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

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

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

• 2018, 2017, 2016, 2015, and 2014 average, median, lowest, and highest gross sales for the Type 1 (Scooter’s Coffee Drive-Thru Kiosks) and Type 2 (Scooter’s Coffee Drive-Thru Coffee Houses) Stores that were open and operating during the entire 12-month period ending December 31 of the calendar year identified

• 2018 average and median cost of goods sold, labor costs, rental expense, and discount expense for the 74 Type 1 and 51 Type 2 franchised Stores that were open and operating during the entire 12-month period ending December 31, 2018 and that provided complete information

• 2018 average and median ticket sales for the 84 Type 1 and 54 Type 2 franchised Stores that were open and operating during the entire 12-month period ending December 31, 2018 and that provided complete information

• historic same-store sales growth for those franchised Scooter’s Coffee Stores that were open for at least thirteen months during each of the five measured periods (2013-2014 to 2017-2018)

Section I – Background Information

24 Things You Need to Know About the Scooter’s Coffee Franchise

Adds Key Leadership Positions in Midst of Rapid Growth

1.  Near the end of June 2019, Scooter’s Coffee announced that it had added key positions to its leadership team. Scooter’s hired Lisa Person as vice president of marketing and Nick Jarecke as vice president of supply chain. Both positions are vital as the company molds its infrastructure for targeted expansion.

2.  Formerly director of marketing at Omaha Steaks, Person will oversee Scooter’s Coffee’s brand strategy, product development and innovation, merchandising, and digital and in-store marketing. Person’s resume boasts more than ten years of experience and exposure to a versatile range of digital and traditional marketing strategies.

3.  Todd Graeve, chief executive officer of Scooter’s Coffee, said, “The breadth of Lisa’s experience at Omaha Steaks and her familiarity with the Scooter’s Coffee brand and ethos makes her a perfect fit for overseeing many of the expanding marketing responsibilities created by the company’s robust growth. The success of our Scooter’s Coffee franchisees is always top of mind, and the addition of Lisa Person elevates further our franchise support team and care for our community of franchisees.”

4.  Person will lead B2B and consumer marketing for key initiatives, including the launch of a new mobile app, new product development, and the release of the company’s first-ever canned cold brew coffee.

5.  Person added, “I couldn’t be more excited to help Scooter’s Coffee franchisees take their businesses to the next level in creating lasting relationships with the people in their communities. We already have a brand presence in key, core areas, and we want to expand that so that people can experience the love, humility, integrity and courage that all Scooter’s Coffee franchisees and corporate employees feel for our customers with every cup of coffee we serve. The opportunities are truly endless for this company, our brand and our franchisees. I can’t wait to lead our passionate team of coffee lovers to help further cultivate infatuation within our consumers for high-quality relationship coffee harvested from all over the world.”

6.  In addition to the pivotal addition to the marketing team, the company has also brought in Nick Jarecke as vice president of supply chain. This strategic move bolsters the leadership team in the company’s warehouse and distribution center, Harvest Roasting. Jarecke brings more than 15 years of experience in production, warehousing, logistics, and distribution. Having worked at several large companies, including General Mills, Kellogg’s, and Tyson Foods, Jarecke brings great knowledge of scalable solutions and production efficiencies.

7.  According to Graeve, “A key to our rapid and smooth expansion throughout the Midwest and beyond is having a warehouse and distribution center that can grow with us. Nick is the perfect person to lead the charge as we implement an infrastructure to support our valued franchisees.”

8.  As vice president of supply chain, Jarecke will be responsible for the entire scope of Harvest Roasting including bakery, roastery, packaging and warehouse, and logistics. Jarecke will work closely with the leadership team within Harvest and partner with other departments throughout Scooter’s to create efficiencies and procedures to lead Harvest Roasting and support the continued growth of Scooter’s Coffee franchisees.

9.  According to Jarecke, “I’ve been lucky enough to work for several large manufacturing companies that have helped me build a solid understanding of the supply chain process. I believe that my past experience, combined with the great team already at Harvest, has put us in the perfect position to set Harvest Roasting up for success and scalability in partnership with our Scooter’s Coffee franchisees.”

Launches New Mobile App

10.  In mid-July 2019, Scooter’s Coffee officially launched its mobile app with a special limited-time only promotion: All new customers that download and sign up for the app will instantly receive $2 off their first purchase. The amount will be loaded into their rewards bank. Scooter’s Coffee customers now have a new and improved way to not only pay for their favorite drinks, but also earn rewards, send friends digital gifts, and even tip their favorite barista.

11.  According to Lisa Person, vice president of marketing for Scooter’s Coffee, “We are committed to creating an amazing experience for customers through every interaction with Scooter’s Coffee. The new mobile app honors Scooter’s Coffee loyalists by providing more opportunities for earning rewards. At the same time, it represents an easy way for new customers to pay in a very convenient way. The bottom line is that we developed this app with our customers’ needs in the forefront of our minds, and the final product showcases our desire to put those customers first. We listened to our customers and are excited to provide an easy way for them to find a new favorite drink, pay conveniently and get surprise rewards too!”

12.  With the new app, customers earn 3 “Smiles” for every dollar spent, and once they reach 180 Smiles, they earn a free drink. All customers start in the Scooter Doodle status level, with perks that include a free drink on their birthday and one surprise reward per month, exclusive to the mobile app only. After earning 500 Smiles, customers move into the Caramelicious status level with additional perks, including another surprise reward each month.

13.  To pay with the app, customers simply need to link a credit card and tap “Pay in Stores” from the home screen. Then, if customers choose to tip, they can select a custom amount or percentage prior to scanning their app.

14.  Person added, “We’re growing very rapidly and creating lasting technological infrastructure for our franchisees is extremely important. The new mobile app allows us to deliver targeted marketing campaigns that enable franchisees to bring in new customers and makes it very easy for those customers to pay once they get to the store.”

15.  The app also includes a “Gift Store” feature where customers can gift various drink or food options or a digital gift card to friends and family. In addition, the “Give $2, Get $2” feature allows customers to invite their friends to download the Scooter’s Coffee app for a $2 credit.

16.  Customers have full access to the menu on the Scooter’s Coffee app, including nutritional information. “We want to empower our customers to enjoy Scooter’s Coffee whenever and wherever they want without any hassle,” stated Person. “The new mobile app makes it easy for them to do so.”

Introduces Canned Cold Brew

17.  At the beginning of July 2019, Scooter’s Coffee gave its franchisees a powerful new way to help customers cool down and power up anywhere and everywhere with the company’s first-ever canned Cold Brew beverages. The new Cold Brews are the company’s first foray into the ready-to-drink coffee category and come in three initial varieties:

• Guatemala – a slow-steeped black cold brew medium roast coffee with notes of brown sugar, citrus, and floral;
• Costa Rica Micro-Mill – a slow-steeped black cold brew medium roast coffee with notes of cacao, citrus, and tropical fruits, procured directly from small family-controlled micro-mill farms; and
• Scooter Doodle – based off of a fan-favorite flavored coffee in stores, this smooth roast tastes like a combination of hazelnut and cinnamon with a touch of clove.

18.  All three varieties are unsweetened and do not contain any cream or sugar, so that customers can experience hints of all of the flavor notes that each unique drink has to offer.

19.  Cris Bengis, senior vice president of commercial sales for Scooter’s Coffee, said, “Cold brew coffee has been a favorite of our customers for years. With our new line of canned Cold Brew, we couldn’t be more excited to give our customers, not only their morning cup of coffee, but also their afternoon pick-me-up drink at the same time.”

20.  Bengis added, “We believe strongly that every amazing cup of coffee starts with the direct relationships we have with our farmers. It is through these relationships that we have found highly skilled farmers who take tremendous pride in their coffee beans and in-turn provide Scooter’s with the highest quality blends to slow-steep into these perfected Cold Brew varieties. The passion for coffee from farmer to customer is felt in every sip of our new canned Cold Brew Coffees.”

21.  Initially, the canned cold brew coffees were only available at Omaha and Lincoln area Scooter’s locations, but became available at locations nationwide beginning the week of July 8. The release of this product is a milestone for Scooter’s consumer packaged goods business and marks the long-awaited kickoff of several product launches in late 2019 and early 2020.

Company History

22.  Scooter’s Coffee was founded in 1998 by Don and Linda Eckles in Bellevue, Nebraska. The Eckleses wanted to serve high-quality drinks made with the best coffee beans they could find. According to the company, Scooter’s only roasts from the top 10% of specialty coffee beans in the world. After seeing the rise of specialty coffee shops in California as well as the introduction of the drive-thru coffee concept, the Eckleses knew that there was great potential for success with this business model.

23.  The Scooter’s Coffee concept was a hit and within a few years, the Eckles family had five stores opened around Nebraska. At this time, in 2001, the Eckleses decided to start franchising the Scooter’s Coffee concept and the first franchised store opened in Council Bluffs, Iowa. Through the years, Scooter’s Coffee has expanded beyond the Midwest and there are now locations around the United States.

Entrepreneur’s Franchise 500

24.  Scooter’s Coffee ranked No. 460 on Entrepreneur’s 2019 Franchise 500 list.

Section II – Estimated Costs

• Please click here for detailed estimates of Scooter’s Coffee 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 Scooter’s Coffee’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:  112
• Outlets at the End of the Year:  140
• Net Change:  +28

2017

• Outlets at the Start of the Year:  140
• Outlets at the End of the Year:  160
• Net Change:  +20

2018

• Outlets at the Start of the Year:  160
• Outlets at the End of the Year:  187
• Net Change:  +27

Company-Owned

2016

• Outlets at the Start of the Year:  18
• Outlets at the End of the Year:  18
• Net Change:  0

2017

• Outlets at the Start of the Year:  18
• Outlets at the End of the Year:  15
• Net Change:  -3

2018

• Outlets at the Start of the Year:  15
• Outlets at the End of the Year:  17
• Net Change:  +2

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

• Below are the two types of Stores Scooter’s Coffee currently offers:

• Type 1 Stores – Drive-Thru Kiosk – There is no seating in Type 1 Stores and sales are primarily of drinks and associated food products served through drive-up windows. Type 1 Stores are designed to be low overhead, small footprint, and are usually located in a parking lot near other retail shopping. Type 1 Stores provide convenience for the mobile customer. As a result, Type 1 Stores are generally dependent on strong morning traffic.

• Type 2 Stores – Drive-Thru Coffeehouse – Type 2 Stores are generally located in a strip center as “end cap space,” although these Stores occasionally may be a free-standing building. Type 2 Stores offer drive-up window service to mobile customers, plus some inside seating to accommodate walk-in customers. Type 2 Stores rely on strong morning and afternoon traffic and vibrant daytime activity.

• Scooter’s Coffee has in the past and, under limited circumstances in the future, may offer individuals the right to operate a Store in a non-traditional location (a “Type 3 Store”). Type 3 Stores are carts or small spaces located in specialty locations (e.g. airports, hospitals, stadiums, train stations, military bases, amusement parks, and business atriums), but are also located within other businesses such as large office buildings.

• The following table summarizes the ownership of Stores in operation as of December 31, 2018:

Type 1

• Franchised Stores:  104
• Affiliate-Owned Stores:  8
• Total Stores:  112

Type 2

• Franchised Stores:  64
• Affiliate-Owned Stores:  5
• Total Stores:  69

Type 3

• Franchised Stores:  19
• Affiliate-Owned Stores:  4
• Total Stores:  23

Total

• Franchised Stores:  187
• Affiliate-Owned Stores:  17
• Total Stores:  204

• This Item 19 does not include financial performance information for any of Scooter’s Coffee’s franchised Type 3 Stores as Scooter’s Coffee currently is not actively marketing Type 3 Stores and they operate differently from Type 1 and Type 2 Stores.

• Type 3 Stores operate differently from Type 1 and Type 2 Stores, as they generally do not have a drive-thru or significant customer seating available, may not have standard hours of operation, and typically are not located in free-standing locations that are visible to the public from outside.

• This Item 19 also does not include any financial performance information for any of Scooter’s Coffee’s affiliate-owned Stores.

Part 1 – Statement of Average Gross Sales

• This statement includes average Gross Sales of Type 1 and Type 2 franchised Scooter’s Coffee Stores for each of calendar years 2014 to 2018. For each year, Scooter’s Coffee only included Type 1 and Type 2 Stores that were open and operating during the entire 12-month period ending December 31 of the calendar year identified (each a “Measurement Period”).

• The information presented in this Part 1 is based on information Participating Franchised Stores provided to Scooter’s Coffee. Scooter’s Coffee has not verified or audited this information.

A.  Type 1 Stores

2018