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

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

• Section IV – Number of franchised and company-owned Auntie Anne’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 Auntie Anne’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 Auntie Anne’s venues in Enclosed Malls, Airports, Outlet Centers, and Amusement Parks, that were open for business under the same ownership for the entire 2018 fiscal year

• 2018 average net sales, cost of goods sold, gross profit, labor, rent, other expenses, total expenses, and net operating income for Auntie Anne’s Enclosed Mall franchises, system-wide and by region (Mid-Atlantic, Northeast, Southeast, Midwest, and West), that were open for business under the same ownership for the entire 2018 fiscal year, and submitted complete data

Section I – Background Information

17 Things You Need to Know About the Auntie Anne’s Franchise

Partners with Alex’s Lemonade Stand Foundation for Eighth Year to Fight Against Childhood Cancer

1.  In late July 2019, Auntie Anne’s partnered with Alex’s Lemonade Stand Foundation (ALSF) for the eighth year to take a stand to end childhood cancer. Auntie Anne’s and ALSF both started as single stands in southeastern Pennsylvania and over the years, grew to become international brands with millions of dedicated supporters. Since establishing a partnership with ALSF in September 2011, Auntie Anne’s has raised more than $4.6 million to help fund life-saving research and treatments.

2.  From the end of July until September 15, pretzel lovers could join the fight by donating $1 to ALSF with the purchase of a lemon icon at participating Auntie Anne’s stores across the country. One hundred percent of the proceeds earned were donated to ALSF and as a token of appreciation, customers who purchased a lemon icon received a coupon for $1 off their next Auntie Anne’s purchase.

3.  Heather Neary, president of Auntie Anne’s, said, “Since our inception in 1988, Auntie Anne’s has been focused on our community and caring for others. We’re honored to continue to fulfill Auntie Anne’s mission and raise awareness and continue supporting Alex’s Lemonade Stand Foundation and their fight to end childhood cancer.”

4.  Liz Scott, Alex’s mom and co-executive director of Alex’s Lemonade Stand Foundation, added, “Alex’s Lemonade Stand Foundation and Auntie Anne’s share the same vision – to raise awareness of and funds for childhood cancer research. Auntie Anne’s generous donations, campaigns, and of course lemonade make a great mix. Together, we are curing cancer one cup at a time.”

Celebrates National Pretzel Day with BOGO Pretzel Offer and New Merch Launch

5.  Near the end of April 2019, Auntie Anne’s announced that it was celebrating National Pretzel Day with a Buy One, Get One Free (BOGO) offer, and also launching a fabulous shower curtain as part of its “For the Love of Pretzels” Threadless collection. From April 26 to April 28, fans were able to buy any pretzel item and get an Original or Cinnamon Sugar Pretzel for free, and add to the celebration with “A Twisted Day” shower curtain and other “For the Love of Pretzels” accessories and apparel.

6.  To receive the BOGO, pretzel lovers were asked to visit AuntieAnnes.com/National-Pretzel-Day. The deal was also available in the Pretzel Perks app for account users. As an added celebration, Auntie Anne’s fans also received $25 off $100 online catering orders only with promo code NPD25, valid through Friday, April 26.

7.  Heather Neary, president of Auntie Anne’s, said, “At Auntie Anne’s, National Pretzel Day is the best day of the year. That’s why we couldn’t be more thrilled to offer a pretzel BOGO to fans, while also launching a fun offering as part of our larger Threadless collection, which donates 100% of sales to our charity partner, Alex’s Lemonade Stand Foundation.”

Celebrates Oktoberfest with Catering “Prost Package”

8.  In mid-September 2019, Auntie Anne’s invited customers to upgrade their fall festivities with an Oktoberfest classic – pretzels to pair with their favorite beer. In the spirit of the German festival and heritage, Auntie Anne’s offered a limited-time “Prost Package” catering bundle, complete with a variety of fan-favorite Auntie Anne’s pretzels and dips.

9.  The “Prost Package” includes one bucket of Mini Pretzel Dogs, one bucket of Cinnamon Sugar Pretzel Nuggets, 12 Original Pretzels, and 12 assorted dips. Serving about 25 people, this catering deal offers the best of the best pretzel snacks from Auntie Anne’s at a value. The “Prost Package” was available between September 16 and November 3, 2019. As an added celebration, customers who placed an online catering order of $75 or more got $15 off when using the promo code PROST at checkout.

10.  According to Danika Brown, Auntie Anne’s director of growth initiatives, “Oktoberfest is one of our favorite times of year because there’s no better pairing than pretzels and beer. We’re excited to again offer our ‘Prost Package’ to help our fans achieve the ultimate Oktoberfest spread when gathering to celebrate with family, friends, and co-workers.”

Company History

11.  Auntie Anne’s was founded in 1988 by Anne F. Beiler and her husband Jonas in Downingtown, Pennsylvania. Beiler had grown up in the Amish Mennonite church and learned how to do many things by hand, including making fresh baked goods. She also learned business at an early age as her family sold their goods.

12.  Beiler left the church when she was 22 because she felt it was too restrictive. However, Beiler never forgot the skills she learned and used them to raise money to start a counseling center for the Amish community in Lancaster County. Beiler took a $200 a week part-time job managing a concession stand at a farmer’s market in Maryland in 1987 and quickly realized that her soft pretzels had a high profit margin.

13.  Within a year, Beiler had earned enough money to put up her own 12-by-20-foot pretzel stand in Downingtown. Beiler decided to call her new business Auntie Anne’s because she had 30 nieces and nephews. In addition to the pretzels, Beiler sold pizza, stromboli, and ice cream.

14.  Initially, Beiler was using her friend’s soft pretzel recipe, but she noticed that they weren’t selling quite as well as she had hoped. After some experimentation and suggestions from her husband Jonas, Beiler developed a softer and sweeter pretzel. Sales immediately quadrupled and Beiler decided to pursue pretzel-making full time.

15.  After raising $5,000 in capital, Beiler opened a second stand in Harrisburg, Pennsylvania. A year later, she awarded the very first Auntie Anne’s franchise to her brother. Later in 1989, Auntie Anne’s opened its first mall store and the brand has remained a mall staple ever since. Over the next few decades, Auntie Anne’s continued to grow across the United States and internationally.

16.  In 2010, Auntie Anne’s was acquired by Atlanta franchisor FOCUS Brands, a portfolio company of private equity firm Roark Capital. Today, there are Auntie Anne’s stores across the United States, Greece, Russia, the UK, Australia, Laos, Cambodia, Myanmar, Malaysia, South Korea, Singapore, the Philippines, Brunei, Turkey, Thailand, Indonesia, Japan, Honduras, the Bahamas, Mexico, Chile, Trinidad and Tobago, Guatemala, Brazil, South Africa, Egypt, and China.

Entrepreneur’s Franchise 500

17.  Auntie Anne’s ranked No. 79 on Entrepreneur’s 2019 Franchise 500 list.

Section II – Estimated Costs

• Please click here for detailed estimates of Auntie Anne’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 Auntie Anne’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:  1,135
• Outlets at the End of the Year:  1,191
• Net Change:  +56

2017

• Outlets at the Start of the Year:  1,191
• Outlets at the End of the Year:  1,225
• Net Change:  +35

2018

• Outlets at the Start of the Year:  1,225
• Outlets at the End of the Year:  1,219
• Net Change:  -6

Company-Owned

2016

• Outlets at the Start of the Year:  15
• Outlets at the End of the Year:  15
• Net Change:  0

2017

• Outlets at the Start of the Year:  15
• Outlets at the End of the Year:  13
• Net Change:  -2

2018

• Outlets at the Start of the Year:  13
• Outlets at the End of the Year:  12
• Net Change:  -1

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

• Tables 1 through 2 present Net Sales data in certain types of venues for Auntie Anne’s fiscal year ended December 30, 2018 (“fiscal year 2018”) obtained from sales reports polled from Auntie Anne’s franchisees.

• Tables 3 through 8 present Net Sales or average Net Sales, average expenses, and average Net Operating Income figures for the fiscal year ended December 30, 2018, obtained from the unaudited profit and loss statements submitted by Auntie Anne’s franchisees based upon a uniform reporting system.

• No certified public accountant has audited these figures, expressed his or her opinion concerning their content or form, or attempted to independently verify their accuracy.

• The information presented in Item 19 excludes sales information from (a) affiliate-owned Shops, (b) Subway Co-Branded Locations, (c) Shops that were not continuously open and operating throughout the entire applicable fiscal year (with the exception of the amusement parks included in Part 1), (d) Shops that were not operated by the same owner throughout the entire applicable fiscal year, and (e) Shops that submitted late, incomplete, or illegible financial information, experienced hardware or software technical issues that inhibited proper reporting, or submitted such information in an unacceptable format (“Incomplete Information”).

Definition of Terms for Auntie Anne’s Profit and Loss Statements

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

• Net Sales – Net Sales includes, without limitation, monies, gift card redemptions, or credit received from the sale of food, beverages, and merchandise, from tangible property of every kind and nature, promotional or otherwise, and for services performed from or at the Shop, including, without limitation, off-premises services such as catering and delivery.

• Net Sales will not include the initial sales or reloading of gift cards, coupon discounts, the sale of food or merchandise for which refunds have been made in good faith to customers, the discounted portion of employee meals, the sale of equipment used in the operation of the Shop, nor will it include sales, meals, use, or excise tax imposed by a governmental authority directly on sales and collected from customers; provided that the amount for the tax is added to the selling price or absorbed therein, and is actually paid by you to a governmental authority.

• Cost of Goods Sold – Cost of Goods Sold 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 (pretzel mix, butter, beverages, etc.), paper products (cups, napkins, bags, straws, etc.), and retail items (Auntie Anne’s At Home pretzel kits, 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), royalties, ad fund fees, 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.

• Other Locations – A franchised Shop that is located anywhere other than in an enclosed mall. Other Locations include alternative locations, big box stores, entertainment venues, farmer’s markets, military bases, lifestyle centers, power centers, strip malls, Subways, street locations, train stations, transportation centers, travel plazas, truck stops, Walmarts, Concession Shops, farmer’s markets, airports, casinos, outlet centers, transportation centers, and amusement parks.

• Enclosed Mall Franchises – A franchised Shop that is located in an enclosed mall, including sales from related non-baking SRUs (Satellite Retail Units). Enclosed Mall Franchises do not include (a) company-owned Shops, (b) Subway Co-Branded Locations, or (c) Shops located in Alternative Locations.

Auntie Anne’s Stores By Region

• Auntie Anne’s includes the following Regions, and their respective states, in the information presented in Item 19:

• Mid-Atlantic Region: (i) West Virginia; (ii) District of Columbia; (iii) Virginia; (iv) Maryland; (v) Pennsylvania; and (vi) Delaware.

• Northeast Region:  (i) New York; (ii) Connecticut; (iii) New Hampshire; (iv) Massachusetts; (v) New Jersey; (vi) Vermont; (vii) Rhode Island; and (viii) Maine.

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

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

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

Table 1 – Net Sales Range for 2018 Fiscal Year – Various Venues (All Regions)

Enclosed Mall Franchises

• The sales information for Enclosed Mall Franchises includes sales from 43 non-baking SRUs. Approximately 61% of Auntie Anne’s franchises are located in enclosed malls.

• The sales information for Amusement Parks includes sales from locations having at least 34 weeks of sales data, due to the seasonal nature of amusement parks.