FDD Talk 2019: Cinnabon 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 Cinnabon franchise opportunity, including relevant news updates

• Section II – Estimated initial investment for a Cinnabon franchise, based on Item 7 of the company’s 2019 FDD

• Section III – Initial franchise fee, royalty fee, marketing fee, and other fees for a Cinnabon franchise, based on Items 5 and 6 of the company’s 2019 FDD

• Section IV – Number of franchised and company-owned Cinnabon outlets at the start of the year and the end of the year for 2016, 2017, and 2018, based on Item 20 of the company’s 2019 FDD

• Section V – Presentation and analysis of Cinnabon’s financial performance representations, based on Item 19 of the company’s 2019 FDD, including information on the:

• 2018 average, median, high, and low net sales for franchised Cinnabon Bakeries in enclosed malls, convenience stores, and airports (respectively), which were in operation continuously throughout Cinnabon’s fiscal year 2018 and were not Excluded Bakeries (i.e. Bakeries located in other non-traditional locations, Express Bakeries, and co-branded Bakeries)

• 2018 average, median, high, and low net sales by quartile for franchised Cinnabon Bakeries in enclosed malls, which were in operation continuously throughout Cinnabon’s fiscal year 2018 and were not Excluded Bakeries

• average, median, high, and low net sales by fiscal year (2014 to 2018) for franchised Cinnabon Bakeries in enclosed malls, which were in operation continuously throughout the applicable fiscal year and were not Excluded Bakeries

• 2018 average net sales, cost of goods sold, gross profit, labor, rent, other expenses, total expenses, and net operating income by region for franchised Cinnabon Bakeries in enclosed malls, which were in operation continuously throughout Cinnabon’s fiscal year 2018 and were not Excluded Bakeries

Section I – Background Information

15 Things You Need to Know About the Cinnabon Franchise

Launches Overnight Delivery eCommerce Platform

1.  In mid-November 2018, Cinnabon announced the launch of its first online gifting eCommerce platform. Customers across the United States can now quickly and easily order a variety of Cinnabon gifts perfectly packaged to “wow” the recipient, with free overnight shipping. The new gifting platform rolled out just in time for the 2018 holiday season.

2.  Kristen Hartman, president of Cinnabon, said, “The holiday season is our biggest season of the year and there’s nothing quite like the sensation of walking into a Cinnabon bakery during this time. Many of our fans want to share that experience with family and friends who may live across the country. We’re so excited to bring our Cinnabon gifting platform to life so our guests can share the Cinnabon bakery experience they love, as well as an irresistible and memorable gift this season.”

3.  The Cinnabon gifts are available in three sizes, the Classic Roll (6 count), MiniBon (15 count), and BonBites (16 count). The CinnaPacks can be purchased for $42.99 (6 count Classic Rolls), $49.99 (15 count MiniBons), and $39.99 (16 count BonBites).

Partners With Pizza Hut

4.  In early October 2018, Cinnabon and Pizza Hut announced that the brands have partnered up to introduce Crafted by Cinnabon Mini Rolls, exclusively available on Pizza Hut menus across the United States. Crafted by Cinnabon Mini Rolls are delivered warm to front doors by Pizza Hut and include 10 miniature cinnamon rolls made with Cinnabon Makara cinnamon swirls, topped with Cinnabon signature cream cheese frosting. The one-of-a-kind dessert is now a permanent Pizza Hut menu item.

5.  Kerri Christian, vice president of marketing for FOCUS Brands Global Channels (Cinnabon’s parent company), said, “We’re fortunate to have incredibly passionate fans that love the brand and are always craving more ways to enjoy Cinnabon products. Our partnership with Pizza Hut is helping us deliver on that demand and we couldn’t be more excited to now be part of pizza night.”

6.  Marianne Radley, chief brand officer of Pizza Hut, U.S., added, “There’s nothing better than polishing off pizza night with something sweet, so the new Cinnabon Mini Rolls are a perfect addition to our dessert portfolio. Pizza Hut has a history of offering innovative menu items and craveable desserts that bring everyone around the table to enjoy – and few things can satisfy a sweet tooth like authentic Cinnabon cinnamon rolls.”

Fan Favorite Added to Permanent Menu

7.  At the beginning of March 2019, Cinnabon announced the return of fan favorite Churro Swirls, which were originally released in August 2018 as a limited-time menu offering. The Churro Swirls are baked, instead of fried, and coated with Cinnabon’s signature Makara Cinnamon sugar.

8.  To celebrate the addition of the Churro Swirls to Cinnabon’s permanent menu, the Churro Swirls can now be paired with two new flavors of dipping sauces – warm Ghirardelli Chocolate or Smooth Caramel. Additionally, two Cinnabon Churro Swirls can be combined with a cream cheese frosting middle for a Churro Frosting Sandwich at a suggested retail price of $4.99.

9.  When the Churro Swirls were first introduced in 2018, Kristen Hartman, president of Cinnabon, said, “We are thrilled to incorporate our signature Cinnabon swirl to our irresistible Churros. An innovative spin on a classic treat our fans know and love, our Churro Swirls are made with the same quality ingredients as our cinnamon rolls and provide another way to enjoy our iconic baked goods.”

Company History

10.  Cinnabon was founded in 1985 by father and son duo, Rich and Greg Komen, in Seattle, Washington. Rich Komen was a local entrepreneur who already had experience opening restaurants in the area and ran a company called Restaurants Unlimited with minority partner and CEO Ray Lindstrom.

11.  Komen was inspired to open a cinnamon roll business after he had come across a small cinnamon roll stand, with a long line of customers, in a mall in Kansas City in 1984. After failing to secure a franchise agreement with the small cinnamon roll brand in Kansas City, Komen set out to develop his own cinnamon roll business from scratch.

12.  To develop the cinnamon roll recipe, Komen brought in Jerilyn Brusseau, who baked the pies and other goods for her small restaurant in Montana. Brusseau had built a reputation for the quality of her baked goods, including a cinnamon roll that she had been baking since she was a child. After a few months of trial and error, Brusseau – with help from Komen’s son Greg – developed a cinnamon recipe that Komen thought was delicious and could be produced on a wide scale as Cinnabon was intended to be a national chain from the start.

13.  The first Cinnabon location in Seattle’s SeaTac Mall was a success and franchising began the following year. Cinnabon continued to grow over the next few years by opening locations in malls, airports, gas stations, universities, amusement parks, casinos, and other non-traditional locations.

14.  In 1998, Cinnabon was sold to AFC Enterprises, Inc. for $65 million. AFC Enterprises continued to grow Cinnabon over the next six years, before selling the company to FOCUS Brands, Inc., which is owned by the Atlanta-based private equity firm Roark Capital Group. Today, Cinnabon has locations across 48 countries, including the United States, Canada, Japan, the Netherlands, the Philippines, and many more.

Entrepreneur’s Franchise 500

15.  Cinnabon ranked No. 74 on Entrepreneur’s 2019 Franchise 500 list.

Section II – Estimated Costs

• Please click here for detailed estimates of Cinnabon franchise costs, based on Item 7 of the company’s 2019 FDD.

Section III – Initial Franchise Fee, Royalty Fee, Marketing Fee, and Other Fees

• Please click here for detailed information on Cinnabon’s initial franchise fee, royalty fee, marketing fee, and other fees, based on Items 5 and 6 of the company’s 2019 FDD.

Section IV – Number of Franchised and Company-Owned Outlets

Franchised

2016

• Outlets at the Start of the Year:  748
• Outlets at the End of the Year:  834
• Net Change:  +86

2017

• Outlets at the Start of the Year:  834
• Outlets at the End of the Year:  880
• Net Change:  +46

2018

• Outlets at the Start of the Year:  880
• Outlets at the End of the Year:  923
• Net Change:  +43

Company-Owned

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:  2
• Net Change:  0

2018

• Outlets at the Start of the Year:  2
• Outlets at the End of the Year:  1
• Net Change:  -1

Section V – Financial Performance Representations (Item 19, 2019 FDD) and Analysis

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

• Net Sales – Net Sales means all revenues generated by your Bakery or conducted from or with respect to the Bakery, whether the sales are evidenced by cash, check, credit, charge, account, barter, or exchange.

• Net Sales includes monies, gift card redemptions, or credit generated by or received from (i) the sale of Approved Products or tangible property of every kind and nature, promotional or otherwise, anywhere and (ii) services performed from, at, or in connection with the Bakery, including (x) off-premises services (such as catering and delivery), (y) on-premises services such as games (e.g., slot machines) or third-party advertising (e.g., on menus), or (z) any other services or activities that use either the System, the Proprietary Marks, or products that are the same as or similar to the Approved Products.

• Cost of Goods Sold – Cost of Goods Sold (COGS) 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 (dough, frosting, beverages, etc.), paper products (cups, napkins, bags, straws, etc.) and retail items (Cinnabon cinnamon, 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), Royalty Fee, Advertising Contribution, 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.

• Excluded Bakeries – Franchised Bakeries that are (i) located in Non-Traditional Locations, except for Convenience Store Franchises and Airport Franchises, (ii) Express Bakeries, or (iii) co-branded Bakeries.

• Enclosed Mall Franchises – Franchised Bakeries that are located inside an enclosed mall.

• Convenience Store Franchises – Franchised Bakeries that are located inside a convenience store or travel plaza.

• Airport Franchises – Franchised Bakeries that are located inside an airport.

Cinnabon Stores By Region

• Cinnabon’s four Regions, and their respective states, are used in the information presented in Item 19. These four Regions comprise the entire group of Regions within the Cinnabon system:

• Northeast Region:  (i) Connecticut; (ii) District of Columbia; (iii) Delaware; (iv) Maryland; (v) Massachusetts; (vi) New Hampshire; (vii) New Jersey; (viii) New York; (ix) Pennsylvania; (x) Rhode Island; (xi) Virginia; and (xii) West Virginia.

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

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

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

• The information presented in Item 19 excludes sales information from (a) affiliate-owned Bakeries; (b) Excluded Bakeries; and (c) Bakeries that submitted late, incomplete, illegible, or obviously erroneous financial information, experienced hardware or software technical issues that inhibited proper reporting, or submitted such information in an unacceptable format (“Incomplete Information”).

• Excluded Bakeries have been excluded from Item 19, because they are generally smaller in size than typical Bakeries, their consumer traffic flow is significantly reduced, and/or their operating hours are generally substantially less than the operating hours of the Bakeries included in this Item 19.

• Parts 1 through 4 present Net Sales or average Net Sales, average expenses, and average Net Operating Income figures for the fiscal year ended December 30, 2018 (“fiscal year 2018”), obtained from reported sales or the unaudited profit and loss statements submitted by Cinnabon franchisees in the venues represented in the tables.

Part 1 – Net Sales Range Fiscal Year 2018 – Various Venues (Franchised Bakeries – All Regions)

• The Bakeries in this chart do not include Excluded Bakeries.

• The Bakeries whose results are reflected in this table are all franchised Full Bakeries which were in operation continuously throughout Cinnabon’s fiscal year 2018 in the three venues represented. Results of franchised Full Bakeries that either opened or closed during fiscal year 2018 are not included.

Enclosed Mall Franchises