FDD Talk 2019: Hot Dog on a Stick 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 Hot Dog on a Stick franchise opportunity, including relevant news updates

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

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

• 2016, 2017, and 2018 average gross sales for the Top 25%, Middle 50%, and Bottom 25% (based upon total annual sales) of affiliate-owned Hot Dog on a Stick Stores that were open for the entire calendar year as of December 31, 2016, December 31, 2017, and December 31, 2018, respectively

• 2016, 2017, and 2018 average gross sales for the franchised Hot Dog on a Stick Stores that were open for at least 2 full years as of December 31, 2016, December 31, 2017, and December 31, 2018, respectively, and that did not operate as non-traditional units

Section I – Background Information

15 Things You Need to Know About the Hot Dog on a Stick Franchise

Rolls Out New Food Truck in Greater Los Angeles/Orange County Area

1.  Near the end of May 2019, Hot Dog on a Stick unveiled its new food truck servicing the greater Los Angeles/Orange County, California area. The Hot Dog on a Stick food truck proudly serves the brand’s famous made-to-order stick items, fresh hand-stomped lemonade, fries, and funnel cake sticks with a smile.

2.  The Hot Dog on a Stick food truck, with its team of sunny Hotdoggers, is always ready to provide its top-notch customer service. All food items are freshly prepared on-site. It is available for private parties, festivals, and can also be found throughout the city. With the ability to feed up to 1,000 guests per hour, the truck is on a mission to “Stick a Smile” on all of L.A./Orange County.

3.  Candice Wong, senior catering manager for Hot Dog on a Stick, said, “Hot Dog on a Stick is rolling big time with our beautiful new Food Truck and we are already stomping through town serving up smiles and pouring sunshine. We know how to bring the party and the Hot Dog on a Stick Food Truck allows us to serve you in a way that is fun, functional and delicious. It’s everything you love about Hot Dog on a Stick outside of the mall.”

4.  The truck requires a small footprint, and Hotdoggers in their famous stripes and hats take care of all set-up and clean-up. The truck is perfect for corporate and community events, private gatherings, weddings, birthdays, fundraisers, bar mitzvahs, or any other occasion and can be booked on short notice – even one day in advance.

Opens First Location in China

5.  In mid-June 2019, Global Franchise Group (GFG), LLC, the franchisor of the Hot Dog on a Stick brand, announced the opening of a new Hot Dog on a Stick location in Shanghai, China – the brand’s first location in the country.

6.  Through a master franchise agreement with Eugene Restaurant Management, Hot Dog on a Stick’s fresh hand-stomped lemonade, made-to-order stick items, and smiling customer service are available at Crystal Galleria. Eugene Restaurant Group plans to open 20 additional Hot Dog on a Stick locations throughout the greater Shanghai area.

7.  Chris Dull, president and CEO of GFG, said, “Hot Dog on a Stick is a pop culture phenomenon and the sunny concept with our famous striped uniforms and portable food items really resonates with the modern Chinese lifestyle. Global Franchise Group is proud to take this California-born brand across the Pacific and we are confident that Hot Dog on a Stick will be a very popular dining destination in Shanghai.”

8.  Hot Dog on a Stick at Crystal Galleria in Shanghai is located in a bustling tourist and office retail area and offers the brand’s signature line-up of fresh hand-stomped lemonade in a variety of flavors, made-to-order stick items dipped in the brand’s proprietary Party Batter (Hot Dogs on a Stick, Cheese on a Stick, zucchini, carrots, and bananas), and fries.

9.  Hot Dog on a Stick in Shanghai offers a special food challenge for guests with big appetites – if a customer consumes 10 stick items of their choice and a large portion of fries within 8 minutes, their meal will be free.

10.  To celebrate the grand opening, the location offered 15% off the entire check through June 15. Hot Dog on a Stick Shanghai is open during regular Crystal Galleria hours of 10 a.m. to 10 p.m.

11.  According to Eugene Mao, master franchisee of Hot Dog on a Stick in China, “I’ve been a fan of Hot Dog on a Stick since my childhood in the U.S. and decided to open a location in China because I truly missed the food. I love serving Hot Dog on a Stick’s delicious lemonade and stick items to our customers and I believe the local population in Shanghai will love Hot Dog on a Stick as much as I do. Our products are simply the best.”

Company History

12.  Hot Dog on a Stick was founded in 1946 by Dave Barham at the Santa Monica Pier in Santa Monica, California. Originally, the business was called Party Puffs and Barham only sold ice cream cones and lemonade. However, Barham wanted to add a new menu item and spent time perfecting his mother’s cornbread recipe to make corn dogs. To highlight this new item, Barham changed the business’s name to Hot Dog on a Stick.

13.  To promote his corn dog, Barham took his products on the road and started selling at county fairs using his Lincoln Continental as a generator. In 1962, a second location was opened on the Redondo Beach Pier which remains the only independently-owned location under the name “Craig’s Hot Dog on a Stick.” Not long after, franchising began and Hot Dog on a Stick became a shopping mall food court staple.

14.  In 2014, the company was acquired by Global Franchise Group (the strategic brand management company behind Great American Cookies, Marble Slab Creamery, and Pretzelmaker) based in Atlanta, Georgia. Today, there are Hot Dog on a Stick locations in malls across the U.S. as well as international locations in South Korea and Shanghai, China.

Entrepreneur’s Franchise 500

15.  Hot Dog on a Stick ranked No. 276 on Entrepreneur’s 2019 Franchise 500 list.

Section II – Estimated Costs

• Please click here for detailed estimates of Hot Dog on a Stick 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 Hot Dog on a Stick’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:  8
• Outlets at the End of the Year:  16
• Net Change:  +8

2017

• Outlets at the Start of the Year:  16
• Outlets at the End of the Year:  20
• Net Change:  +4

2018

• Outlets at the Start of the Year:  20
• Outlets at the End of the Year:  19
• Net Change:  -1

Company-Owned

2016

• Outlets at the Start of the Year:  76
• Outlets at the End of the Year:  72
• Net Change:  -4

2017

• Outlets at the Start of the Year:  72
• Outlets at the End of the Year:  51
• Net Change:  -21

2018

• Outlets at the Start of the Year:  51
• Outlets at the End of the Year:  46
• Net Change:  -5

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

• Set forth below is information concerning the historical financial performance for Stores under ownership of the franchisor’s affiliate during the fiscal years ending December 31, 2016, December 31, 2017, and December 31, 2018 (“Affiliate Stores”).

• For the fiscal year ending December 31, 2018, all Affiliate Stores (a total of 46) were also divided into three groups based upon total annual sales: (a) the top 25% Stores (11 Affiliate Stores), (b) the bottom 25% Stores (11 Affiliate Stores), and (c) the remaining 50% Affiliate Stores in the middle (23 Affiliate Stores).

• The figures in the tables below represent Affiliate Stores that were open for the entire calendar year as of December 31, 2018; this means that 1 Affiliate Store was excluded because it was not open for the full year.

• Also set forth below is information concerning the historical financial performance for the 9 franchised stores during the fiscal years ending December 31, 2016, December 31, 2017, and December 31, 2018 that were open for at least 2 full years and that did not operate as non-traditional units (“Franchised Stores”).

• Of the 19 total Franchised Stores open as of December 31, 2018, the franchisor has excluded 5 Franchised Stores open as of December 31, 2018 from this disclosure, because 1 had not been open for at least 2 full years as of December 31, 2018, and 4 operate as non-traditional units.

• Most of the Stores are located in shopping mall food courts and share common seating with other restaurants in the same mall food court.

• The length of time that these Stores have operated varies from a few months to 68 years.

• Unless you are purchasing an existing Store from the franchisor, your Store(s) will vary, in that they will not have been open as long as the franchisor’s average Store. Additionally, depending on where you open your Store, you may not be located in a shopping mall food court.

• The sales level for each Store was highly dependent on traffic level in the surrounding mall, and was largely independent of demographics (or other factors) influencing the area outside the mall.

• For example, if an anchor tenant in a mall closes and the space remains vacant for some time, traffic in the mall typically declines, even if the demographics of the surrounding area remain unchanged. When traffic in the mall drops, the sales level of the Store also drops. Once a new tenant moves into that space, traffic in the mall (and consequently the sales of the Store) tends to recover.

• The average annual sales for each group of Stores identified above is set forth in the following table.

• Just as average annual sales varies depending on traffic in the surrounding mall, the monthly sales level of each Store varies considerably over the course of the year, and is greatly affected by the traffic level in the surrounding mall (for instance, sales tend to be higher during the summer – typically, from June through August – and again during the holiday shopping season, especially December).

• As a consequence, it is not the case that sales during any particular month are approximately one-twelfth of the average annual sales. Depending on the month, the monthly sales are likely to be either much higher or much lower.

• As noted above, these averages are based on the Stores that operated on December 31, 2018, which excludes Stores that closed or were sold during the three-year period, but includes Stores that opened during the three-year period.

• The method of calculation may have had some effect on the average sales numbers reported, but the franchisor has not calculated the effect on these averages.

• “Gross Sales” means all revenue from the sale of all products and services and all other income of every kind related to your business activities under the Franchise Agreement, whether evidenced by cash, credit, check, gift certificate, gift cards, script, or other property or services, and whether collected or not.

Part 1 – Average Gross Sales of Affiliate Stores by Year

2016