appointments included Ed Yancey as director of franchising and Brian Durkin as real estate strategist.

2.  Yancey previously held franchise development leadership positions at Jersey Mike’s and Dunkin’ Brands where he successfully led large-scale expansion efforts. In his new role as director of franchising, Yancey will be responsible for national and international franchise sales.

3.  As real estate strategist, Durkin will support franchisees with location selection, site analytics, and restaurant design expertise. Durkin is an industry veteran who has worked at McDonald’s in senior executive roles in the U.S. and Asia, and was part of the acquisition/investment team that crafted the strategy for Chipotle’s nationwide expansion. Durkin has already developed flagship formats and strategic alliance partnerships for PizzaRev franchise developers.

4.  Yancey said, “A dedicated group of franchise development experts is exactly what PizzaRev needs as the brand grows its national fan base and reaches new franchise growth milestones. After months of planning, I am thrilled to be joined by Brian as we bring an even stronger support team to our franchise partners. We look forward to developing our creative advances for fans and franchisees alike.”

Introduces Royalty Incentive Program for Prospective Franchisees

5.  At the beginning of August 2018, PizzaRev announced its 2018 royalty incentive program for prospective franchisees. The “1-3-5 Royalty Incentive” program is available for a limited time, offering an unmatched opportunity to entrepreneurially-driven individuals seeking investment opportunities in the strongest restaurant category, fast casual. The category has seen double-digit growth year-over-year.

6.  Qualified candidates will benefit from the tiered royalty structure as follows:

• For the first 12-month period following the effective date of the franchise agreement, PizzaRev will collect only 1% of the revenues generated by the PizzaRev restaurant.
• For the second 12-month period following the effective date of the franchise agreement, PizzaRev will collect just 3% of the revenues generated by the PizzaRev restaurant.
• Finally, for the third through tenth 12-month period following the effective date of the franchise agreement, PizzaRev will collect 5% of the revenue generated by the PizzaRev restaurant.

7.  This tiered incentive deal applies only to units franchisees commit to developing in 2018 and allows franchisees to reinvest what would have been spent on royalties back into their businesses. Typically, the royalty fee is a flat 5% of revenues.

8.  Ed Yancey, director of franchising, said, “We’re introducing this amazing deal during an aggressive growth period for the PizzaRev brand across the United States. With more than 200 franchises under development, we want to maintain our steady momentum and continue to encourage entrepreneurs to join our growing, proven brand.”

Makes Virginia Debut With Three-Store Deal

9.  At the end of January 2018, PizzaRev signed a deal to bring three new franchise locations to the Virginia Beach and Hampton Roads area. The new PizzaRev restaurants will be the first for Virginia. Hitash Patel and his family, owners of the new Virginia Beach and surrounding Hampton Roads restaurants, are veterans in the franchise restaurant category. The Patels have more than 30 years of experience owning and operating leading franchise brands.

10.  Ed Yancey, director of franchising for Cleveland Avenue, parent company of PizzaRev, said, “As we grow into new markets, our top priority is finding experienced franchisees who will serve as strong brand ambassadors to introduce PizzaRev to the community. The Patels represent the ideal franchisees we work to find in every new market – experienced multi-unit operators who will make PizzaRev a mainstay in their community.”

Company History

11.  PizzaRev was founded in 2011 by Rodney Eckerman and Irv Zuckerman, two former Clear Channel executives, along with their sons Nicholas Eckerman and Jeff Zuckerman in Los Angeles, California. The idea behind PizzaRev was birthed by Nicholas Eckerman who wanted to offer a faster, higher-quality pizza to the public.

12.  After Nicholas spent years working in the culinary industry, he pitched his idea – a higher-quality pizza that was fast enough for anyone to eat on their lunch break – to his father Rodney Eckerman. Although Rodney was retired at the time, he liked Nicholas’ idea so much that he asked his former business partner, Irv Zuckerman, for help. Irv’s son, Jeff Zuckerman, was brought on board to lead the company’s branding and marketing efforts.

13.  The Eckermans and Zuckermans started franchising the PizzaRev concept in 2013. The brand’s
first franchisee was Buffalo Wild Wings, which held a minority stake in the company. As part of the franchise agreement, Buffalo Wild Wings opened a number of PizzaRev locations around its home base of Minneapolis.

14.  In 2017, PizzaRev was acquired by Cleveland Avenue LLC, a Chicago-based accelerator that invests in restaurant, food, and beverage concepts. At the time of the acquisition, Buffalo Wild Wings sold its minority stake in PizzaRev and had already stopped opening PizzaRev franchises in 2016. Earlier in 2017, Buffalo Wild Wings also closed all of its PizzaRev locations in Minnesota.

Entrepreneur’s Franchise 500

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

Section II – Estimated Costs

• Please click here for detailed estimates of PizzaRev 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 PizzaRev’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:  6
• Outlets at the End of the Year:  10
• Net Change:  +4

2016

• Outlets at the Start of the Year:  10
• Outlets at the End of the Year:  25
• Net Change:  +15

2017

• Outlets at the Start of the Year:  25
• Outlets at the End of the Year:  21
• Net Change:  -4

Company-Owned

2015

• Outlets at the Start of the Year:  13
• Outlets at the End of the Year:  19
• Net Change:  +6

2016

• Outlets at the Start of the Year:  19
• Outlets at the End of the Year:  19
• Net Change:  +0

2017

• Outlets at the Start of the Year:  19
• Outlets at the End of the Year:  19
• Net Change:  0

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

• PizzaRev provides prospective franchisees with the financial information contained in this Item 19 about the revenues of 29 PizzaRev Restaurants that had been in operation for at least 18 months as of December 31, 2017.

• Restaurants in operation for at least 18 months were included in this Item because this is a sufficient period of time for the Restaurants to be fully operational and have an established operating history in their market areas.

• The financial information disclosed in this Item is for the 53-week period ending December 31, 2017. The financial information disclosed in this Item for the company-owned Restaurants has been prepared by and is the responsibility of PizzaRev’s management. PizzaRev’s auditors have not audited, reviewed, compiled, or performed any procedures on the financial information in this Item.

• The company-owned and franchised PizzaRev Restaurants included in this Item offer substantially similar menu items and services to their customers. However, the amount of revenues generated and the costs incurred by PizzaRev Restaurants differ, depending upon a variety of factors.

• In particular, the revenues, costs, and expenses of your Restaurant will be directly affected by the geographic area; economic conditions; business climate; customer demographics, including average household income; population growth; location and size of your Restaurant; competition; pricing policies; financing costs; quality of management and service at your Restaurant; contractual relationships with your landlord and suppliers; professional fees; federal, state, and local income and other taxes; and other economic and business factors.

• Information regarding the “mature” Restaurants is included in this Item. PizzaRev defines mature as those Restaurants open for a minimum of 18 months. This allows for fluctuations within the first six operating months and provides data for a full 12 months.

• PizzaRev operates under a 4-4-5 fiscal calendar with the 2017 fiscal year-end occurring on December 31, 2017.

• The financial performance representations disclosed below are derived from the actual revenues and expenses of the mature PizzaRev Restaurants that were in operation for the entire 53-week period ending on December 31, 2017.

• As of December 31, 2017, there were 29 mature company-owned and franchised PizzaRev Restaurants located in the states of California, Colorado, Nevada, New York, Tennessee, South Dakota, Texas, and Utah.

Revenues Generated During 53 Weeks Ending December 31, 2017

Company-Owned Restaurants Included in This Item