In this FDD Talk post, you’ll learn the following:
- Section I – Background information on the Smashburger franchise opportunity, including relevant news updates
- Section II – Estimated initial investment for a Smashburger 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 Smashburger franchise, based on Items 5 and 6 of the company’s 2018 FDD
- Section IV – Number of franchised and company-owned Smashburger 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 Smashburger’s financial performance representations, based on Item 19 of the company’s 2018 FDD, including information on the:
- 2017 average, median, high, and low gross sales for the 284 Mature Traditional Smashburger Restaurants (178 affiliate-owned and 106 franchised) that were in operation for at least one year as of January 1, 2018
- 2017 average, median, high, and low gross sales for the 23 Mature Special Venue Smashburger Restaurants (2 affiliate-owned and 21 franchised) that were in operation for at least one year as of January 1, 2018
- 2017 average, median, high, and low gross sales, cost of goods sold, gross profit, labor costs, and gross profit less labor costs for the 178 affiliate-owned Mature Traditional Smashburger Restaurants that were in operation for at least one year as of January 1, 2018
Section I – Background Information
14 Things You Need to Know About the Smashburger Franchise
Jollibee Foods Corporation Acquires Majority Stake in Smashburger
1. In early February 2018, Smashburger announced that Jollibee Foods Corporation (JFC), Asia’s largest food service company based out of the Philippines, had agreed to acquire an additional 45 percent of the Smashburger brand for $100 million, bringing JFC’s ownership stake to 85 percent.
2. Tom Ryan, co-founder and CEO of Smashburger, said, “Jollibee has been an invaluable strategic partner to date. Our momentum in 2017 around improved guest experience, iconic and record-setting product launches, and innovative marketing provide JFC a tremendously strong brand to enter the North American market. Our entire team couldn’t be more excited to grow the Smashburger brand and share the great tastes of Smashburger with the world.”
3. With the expanded Jollibee partnership, Smashburger CFO Bradford Reynolds said growth in Southeast Asia is a focus. Reynolds added, “This reinforced strategic partnership with JFC will allow Smashburger to continue to focus on growth in both existing and new markets including the opportunity to bring our great tasting burgers, fries and hand-spun shakes to Southeast Asia. We look forward to building upon our successful relationship to further bolster the brand as an international leader in the better burger segment.”
Announces $100 for 100 Days of Free Burgers
4. In late September 2018, Smashburger announced that it was offering the Smash Pass for a limited time again this year. Starting on September 28, customers were able to purchase the popular Smash Pass for just $100. Available only online, the Smash Pass allows customers to receive one free entrée every day from November 5, 2018 to February 14, 2019, at participating locations. This year’s deal is different from the first Smash Pass from 2017, which enabled customers to purchase a burger for $1 every day during the duration of the Smash Pass promotion.
5. David Martinelli, vice president of marketing at Smashburger, said, “Our fans raved about the original Smash Pass and have been begging for it to make a comeback. We wanted to elevate the experience for our most loyal fans and really give them a lot of burger for their buck. Getting more than $600 worth of burgers for just $100 really takes the sting out of the expensive holiday season.”
6. The Smash Pass was only available for purchase for a limited time. In order to purchase a Smash Pass, customers had to sign up for Smashburger’s SmashClub rewards program. As a bonus, any customer who purchases a Coca-Cola fountain beverage when using their Smash Pass will automatically be entered to win an all-expense paid trip to Las Vegas for two.
7. Smashburger was founded in 2007 by Tom Ryan and Rick Schaden in Denver, Colorado. Both Ryan and Schaden were fast-food industry veterans. Ryan helped to develop the stuffed crust pizza concept at Pizza Hut and later became chief concept officer for McDonald’s. Schaden was a former owner of Quiznos.
8. After leaving their previous careers, Ryan and Schaden founded Consumer Capital Partners and envisioned a quick-service restaurant that served a higher-quality burger. Ryan and Schaden bought a Denver restaurant called Icon Burger so they could use the kitchen to experiment with cooking and management techniques. They decided to name their new concept Smashburger after the way they cooked the burger, which was smashed on a flat top grill at a high heat.
9. From the beginning, Smashburger was created with quick scalability in mind and Ryan and Schaden started franchising Smashburger a year after the first location opened in Denver. Smashburger then spread to Houston, followed by Minneapolis, which were places that Ryan and the company’s other founding management were familiar with.
10. The company grew quickly and by 2011, there were 143 Smashburger locations, half of them franchises, and $54 million in revenue. That same year, Smashburger opened its first international franchises in Kuwait, Saudi Arabia, and Bahrain.
11. Over the next few years, Smashburger continued its strong growth and in 2013, the company secured a $35 million debt facility from Golub Capital. Smashburger used this new capital, as well as the revenue generated by business operations, to support further expansion.
12. In 2015, the Philippine-based quick-service operator Jollibee Foods Corporation announced that it had acquired a 40 percent stake in Smashburger for $100 million. Smashburger hit a bit of a slump in the following years as consumer trends started to shift. The company decided to scale back its expansion strategy and bought back some franchises in several major markets.
13. In early 2018, Jollibee, which already had a 40 percent stake in Smashburger, increased its ownership stake to 85 percent in another $100 million deal. With this acquisition, Smashburger plans to further expand its presence in Southeast Asia. Smashburger now has locations in 37 states and 9 countries.
Entrepreneur’s Franchise 500
14. Smashburger did not rank on Entrepreneur’s 2018 Franchise 500 list.
Section II – Estimated Costs
- Please click here for detailed estimates of Smashburger 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 Smashburger’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
- Outlets at the Start of the Year: 122
- Outlets at the End of the Year: 141
- Net Change: +19
- Outlets at the Start of the Year: 141
- Outlets at the End of the Year: 146
- Net Change: +5
- Outlets at the Start of the Year: 146
- Outlets at the End of the Year: 147
- Net Change: +1
- Outlets at the Start of the Year: 166
- Outlets at the End of the Year: 185
- Net Change: +19
- Outlets at the Start of the Year: 185
- Outlets at the End of the Year: 209
- Net Change: +24
- Outlets at the Start of the Year: 209
- Outlets at the End of the Year: 186
- Net Change: -23
Section V – Financial Performance Representations (Item 19, 2018 FDD) and Analysis
- As of the end of Smashburger’s 2017 fiscal year (December 31, 2017), there were 333 Smashburger Restaurants in operation in the United States (186 affiliate-owned and 147 franchised).
- For purposes of making the calculations described in Item 19 and to eliminate start-up volatility, Smashburger has included the results of only the Mature Restaurants (i.e. those that were in operation for at least one year as of January 1, 2018), which means that it eliminated from the data set 6 affiliate-owned and 20 franchised Smashburger Restaurants, and has based its calculations in this section on the 307 Mature Restaurants.
- Of the 307 Mature Restaurants, 23 were Mature Special Venue Restaurants (2 affiliate-owned and 21 franchised), and 284 (178 affiliate-owned and 106 franchised) were Mature Traditional Restaurants.
- Information regarding the performance of franchised Smashburger Restaurants used in this section was obtained by polling data from the franchisees’ point-of-sale systems. Smashburger has not audited or verified the data polled from the franchisees nor has that data been audited or reviewed by an independent certified public accountant acting on the franchisor’s behalf.
Part 1 – Average and Median Annual Gross Sales for Franchised and Affiliate-Owned Smashburger Restaurants
- The chart below shows the average annual Gross Sales for the Measurement Period (i.e. Smashburger’s 2017 fiscal year, a 52-week period, which began January 2, 2017 and ended on December 31, 2017) for:
- (a) all 307 Mature Restaurants,
- (b) all 180 affiliate-owned Restaurants,
- (c) all 127 franchised Restaurants in the data set, each broken out by Mature Traditional Restaurants and Mature Special Venue Restaurants.
- To calculate the average annual Gross Sales for all 307 Mature Restaurants, the franchisor added, for each classification (Mature Traditional Restaurants and Mature Special Venue Restaurants), the Gross Sales generated during the Measurement Period by all Mature Restaurants in each classification (284 Mature Traditional Restaurants and 23 Mature Special Venue Restaurants), then divided that number by the number of Smashburger Restaurants in that classification.
- The median is calculated by putting all annual Gross Sales numbers in numerical order, and the median is the middle number in such sequence (or if there is an even number of results, the median is the average of the two central numbers).
- Gross Sales means net revenue derived from the operation of the Smashburger Restaurant as defined in the Franchise Agreement, which does not reflect either gross or net profits.
Annual Gross Sales – Mature Traditional Restaurants
Affiliate-Owned Mature Traditional Restaurants