FDD Talk: Lemon Tree 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 Lemon Tree franchise opportunity, including relevant news updates

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

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

• 2017 average, median, highest, and lowest gross sales for the top 10%, top 20%, top 30%, top 40%, top 50%, top 60%, top 70%, top 80%, top 90%, and top 100% of the 30 franchised Lemon Tree salons that were open and reporting for at least 2 full years as of December 31, 2017 under the same ownership

• 2017 average, median, highest, and lowest gross sales for the bottom 10%, bottom 20%, bottom 30%, bottom 40%, and bottom 50% of the 30 franchised Lemon Tree salons that were open and reporting for at least 2 full years as of December 31, 2017 under the same ownership

Section I – Background Information

14 Things You Need to Know About the Lemon Tree Franchise

Gearing Up for National Expansion

1.  Over the last 40 years, Lemon Tree Family Salons has built a full-service, family hair salon franchise that thousands in the Tri-State area have come to love. In early March 2018, Lemon Tree announced that it was looking to expand its reach and more than double its national footprint over the next five years.

2.  At the time of the announcement, Lemon Tree had 73 salons open and operating in six states (NY, NJ, CT, MD, PA, ME). Lemon Tree said that it expected to sign development deals totaling 10 locations by the end of 2018 and open as many as five new salons. Company executives hope to have a total of 200 units nationwide by 2023.

3.  According to Jonathan Shaw, president and CEO of Lemon Tree, the expansion will be accomplished exclusively through franchising and will target various major cities across the country. Continued growth throughout the Tri-State area is also planned.

4.  Shaw added, “As the oldest and largest hair salon franchise on Long Island, Lemon Tree has become synonymous with affordable, family hair salons. Today, we believe the Lemon Tree franchise model is one of the most solid and proven in the industry. We are excited to announce the national rollout of the franchise opportunity and look forward to sharing our success with new communities and family-oriented entrepreneurs all across the country.”

5.  Unlike most other salon franchises that focus mainly on haircutting, Lemon Tree salons provide a full-range of professional services and products for the whole family – whether it’s a child’s first haircut or services for seniors. Lemon Tree offers the latest in haircuts and styling, coloring, blow-outs, straightening, and facial waxing, among other services.

6.  The salons are open seven days and five nights per week so clients can visit when it’s most convenient for them. While clients have the option of scheduling appointments, Lemon Tree’s walk-in policy allows them to visit anytime. Lemon Tree salons tend to thrive in small shopping centers to larger supermarket-anchored retail centers. Customers are typically families with a median household income of $55,000 or less.

7.  Shaw said, “Everyone gets their hair cut, colored, or styled no matter the economic situation. Because of our competitive prices, clients will often visit us because we are more convenient and affordable than other professional salons.”

8.  To augment the company’s growth, Lemon Tree is looking for ideal franchise partners who want to focus on running a business, not cutting hair; franchise partners that are driven by success and want to grow into multiple salons while bringing clients in their markets a high-quality, value-priced, full-service salon experience. Shaw emphasized, “They have to love people. They must be community and family oriented, and can think and dream big.”

Looking to Expand Further in Texas

9.  In July 2018, Lemon Tree Family Salons announced that the brand was looking to expand further in Texas with a second salon in Katy. At the time of the announcement, Lemon Tree had one salon in the state – in Hurst, which opened earlier in 2018. The Katy Lemon Tree salon opened in November and is owned and operated by Steven McKelvey and his wife Irene.

10.  McKelvey anticipates opening an additional two to three locations over the next several years. McKelvey said, “Lemon Tree has a proven business model and its success throughout the East Coast is a testimony to that. A full-service salon for all ages is in demand in Houston, and we are thrilled to be meeting this demand with a high-quality service. We are confident we will be successful among Houston’s warm and welcoming community.”

Company History

11.  Lemon Tree Family Salons was founded in 1974 by Joan M. Cable as a family salon in Long Island, New York. Cable opened a few additional Lemon Tree salons in the area and sold the company in the 1990s.

12.  In 2009, Jonathan Shaw purchased Lemon Tree Family Salons. Shaw comes from a long line of entrepreneurs – his grandfather Anthony Shaw and his father Robert Shaw opened a beauty salon called Style-Rite in New Jersey in 1964. The Shaws continued to buy salon locations and Jonathan opened his first franchise in 1990.

13.  Since purchasing Lemon Tree Family Salons, Jonathan Shaw has focused on building a community of franchise owners and Lemon Tree Family Salons is now the largest salon franchise in Long Island.

Entrepreneur’s Franchise 500

14.  Lemon Tree Family Salons has yet to rank on Entrepreneur’s annual Franchise 500 list.

Section II – Estimated Costs

• Please click here for detailed estimates of Lemon Tree 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 Lemon Tree’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:  34
• Outlets at the End of the Year:  33
• Net Change:  -1

2016

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

2017

• Outlets at the Start of the Year:  33
• Outlets at the End of the Year:  34
• Net Change:  +1

Company-Owned

2015

• Outlets at the Start of the Year:  5
• Outlets at the End of the Year:  6
• Net Change:  +1

2016

• Outlets at the Start of the Year:  6
• Outlets at the End of the Year:  7
• Net Change:  +1

2017

• Outlets at the Start of the Year:  7
• Outlets at the End of the Year:  7
• Net Change:  0

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

Part 1 – Average Gross Sales of Top Percentiles of Lemon Tree Salons (January 1, 2017 to December 31, 2017)

• As of December 31, 2017, 33 franchised Lemon Tree Salons were open and reporting their gross sales to the franchisor (each, a “Franchised Salon”).

• Of those 33 Franchised Salons, 30 Franchised Salons were open and reporting for at least 2 full years as of December 31, 2017 under the same ownership. All 30 of these Salons were included in the results displayed in the tables below.

• Information reported by these 30 Franchised Salons was used to create the financial performance representation set forth in the tables below. This information was not audited or independently verified.

• The term Gross Sales, as used in the tables below, means total sales, less sales taxes and discounts.

• Gross Sales reports printed from the computer system used by Lemon Tree franchisees were the source of the data presented in this Financial Performance Representation. Lemon Tree has not independently audited or verified this information.

• During the period January 1, 2016 through December 31, 2017, two franchised locations closed and one transferred ownership. These three salons were excluded from the results displayed in the tables below. No franchised locations closed during the 2017 calendar year.

• Lemon Tree’s study measured Lemon Tree franchisees’ performance in the State of New York. All of the Franchised Salons included in the study for this Item 19 financial performance representation are located in the State of New York. The market where your Lemon Tree Salon is located, however, may differ significantly from New York. Accordingly, the results achieved by these franchisees may not be typical for those in your area.

• Each of the franchisees studied has been in business for at least 3 years. Additionally, several of the franchisees studied have a 2-mile Approved Territory.

• The sales volume attainable by each franchisee depends on many factors, including geographic differences, competition within the immediate market area, the quality and service provided to customers by the franchisee, and the size of the franchised location, as well as its own marketing and sales efforts.

• The financial performance information disclosed below do not reflect the costs of sales, operating expenses, or other costs or expenses that must be deducted from the gross revenue or gross sales figures to obtain your net income or profit.

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