FDD Talk 2019: Togo’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 Togo’s franchise opportunity, including relevant news updates

• Section II – Estimated initial investment for a Togo’s 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 Togo’s franchise, based on Items 5 and 6 of the company’s 2019 FDD

• Section IV – Number of franchised and company-owned Togo’s 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 Togo’s financial performance representations, based on Item 19 of the company’s 2019 FDD, including information on the:

• 2018 average, median, high, and low gross sales for the High Sales, Medium Sales, and Low Sales categories and all 141 franchisee-owned traditional Togo’s Restaurants open for the full 52-week period ended December 29, 2018 that have reported sales for this entire period

• 2018 average and median food and paper cost as a percentage of gross sales for the 95 traditional Togo’s Restaurants that submitted P&L (profit and loss) reports for part or all of the 52 weeks ended December 29, 2018

• 2018 average and median direct labor cost as a percentage of gross sales for the 95 traditional Togo’s Restaurants that submitted P&L reports for part or all of the 52 weeks ended December 29, 2018

Section I – Background Information

21 Things You Need to Know About the Togo’s Franchise

Unveils Complete Brand Refresh

1.  In late April 2018, Togo’s, just a few years shy of its 50th birthday, unveiled a complete brand refresh. The changes include a new anthem, logo, packaging, store design, and even a fresh signature menu item, the Pretzelrami. The Pretzelrami features more than a quarter pound of pastrami piled high on a soft pretzel roll, and loaded with tangy yellow mustard and crisp dill pickles.

2.  Glenn Lunde, president of Togo’s, said, “Togo’s has been pretty quiet the last few years, but we’re thrilled to begin sharing our many exciting brand improvements with existing and new guests. Our commitment is to be relentlessly ‘True to the Sandwich’ in everything we do, which means staying laser focused on what matters most to our guests, and that’s bold flavors, premium ingredients, and generous portions.”

3.  In early March 2018, the brand brought on industry veteran Corey Wilde, who clocked time at Nathan’s and Bruster’s as chief development officer, in an effort to propel Togo’s expansion. He’s going to do so now with a completely revamped image.

4.  Togo’s said the changes are meant to represent its storied culture “and what makes Togo’s so unique from other sandwich concepts.” An updated logo, new employee uniforms, and vibrant new packaging will be immediately visible for guests. Togo’s added that its stores are undergoing a facelift, which will roll out gradually, as well as define all new units moving forward.

5.  Togo’s refreshed anthem is called “True to the Sandwich.” The chain is announcing the changes through a marketing campaign developed by Siltanen & Partners of Los Angeles labeled “How Far Would You Go for a Togo?” It illustrates the extreme and humorous lengths that people will go to get their favorite sandwiches, Togo’s said.

6.  Wilde told QSR Magazine that Togo’s was focusing on giving the brand a consistent look and feel across the coast, and that the brand had remained stagnant for about three decades. He estimated it would grow about 20-30 store locations per year over the next several years, including non-traditional growth in C-stores.

7.  He added, “Togo’s presents a tremendous opportunity for potential franchisees looking to expand their portfolio and grow with a proven brand that has an extremely loyal following. Our existing franchise partners are very enthusiastic about the brand refresh and are confident that our fresh approach will strongly resonate with new guests, while appreciated by longtime fans who have loved Togo’s since their very first bite.”

California Store of the Future Offers Fresh Look and Experience for Customers and Greater Efficiencies for Franchisees

8.  Beginning in March 2019, Togo’s store of the future, named Togo’s 3.0, started gaining momentum thanks to the completion of both physical and operational renovations at Togo’s Emeryville, Fremont, and San Jose, California stores. Togo’s completely remodeled one corporate and two franchise-owned locations to dramatically improve the overall guest experience with faster speed of service and a more contemporary dining environment.

9.  Farid Biglari, senior director of operations services for Togo’s, said, “We wanted a store that reflected our nearly 50 years of leadership in the premium sandwich category. To go with the stores’ fresh look, we also wanted to increase speed of service for dine-in, takeout, and delivery convenience, so we created a far more efficient kitchen system that includes state-of-the-art equipment along with self-service kiosks.”

10.  Glenn Lunde, CEO of Togo’s, added, “We’ve given the best sandwich, the best environment for our people and our guests.” With a clear view of the kitchen, guests can also see the efficiency of the newly-reorganized prep system. The sandwich-making process now follows a speed-line style in which a guest can order at either the self-service kiosk or talk to a cashier to place an order. Lunde said that this style of sandwich making is both faster and more accurate.

11.  He continued, “The back of house operations are simplified, meaning it’s easier and faster for consumers to receive their order. We’ve also simplified the ordering process and are more accessible to our customers through our third-party delivery partnership with DoorDash and other partners.”

12.  The rebranding initiatives, which were started in 2018, have yielded both customer satisfaction and strong sales growth. Togo’s Emeryville location, the first to be updated, has been open for a little over two months. During this time, the Emeryville Togo’s has seen a 15% increase in same-store sales. While it is too soon to identify the precise sales climb for both the Fremont and San Jose stores, Lunde stated that those locations’ initial sales numbers are up as well with no marketing efforts at this point.

13.  In addition to a more streamlined kitchen system, the 3.0 stores now utilize more white lighting sources throughout the restaurant, plus brighter flooring to evoke cleanliness and a welcoming atmosphere. The walls sport a coat of crisp white paint with bright orange accents. Pops of bright blue tile break up the orange patterning along the wall and the elevated colors are absolutely striking to the eye.

14.  Togo’s newest Santa Clara store, which has been built from the ground up, opened in mid-May and the brand is eager to see how the fresh design will be received. Lunde stated that the four pending new stores will reflect the rebranding initiative as well. With three locations successfully reopened, Togo’s seeks to overhaul seven to eight more locations this year. The company has another 18 stores slated for rebranding in 2020 and will keep a close eye on sales growth and social media engagement.

Adds Hot and Melty Chicken Sandwiches to Menu

15.  In mid-July 2019, Togo’s introduced three hot and melty chicken sandwiches to its menu. Togo’s continues to deliver on its brand promise to be True to the Sandwich with the introduction of the new tasty Hot Chicken Trio. The chicken sandwiches are the follow-up to the brand’s successful hot pretzel sandwich introduction earlier this year.

16.  The three new hot chicken sandwiches rolled out to the entire Togo’s system on July 10. The Hot Chicken Trio features a powerhouse of flavors and includes:

• The Buffalo Chicken: Featuring all-natural, rotisserie-style chicken covered with melted pepper jack cheese, creamy ranch dressing, and drizzled with Frank’s famous Red Hot Buffalo Sauce;

• The Brewpub Chicken: Featuring all-natural, rotisserie-style chicken smothered in melted cheddar and creamy ranch dressing, then topped with thick-cut smokehouse bacon and fresh hand-mashed avocado;

• BBQ Chipotle Chicken: Featuring all-natural, rotisserie-style chicken topped with melted cheddar and house-blended chipotle mayo and Sweet Baby Ray’s BBQ sauce;

17.  According to Glenn Lunde, CEO of Togo’s, “We are excited to meet guest demand with the arrival of our new hot chicken sandwiches. Togo’s has always prided itself on exceptional made-to-order sandwiches that use only the freshest ingredients and we are thrilled to be able to innovate with new hot sandwich options while staying ‘true to the sandwich’ and maintaining the quality that made us famous.”

Company History

18.  Togo’s was founded in 1971 when Mike Cobler, who was a student at San Jose State University at the time, used his savings to purchase a small sandwich shop. The shop had initially been opened in 1967 by Gordon Reid and the sign out front read “Sandwiches To Go” with To Go being on the second line. This inspired Cobler to rename the shop Togo’s.

19.  Cobler set out to make the meatiest and best quality sandwiches that he could and Togo’s was immediately popular with lines forming out the door. Following the success of the first Togo’s, Cobler opened additional locations in the area, as well as in Oregon. Cobler began franchising the Togo’s concept in 1977.

20.  Over the next few decades, Togo’s continued to grow and in 1997, the chain was acquired by Dunkin’ Brands. By 2001, Togo’s had grown to more than 350 locations across the United States and in 2007, the company was sold to Mainsail Partners, a San Francisco-based private equity firm, in partnership with Tony Gioia, a former president of Baskin-Robbins. Mainsail retained ownership of Togo’s for a few years before the company was acquired by Nimes Capital in December 2015.

Entrepreneur’s Franchise 500

21.  Togo’s ranked No. 235 on Entrepreneur’s 2019 Franchise 500 list.

Section II – Estimated Costs

• Please click here for detailed estimates of Togo’s 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 Togo’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:  236
• Outlets at the End of the Year:  232
• Net Change:  -4

2017

• Outlets at the Start of the Year:  232
• Outlets at the End of the Year:  213
• Net Change:  -19

2018

• Outlets at the Start of the Year:  213
• Outlets at the End of the Year:  201
• Net Change:  -12

Company-Owned

2016

• Outlets at the Start of the Year:  14
• Outlets at the End of the Year:  12
• Net Change:  -2

2017

• Outlets at the Start of the Year:  12
• Outlets at the End of the Year:  11
• Net Change:  -1

2018

• Outlets at the Start of the Year:  11
• Outlets at the End of the Year:  6
• Net Change:  -5

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

• As of December 29, 2018, Togo’s had 207 Restaurants open, which were comprised of 150 “traditional” Restaurants (full service, full menu, in line or freestanding), 50 “Combo” Restaurants comprised of more than one brand operating in one location (typically a Baskin-Robbins Ice Cream Shop), and 7 “non-traditional” Restaurants (limited service, limited menu, college or stadium location).

• Of the 150 traditional Restaurants, 141 were operational for the full 52-week period ended December 29, 2018 and had submitted 52 weeks of sales reports.

• Excluded from the tables below are 15 Restaurants (13 traditional and 2 “Combo” Restaurants) that closed during the 2018 fiscal year. Zero of such closed Restaurants closed after being open for less than 12 months.

• Part 1 below covers only those 141 traditional Restaurants which submitted sales for the full 52-week period ended December 29, 2018.

• Parts 2 and 3 below include only those 95 Restaurants that have submitted profit and loss (“P&L”) reports for part or all of the 52-week period ended December 29, 2018.

• The information in the tables below was prepared using financial information provided to Togo’s by the franchisees. The franchisees’ financial information is not audited.

• You should consider that this information gives no weight to specific locations, types of operators, investment cost, or market conditions. Sales and costs may differ widely from one location to another, without respect to their geographic region. You must make your own investigation into the likely sales and costs in your specific location and region.

• A prospective franchisee who is purchasing the assets of an existing Restaurant should review the actual financial results of the Restaurant(s) being purchased.

• Prospective franchisees for nontraditional or Combo Restaurants (i.e. Restaurants that include a Togo’s Restaurant and Baskin Robbins Restaurant at the same premises) should not rely on these figures, since these types of Restaurants may experience different results.

• If a franchisee did not provide complete sales information for the stated period, then such franchisee’s figures were not included in the data reported in this Item 19.

Part 1 – Average and Median Restaurant Gross Sales

• Part 1 contains the high/low ranges of gross sales and average and median gross sales for the High Sales, Medium Sales, and Low Sales categories for 141 traditional Restaurants which submitted sales for the full 52-week period ended December 29, 2018.

• As used herein, “Gross Sales” means and includes all revenue from the sale of all products and services and all other income of every kind and nature related to the Restaurant, whether for cash, by redemption of gift certificates or for credit, regardless of collection, including, without limitation, revenues derived from catering services or delivery sales, including third-party delivery fees and other charges, and receipts from vending machines or amusement devices, at or from the Restaurant; provided, however, Gross Sales does not include the incidental sales of gift cards or newspapers, incidental receipts from pay telephones, or any sales taxes or other taxes you collect from customers for transmittal to the appropriate taxing authority.

• The number of reporting Restaurants represents franchisee-owned traditional Togo’s Restaurants open for the full 52-week period ended December 29, 2018 that have reported sales for this entire period.

• The 141 reporting Restaurants are divided into three tiers based on the total Gross Sales achieved during the 52-week period ended December 29, 2018, with the “High Sales” category Restaurants being one third of the reporting Restaurants that achieved the highest Gross Sales among all reporting Restaurants, and the “Low Sales” category representing one third of the reporting Restaurants that achieved the lowest Gross Sales among the reporting Restaurants.

High Sales Category