FDD Talk 2019: Panda Express 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 Panda Express franchise opportunity, including relevant news updates

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

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

• 2018 total, average, median, maximum, and minimum gross sales; and average and median age of units in years for licensed Panda Express restaurants located in airports, casinos, hospitals, military facilities, and universities, separately stated, that were open for a minimum of 52 weeks (although some were subject to seasonal closures specific to the venue, such as for universities)

Section I – Background Information

17 Things You Need to Know About the Panda Express Franchise

Now Offering Coca-Cola Beverages

1.  In early May 2019, Panda Express announced that its U.S. locations are now serving beverages from The Coca-Cola Company’s broad portfolio of sparkling soft drinks, teas, and waters. In Q4 2018, Panda Express signed a multi-year agreement with The Coca-Cola Company to be the fast-food chain’s new strategic beverage partner and, together, the two companies completed one of the fastest beverage transitions in Coca-Cola’s partnership history.

2.  A variety of Coca-Cola products, including Coca-Cola, Diet Coke, Coke Zero Sugar, Sprite, and Fanta Orange fountain options, as well as Dasani Sparkling and Honest Tea bottled beverages, are now available at Panda Express, Panda Inn, and Hibachi San locations in the 48 contiguous states of the continental United States.

3.  Dr. Peggy Cherng, co-founder and co-CEO of Panda Restaurant Group, said, “As a family-owned company, the relationships we create at Panda Restaurant Group are essential to the exceptional operating culture we have always been known for. Coca-Cola’s remarkable accomplishments as a brand and internally as a company motivate us to reach for our greatest potential and are bringing invaluable new ideas that will please our Guests for years to come.”

4.  Kathleen Ciaramello, president of Coca-Cola North America Foodservice and On-Premise, added, “Panda Restaurant Group is an exciting addition to the Coca-Cola family. They are a company committed to excellence and value, focused on bringing positive change to this world. This partnership is not only a strong collaboration within the food and beverage industry but also showcases how two brands uniting through collective values can create positive momentum for everyone involved.”

Adds Sichuan Hot Chicken Tenders for a Limited Time

5.  In mid-July 2019, Panda Express introduced a new limited-time menu item, the Sichuan Hot Chicken. The new dish – which was tested in L.A., Seattle, Atlanta, Chicago, and Dallas last fall 2018 – was born out of a culinary trip to Chengdu, China.

6.  The goal with the new dish was to bring the spice from Sichuan peppercorns to the masses. Sichuan cuisine is one of eight major cuisines in China and chefs in the Sichuan Province of China use the peppercorns heavily. Jimmy Wang, head of culinary innovation for Panda Express, calls it “a culturally significant and iconic ingredient we’ve never used in our cooking previously.”

7.  Each order of Sichuan Hot Chicken comes with three tenders made with all-white-meat chicken breast and coated in a Sichuan peppercorn oil-based glaze. Customers can also order an extra spicy version of the tenders.

8.  To help spread the word about its newest dish, Panda Express hosted an interactive booth at this year’s San Diego Comic-Con (held from July 18 to 21) where convention-goers had the chance to sample Sichuan Hot Chicken for free. Additionally, the pop-up, appropriately named Pep-Pep’s Sichuan Hot Stop, gave visitors the chance to meet the restaurant’s new “spokes-pepper,” Pep-Pep the Sichuan Wonderpepper, and check out a new mobile experience that helped get Pep-Pep to San Diego.

Celebrated Chinese New Year with Special Installation in Los Angeles

9.  At the beginning of February 2019, Panda Express started its Chinese New Year celebrations with a party for its “House of Good Fortune” installation at L.A.’s Westfield Century City mall. Andrea Cherng, CEO of Panda Express, talked about how her family opened Pasadena’s Panda Inn more than 45 years ago and ended up creating a Chinese-American fast-casual chain that now has more than 2,200 locations (at the time). Then a panel, including actor Harry Shum Jr. of Crazy Rich Asians and Glee, discussed Chinese New Year, family, identity, and food.

10.  Following the panel, Cherng unveiled the brand’s special installation that aimed to put a different spin on Chinese New Year traditions. The interactive experience was similar to the other interactive food-themed experiences opening around the country and popular on social media, especially Instagram.

11.  Reservations for the free House of Good Fortune installation, which ran for about a week from February 1 to 5, were fully booked. However, people were welcome to try and walk in to catch a red envelope, pull “noodles” in the “room of longevity,” be the star of a lion dance, throw around giant mandarin-orange balls, and put a wish inside a lantern.

12.  According to Cherng, “It’s a beautiful way of almost creating a new Lunar New Year experience for the public. We talked about the sights and the sounds of a Lunar New Year parade. What is the modern equivalent? You get to be a part of it. Instead of watching a lion dance, you get to actually be in the lion’s head.”

13.  In addition to the House of Good Fortune installation, participating Panda Express locations gave away red envelopes on February 5 to celebrate the official start of Chinese New Year. Instead of the traditional gift of money, the red envelopes had coupons for a free chicken egg roll and drink.

Company History

14.  Panda Express was founded in 1983 by Andrew and Peggy Cherng at the Glendale Galleria Mall in Glendale, California. Andrew Cherng already owned and operated a Chinese food restaurant called Panda Inn, which he opened with his father in 1973. Panda Express was developed as the fast food version of Panda Inn. Two years after opening the first Panda Express, the Cherngs opened a second store at another mall, the Westside Pavillion.

15.  In 1987, Panda Express Chef Andy Kao developed the chain’s signature dish, Orange Chicken. The dish was inspired by the traditional flavors of China’s Hunan Province and Orange Chicken is now available at nearly all Chinese food restaurants in the U.S.

16.  During the 1980s and 1990s, Panda Express continued to grow across the country, becoming a mall food court staple. The Cherngs also opened Panda Express locations in grocery stores and eventually developed stand-alone locations. Since then, Panda Express has expanded around the world and there are now restaurants across the U.S., Canada, Puerto Rico, Guam, Mexico, South Korea, the United Arab Emirates, Japan, Guatemala, El Salvador, Aruba, Russia, and Saudi Arabia.

Entrepreneur’s Franchise 500

17.  Panda Express did not rank on Entrepreneur’s 2019 Franchise 500 list.

Section II – Estimated Costs

• Please click here for detailed estimates of Panda Express 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 Panda Express’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:  85
• Outlets at the End of the Year:  95
• Net Change:  +10

2017

• Outlets at the Start of the Year:  95
• Outlets at the End of the Year:  108
• Net Change:  +13

2018

• Outlets at the Start of the Year:  108
• Outlets at the End of the Year:  124
• Net Change:  +16

Company-Owned

2016

• Outlets at the Start of the Year:  1,720
• Outlets at the End of the Year:  1,798
• Net Change:  +78

2017

• Outlets at the Start of the Year:  1,798
• Outlets at the End of the Year:  1,897
• Net Change:  +99

2018

• Outlets at the Start of the Year:  1,897
• Outlets at the End of the Year:  1,979
• Net Change:  +82

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

Captive Venues – Licensed Restaurants Only – Financial Performance Representations/Full Year 2018

• The chart below contains unaudited historical gross sales data for calendar year 2018 reported by Restaurants operated by Licensees and located exclusively in airports, casinos, military facilities, hospitals, and universities (“captive venues”).

• The information relates only to 96 Restaurants operating in captive venue locations for a minimum of 52 weeks (although some were subject to seasonal closures specific to the venue, such as for universities and theme parks).

• 36 of these Restaurants are licensed as joint ventures in which an Affiliate of the franchisor is a minority owner.

• Excluded from this chart is data for 30 licensed Restaurants that were open less than a year, and for 9 licensed Restaurants that closed in 2018 and which had been operating more than a year before closing.

• The franchisor also excluded data for 4 Restaurants located in a theme park, a corporate campus, travel plaza, and a stadium, respectively, due to privacy considerations because they are the only licensed units in these kinds of venues and their data could not be cumulated with other similarly situated Licensees.

• “Gross Sales” is defined as all charges and/or revenues that are received or earned by you (and/or any Affiliate of yours):

• a. by, at, or in connection with any Panda Express Restaurant operated by you including beverage sales, whether they are (i) part of a Panda Express combination plate offering, or (ii) being purchased through a Panda Express register and sold under Panda Express Marks or Trade Dress;
• b. from sales of Panda Express Products in contravention of the Franchise Agreement at locations outside a Restaurant;
• c. from proceeds of any business interruption insurance, less the deductible amount;
• d. from mail, fax, and telephone orders and/or any orders received through other electronic or other means and filled on or from a Restaurant;
• e. from all deposits not refunded to purchasers;
• f. from orders sold under Panda Express Marks or Trade Dress though filled outside a Restaurant;
• g. in connection with any Similar Business operated in violation of the Franchise Agreement.

• All sales and/or billings, whether collected or not, will be included in Gross Sales, with no deduction for credit card or other charges.

• Gross Sales does not include sales tax collected and paid when due to the appropriate taxing authority and actual customer refunds, adjustments, credits, and employee discounts actually given.

• Restaurants located in geographical areas with multiple operating Restaurants and stronger brand recognition tend to outperform units located in less developed areas.

• Restaurants for which results are reported here have limited geographic diversity, with captive venue units being located in 29 states and with approximately 30% of them established in California and Texas. Climate, local demographics, cultural and other differences in geographical areas can significantly affect results.

• A new Licensee’s results may be materially different from those described here due to factors such as operating experience.

• The financial performance figures shown do not reflect 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.

• The franchisor used information reported to it by its Licensees to prepare this document. The franchisor assumes the information as supplied by them and their respective operations and Restaurant managers to be accurate. The information has not been audited. The information presented is not presented in accordance with generally accepted accounting principles.

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