FDD Talk 2018: Auntie Anne’s 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 Auntie Anne’s franchise opportunity, including relevant news updates

• Section II – Estimated initial investment for an Auntie Anne’s franchise, based on Item 7 of the company’s 2018 FDD

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

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

• 2016 average, median, high, and low net sales for Auntie Anne’s venues in Enclosed Malls, Airports, Outlet Centers, and Transportation Centers, that were open for business under the same ownership for the entire 2016 fiscal year

• 2016 average net sales, cost of goods sold, gross profit, labor, rent, other expenses, total expenses, and net operating income for Auntie Anne’s Enclosed Mall franchises, system-wide and by region (Mid-Atlantic, Northeast, Southeast, Midwest, and West), that were open for business under the same ownership for the entire 2016 fiscal year, and submitted complete data

Section I – Background Information

17 Things You Need to Know About the Auntie Anne’s Franchise

Parent Company FOCUS Brands Opens 1,500th International Location

1.  In early October 2018, FOCUS Brands, the parent company of Auntie Anne’s, hit a milestone in its international growth with the opening in Liverpool, England of its 1,500th international store. Robert Burton, the franchisee of the Liverpool store, said, “We are thrilled that our new Auntie Anne’s opened in Liverpool One Shopping Centre. It’s the largest outdoor shopping mall in the United Kingdom, and the perfect place to enjoy everyone’s favorite soft pretzel brand. Since we opened with our sub-franchisee Pretzel Perfect Ltd. in August, we have seen strong initial sales and heard great customer feedback. We look forward to continuing our development journey with our sub-franchise partners in the United Kingdom and Ireland.”

2.  The opening of this newest international location for Auntie Anne’s continues the strategic expansion of FOCUS Brands into international markets for its restaurant properties. Kagan Sanli, VP, Managing Director – EUMEA at FOCUS Brands International, added, “We are really excited to celebrate the opening of our 1,500th international location, an important milestone as we continue to expand our global presence. The unique and delicious product range of our well-known brands and strong partnership with our exceptional franchise network have been key to our rapid international growth and success. We are delighted to see Auntie Anne’s being very well received in the United Kingdom, and we look forward to bringing our other popular brands, such as Cinnabon, to this market.”

Launches Limited-Edition Clothing and Accessories Line for 30th Birthday

3.  This year marks the 30th anniversary of Auntie Anne’s. To celebrate, Auntie Anne’s announced in late April that it had partnered with six artists to create a bold, graphic design-inspired line of clothing and accessories. The eclectic “For the Love of Pretzels” collection debuted just in time for National Pretzel Day on April 26.

4.  Heather Neary, President of Auntie Anne’s, said, “Over the last 30 years, we’ve established deep connections with our loyal fans worldwide. Now, for the first time, those fans can showcase their love for Auntie Anne’s by wearing our clothing while also contributing to the fight against childhood cancer. This is going to be a ton of fun for a great cause.”

5.  All profits from the “For the Love of Pretzels” collection were donated to Alex’s Lemonade Stand Foundation (ALSF), Auntie Anne’s national charitable partner. ALSF’s mission is to change the lives of children with cancer through funding impactful research, raising awareness, supporting families, and empowering everyone to help cure childhood cancer. Since establishing a partnership with ALSF in September 2011, Auntie Anne’s has raised more than $3.7 million to fund childhood cancer research.

6.  Interested customers were able to visit auntieannes.threadless.com to purchase items from the “For the Love of Pretzels” collection. The online shop was hosted by Threadless, an online creative art community. The collection featured men’s, women’s, and children’s clothing, as well as shoes from Bucketfeet and a variety of lifestyle accessories including phone cases, water bottles, mugs, shower and bath gear, and more. Prices for items from the “For the Love of Pretzels” collection started at $13.

7.  Auntie Anne’s teamed up with the following designers to create the “For the Love of Pretzels” collection:

• Mike Perry Studio: Mike created the hand-painted “Auntie Packs” (fanny packs) which are only available via social media giveaway. Mike is an illustrator in Brooklyn, N.Y.
• Huebucket: Bangkok-based Chalermphol Harnchakkham designed the collection of Pretzel Pug Yoga items. Chalermphol is a self-taught illustrator whose unique work is inspired by pugs, French bulldogs, and his dreams.
• Rick Crane: Rick made the Pretzel Heaven products and is inspired by nature and minimalist designs.
• Daniel Allen Stevens: Daniel, a graphic designer and illustrator, produced the print for A Twisted Day.
• Luis Romero: Luis, creator of the Pretzels Forever design, is inspired by his childhood in Panama and his adulthood in Chicago.
• Shawnimals: Shawn designed the Pretzels for Everyone print and has also created a number of public art displays in his hometown of Chicago and around the world.

8.  To add to the National Pretzel Day celebration, Auntie Anne’s had a special offer for My Pretzel Perks members: buy any variety of pretzel, get a free handmade classic pretzel. The offer was available for members in the rewards section of the app and was valid from April 26 through 29.

Continues Birthday Celebration With the Launch of Birthday Cake Pretzel Nuggets

9.  Toward the end of October 2018, Auntie Anne’s launched Birthday Cake Pretzel Nuggets (for a limited time) as a gift for the brand’s fans and to continue the celebration of its 30th anniversary. The bite-size Birthday Cake Pretzel Nuggets are dusted with vanilla, drizzled with chocolate syrup, and topped with fun confetti sprinkles.

10.  Marcel Nahm, VP of Marketing for Auntie Anne’s, said, “We’ve been celebrating our birthday milestone with our fans all year. We hosted a Free Pretzel Party at all of our stores nationwide after more than 1 million guests RSVP’d, launched the stylish “For the Love of Pretzels” clothing and accessories collection, and then called on our fans to choose a new birthday-inspired pretzel flavor. Birthday Cake Pretzel Nuggets are the perfect culmination to this celebration, our tasty gift to pretzel lovers everywhere.”

11.  Earlier in the year, the brand held the Auntie Anne’s Pretzel Nation Creation promotion, where Auntie Anne’s asked its customers to select a new birthday-inspired flavor in honor of the brand’s 30th birthday. An initial request for flavors on social media generated more than 650 suggestions. Fans voted for the ten finalists at PretzelNationCreation.com from June 19 to 25. More than 300,000 votes were tallied and Birthday Cake was fittingly declared the Pretzel Nation Creation champion, defeating Caramel Apple Crème Brûlée by just 662 votes.

Company History

12.  Auntie Anne’s was founded in 1988 by Anne Beiler and her husband Jonas in Downington, Pennsylvania. Beiler, who was an Amish Mennonite, learned how to make baked goods at a young age. She sold her baked goods when she was 12 years old in order to help her family. Beiler married Jonas, who also knew how to bake, when she was 19 years old. A few years later, Beiler had her first child and she and her husband left the Amish community because it was too strict.

13.  Beiler began working at a concession stand at a farmer’s market in Maryland and started selling pretzels. She realized that making pretzels was fast and brought in a high margin of profit. Within a year, Beiler had enough money to rent her own pretzel stand in Downington. Beiler’s pretzel stand officially opened in February 1988 and her 30 nieces and nephews dubbed her new business Auntie Anne’s.

14.  Initially, Beiler sold pizza, stromboli, ice cream, and hand-rolled pretzels from her cart. Beiler was using a pretzel recipe from a friend, but after one of her supply deliveries got messed up, she spent two months coming up with her own pretzel recipe. With the help of Jonas, Beiler developed a softer and sweeter pretzel. Beiler’s pretzel sales quadrupled and she decided to focus on selling just pretzels from her cart.

15.  During the summer of 1988, Beiler opened a second pretzel stand in Harrisburg, Pennsylvania and by the next year, the company started franchising the Auntie Anne’s concept. In November 1989, the Beilers opened the first mall location, which is now the predominant location for Auntie Anne’s franchises.

16.  Over the next decade, Auntie Anne’s grew rapidly and by 1995 there were over 344 stores. That same year, Auntie Anne’s opened its first international location in Jakarta, Indonesia. In 2010, Auntie Anne’s was acquired by Atlanta franchisor FOCUS Brands, a portfolio company of private equity firm Roark Capital. Today, Auntie Anne’s continues to grow around the world and has become a staple of American malls.

Entrepreneur’s Franchise 500

17.  Auntie Anne’s ranked No. 124 on Entrepreneur’s 2018 Franchise 500 list.

Section II – Estimated Costs

• Please click here for detailed estimates of Auntie Anne’s 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 Auntie Anne’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:  1,073
• Outlets at the End of the Year:  1,135
• Net Change:  +62

2016

• Outlets at the Start of the Year:  1,135
• Outlets at the End of the Year:  1,191
• Net Change:  +56

2017

• Outlets at the Start of the Year:  1,191
• Outlets at the End of the Year:  1,225
• Net Change:  +35

Company-Owned

2015

• Outlets at the Start of the Year:  16
• Outlets at the End of the Year:  15
• Net Change:  -1

2016

• Outlets at the Start of the Year:  15
• Outlets at the End of the Year:  15
• Net Change:  0

2017

• Outlets at the Start of the Year:  15
• Outlets at the End of the Year:  13
• Net Change:  -2

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

• Tables 1 through 8 present net sales or average net sales, average expenses, and average net operating income figures for the year ended December 25, 2016 obtained from the unaudited profit and loss statements submitted by Auntie Anne’s franchisees based upon a uniform reporting  system.

• The information presented in Item 19 excludes sales information from (a) affiliate-owned Shops, (b) Subway Co-Branded Locations, (c) Shops that were not continuously open and operating under the same franchise owner throughout the entire applicable fiscal year, and (d) Shops that submitted late, incomplete, or illegible financial information, experienced hardware or software technical issues that inhibited proper reporting, or submitted such information in an unacceptable format (“Incomplete Information”).

Definition of Terms for Auntie Anne’s Profit and Loss Statements

• As used throughout Item 19, the following definitions apply:

• Net Sales – Net Sales includes, without limitation, monies, gift card redemptions, or credit received from the sale of food, beverages, and merchandise, from tangible property of every kind and nature, promotional or otherwise, and for services performed from or at the Shop, including, without limitation, off-premises services such as catering and delivery.

• Net Sales will not include the initial sales or reloading of gift cards, coupon discounts, the sale of food or merchandise for which refunds have been made in good faith to customers, the discounted portion of employee meals, the sale of equipment used in the operation of the Shop, nor will it include sales, meals, use, or excise tax imposed by a governmental authority directly on sales and collected from customers; provided that the amount for the tax is added to the selling price or absorbed therein, and is actually paid by you to a governmental authority.

• Cost of Goods Sold – Cost of Goods Sold is a figure which reflects the cost of materials used to produce the products you sell to your customers. It includes the cost of food ingredients (pretzel mix, butter, beverages, etc.), paper products (cups, napkins, bags, straws, etc.), and retail items (Auntie Anne’s At Home pretzel kits, etc.).

• Gross Profit – Gross Profit is Net Sales minus Cost of Goods Sold.

• Operating Expenses – Operating Expenses are the day-to-day costs incurred in conducting normal business operations.

• Labor – Labor includes wages paid to your employees and payroll taxes paid for your employees. Labor does not include actual wages and related expenses you pay to yourself.

• Rent – Rent includes the base rent for your lease including extra charges, such as common area maintenance (CAM) charges, real estate taxes, percentage rents, etc.

• Other Expenses – Other expenses include such things as utilities (electric, telephone), royalties, ad fund fees, advertising, insurance (Workers’ Comp, property, casualty, liability, health, etc.), licenses, permits, repairs, uniforms, store supplies, etc.

• Total Expenses – The total of Labor, Rent, and Other Expenses.

• Net Operating Income – Gross Profit minus Total Expenses.

• Alternative Locations – A franchised Shop that is located in alternative locations such as travel plazas, Concession Shops, farmer’s markets, seasonal locations, strip malls, grocery stores, military bases, colleges and universities, airports, outlet centers, Walmarts, transportation centers, amusement parks, or entertainment venues.

• Enclosed Mall Franchises – A franchised Shop that is located in an enclosed mall, including sales from related non-baking SRUs (Satellite Retail Units). Enclosed Mall Franchises do not include (a) company-owned Shops, (b) Subway Co-Branded Locations, or (c) Shops located in Alternative Locations.

Auntie Anne’s Stores By Region

• Auntie Anne’s includes the following Regions, and their respective states, in the information presented in Item 19:

• Mid-Atlantic Region: (i) West Virginia; (ii) District of Columbia; (iii) Virginia; (iv) Maryland; (v) Pennsylvania; and (vi) Delaware.

• Northeast Region:  (i) New York; (ii) Connecticut; (iii) New Hampshire; (iv) Massachusetts; (v) New Jersey; (vi) Vermont; (vii) Rhode Island; and (viii) Maine.

• Southeast Region:  (i) North Carolina; (ii) Georgia; (iii) Alabama; (iv) Arkansas; (v) Tennessee; (vi) Florida; (vii) South Carolina; (viii) Louisiana; and (ix) Mississippi.

• Midwest Region:  (i) Kansas; (ii) North Dakota; (iii) Iowa; (iv) Kentucky; (v) Michigan; (vi) Illinois; (vii) Indiana; (viii) Missouri; (ix) Nebraska; (x) Ohio; (xi) Minnesota; (xii) Wisconsin; and (xiii) South Dakota.

• Western Region:  (i) Nevada; (ii) Oregon; (iii) Texas; (iv) Oklahoma; (v) California; (vi) Washington; (vii) New Mexico; (viii) Colorado; (ix) Arizona; (x) Idaho; (xi) Utah; and (xii) Alaska.

Table 1 – Net Sales Range for 2016 Fiscal Year – Various Venues (All Regions)

Enclosed Mall Franchises

• The sales information for Enclosed Mall Franchises includes sales from 55 non-baking SRUs. Approximately 58% of Auntie Anne’s franchises are located in enclosed malls.