FDD Talk 2019: Hounds Town USA 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 Hounds Town USA franchise opportunity, including relevant news updates

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

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

• 2018 actual gross sales, rent, payroll, owner’s salary, royalties, advertising/marketing, utilities, insurance, supplies, professional fees, miscellaneous expenses, total operating expenses, net profit, franchise related adjustments, and net profit less franchise related adjustments for the 5 Hounds Town USA Businesses that had been in operation for at least one full year as of December 31, 2018 (4 franchised and 1 affiliate-owned)

• 2016, 2017, and 2018 actual gross sales for all 7 Hounds Town USA Businesses that were in operation as of December 31, 2018 (5 franchised and 2 affiliate-owned) and includes the 2 Hounds Town USA Businesses that opened in 2018 (1 franchised and 1 affiliate-owned)

Section I – Background Information

21 Things You Need to Know About the Hounds Town USA Franchise

Strong Growth Momentum in 2019 with New Multi-Unit Deals

1.  In early June 2019, Hounds Town USA announced that it is well on its way toward achieving its original goal of 30 open units in the next five years, now aiming for 25 to 30 open units by the end of 2020. At the time of announcement, Hounds Town had nine locations open and operating in New York and New Jersey and signed agreements for an additional 14 units to open in 2019 and 2020 in Atlanta, Georgia; Nashville, Tennessee; Detroit, Michigan; Orlando, Florida; and Pittsburgh and Philadelphia, Pennsylvania.

2.  Jackie Bondanza, president of Hounds Town USA, said that the brand came into 2019 with the goal of opening an additional eight to 12 units. But with the recent three-unit deals in Detroit, Orlando, and Philadelphia, she and Hounds Town USA CEO and founder Mike Gould decided to increase that goal.

3.  Bondanza added, “We’ve reconfigured our goals with the new influx of signings and we strongly believe Hounds Town USA will end the year with closer to 18 to 20 units. This past year alone we’ve been seeing a fantastic increase in multi-unit deals. It’s definitely a strong start to developing in new markets.”

4.  According to Bondanza, the growing momentum of the brand is the result of a detailed planning effort through its partnership with RainTree Franchise Sales. Bondanza said, “We needed to partner with the right sales team that knows how to help and attract the right candidates necessary for new markets and individuals who are looking to get involved in an opportunity on the ground floor. We’ve been partnering with business-minded franchisees who are entrepreneurial in the greatest sense as they are ready to pursue ownership with an emerging brand and are excited to grow with Hounds Town USA.”

5.  Bondanza stated that the company has devoted more time with RainTree in order to expand beyond the New York area where the brand is already well known. In fact, she said that in the past year, Hounds Town USA franchise development has seen more prospects sign multi-unit deals than ever before.

6.  “The business is a scalable model and there is great value in opening multiple units with Hounds Town USA,” said Bondanza. “We are about one-third the cost of our competitors, and we offer territory exclusivity. Our franchisees have a greater chance of capitalizing on their markets with these strategies and projections in place. We specifically work with our partners to make them successful in a new region, transforming a single business into a mini empire.”

7.  Not long before the press release, Hounds Town had signed three-unit deals for Orlando, Detroit, and Philadelphia, which all have clear development schedules and are slated to open their first locations later this year.

8.  Pete Mourad, Hounds Town USA Detroit multi-unit franchisee, said, “Over the last 10 years, Detroit has made one of the most incredible comebacks, and it’s so exciting. With a steadily growing economy and a culture of real hometown pride coming back, it’s a great space to be in. And there’s such a love of dogs in the city. I’m confident that Hounds Town USA will be successful here.”

9.  Similarly, Shaun and Paige Allen, who recently signed a three-unit deal to bring Hounds Town USA to Florida, feel that the brand will immediately be embraced by pet owners. According to Shaun Allen, “Most facilities here are mom-and-pop, and a lot of them are at capacity, so there’s an opportunity for a new player. Because of the business model that Jackie and Mike have created, we know we have the support behind us to grow this brand and make a significant impact in the communities we will serve. There are plenty of competitors here, but they aren’t operated like Hounds Town USA.”

10.  In addition to the multi-unit deals that are moving the brand forward with force, Hounds Town USA recently opened another two New York locations in Garden City and Hicksville. Both stores opened in April and have been exceeding expectations and monthly sales goals already, according to Bondanza, who also noted that brand awareness has helped them grow significantly in their markets.

11.  Bondanza added, “We aim to adhere to our existing and future partners’ personal and professional visions while encouraging them to develop with Hounds Town USA. We are continuing to look for candidates who see value in the scalability of our business model and we encourage multi-unit deals in the new markets we aim to enter by the end of 2019. Our belief is that first-to-market franchisees will be the strongest in their territories, and they are incredible assets to Hounds Town USA.”

Husband-and-Wife Team Signs Three-Unit Deal to Bring Hounds Town USA to Orlando

12.  At the beginning of July 2019, Hounds Town USA announced that husband-and-wife franchisees Shaun and Paige Allen were ready to bring the first Hounds Town franchises to Florida, specifically Orlando. The Allens decided to seek out franchising opportunities as they wanted to build something of their own and provide a necessary service to residents in their community.

13.  When looking into potential options, their love of animals is what captured their interest. In addition, the two were looking for a brand with a proven model with recurring revenue, and a penchant for organic growth thanks to exceptional customer service (for both two- and four-legged visitors).

14.  Paige Allen said, “I grew up with animals my whole life. I was always bringing animals home and begging my parents to keep them. When it came time to board our dog, finding someone we trusted was huge. To this day, we are very much customers in the doggy daycare space. It gave us a good idea of what we want on the customer side, as well as what our dogs need.”

15.  The Allens came across Hounds Town USA after doing extensive online research within the pet franchise space, which aligned perfectly with their business goals and demonstrated a personable, family feel. Paige added, “A few years ago, we had been researching boarding and doggie day care franchises. We looked at companies like Dogtopia, Camp Bow Wow, and they seemed kind of robotic because they were so large. Then, we came across Hounds Town USA and loved their business model, the size of the brand and their growth strategy. Once we met Founder Mike Gould and Hounds Town President Jackie Bondanza, it was kind of history from there.”

16.  According to Bondanza, “We’re extremely excited for the Allens to represent Hounds Town and bring our brand to Florida. We see Orlando as a great opportunity to work with pet owners in the area currently in need of the services we provide. Beyond Orlando, we expect to continue expansion throughout Florida, including Tampa, as well as Nashville, Atlanta, Detroit, Pittsburgh, North Carolina, and Philadelphia.”

17.  The Allens have signed on to open three Hounds Town USA locations in Orlando and were sourcing prime real estate for their first location (at the time of the press release), with hopes to open one of the other two units in Lake Nona, where they reside. They plan to open within the next six months, and to then launch a new Hounds Town location each year for the next several years. Ultimately, the pair said they could see developing the entire Florida market and expanding from there. The two feel that the Orlando area is very much in need of the services they plan to provide local residents.

Company History

18.  Hounds Town USA was founded in 2001 by Michael S. Gould in Port Jefferson, Long Island, New York. Gould was a former NYPD canine handler and commanding officer of the Nassau County Police Department and his many years of experience inspired him to open a dog kennel. Realizing that working with dogs and dog owners was a unique operation, Gould set out to create a dog kennel service that exceeded all others, including a full doggie day care center that offered a fully social experience for the dogs.

19.  Following the success of the first Hounds Town kennel, Gould had an opportunity to purchase a building in another area of Long Island – Ronkonkoma – in 2004. Business quickly filled up at both locations and Gould expanded again in 2012 when he opened Hounds Town Farmingdale. Three years later, in May 2015, Gould sold Hounds Town Farmingdale to former employees and a former customer. This was Hounds Town’s first franchise.

20.  In 2018, the company opened its first franchise location outside of New York. Today, Hounds Town USA is seeking franchisees across the United States and hopes to have 25 to 30 units open by the end of 2020.

Entrepreneur’s Franchise 500

21.  Hounds Town USA did not rank on Entrepreneur’s 2019 Franchise 500 list.

Section II – Estimated Costs

• Please click here for detailed estimates of Hounds Town USA 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 Hounds Town USA’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:  2
• Outlets at the End of the Year:  2
• Net Change:  0

2017

• Outlets at the Start of the Year:  2
• Outlets at the End of the Year:  4
• Net Change:  +2

2018

• Outlets at the Start of the Year:  4
• Outlets at the End of the Year:  5
• Net Change:  +1

Company-Owned

2016

• Outlets at the Start of the Year:  1
• Outlets at the End of the Year:  1
• Net Change:  0

2017

• Outlets at the Start of the Year:  1
• Outlets at the End of the Year:  1
• Net Change:  0

2018

• Outlets at the Start of the Year:  1
• Outlets at the End of the Year:  2
• Net Change:  +1

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

• As of the December 31, 2018, there were seven Hounds Town USA Businesses in operation (“2018 Reporting Group”), five of which were franchised (“Franchise Locations”) and two of which were owned by an affiliate (“Affiliate Locations”). One Affiliate Location and one Franchise Location opened in 2018.

• Franchise Locations will share many of the same characteristics as Affiliate Locations, including degree of competition, length of time the locations have operated, and services and goods offered. However, Affiliate Locations either did not pay or paid a reduced amount for the Royalty, Brand Fund Contribution, Local Advertising Requirement, Technology Fee, and Local Advertising Management Fee.

• Hounds Town USA Businesses are open seven days per week. Each Hounds Town USA Business is typically open between 58-70 hours per week (Monday-Friday from 6 or 7 a.m. to 7 or 8 p.m., Saturday from 9 a.m. to 5 p.m., and Sunday from 11 a.m. to 1 p.m.).

• All Hounds Town USA Businesses are closed from 12 noon to 2 p.m. Monday through Saturday, but many are still staffed. Total staffing hours per week are approximately 75-85, including approximately 5 hours on weekends for after-hours care of the dogs.

Part 1 – Year Opened, Indoor Size, and Outdoor Size for All 7 Hounds Town USA Businesses in the 2018 Reporting Group

• Part 1 provides information on all seven Hounds Town USA Businesses in the 2018 Reporting Group.

Location 1 (Franchise)

• Year Open:  2001
• Indoor Size:  7,000 square feet
• Outdoor Size:  2,000 square feet

• Location 1 opened in 2001 as the first Hounds Town USA Business and was owned by Hounds Town USA’s affiliate. In October 2007, this business was moved to a larger facility. It was sold as a turn-key business in 2012 and converted to a franchise.

• Location 1 has a capacity for approximately 110 dogs during the day, 75 dogs overnight, and additional capacity for 8-10 cats. Location 1 hosted a total of 19,208 visitors in 2018 (8,212 daycare visitors and 10,996 boarding visitors).

• The owner of this business is semi-absentee, overseeing the general operations, marketing, and employee management of the facility. This business employs one manager, two assistant managers (one who also works as a part-time groomer at the facility), and approximately four to six kennel staff. The owner paid herself a salary in 2018.

Location 2 (Affiliate)

• Year Open:  2004
• Indoor Size:  4,000 square feet
• Outdoor Size:  1,000 square feet

• Location 2 was opened as a second affiliate-owned Hounds Town USA Business in 2004 (and remains an affiliate location).

• Location 2 has capacity for approximately 80 dogs during the day, 60 dogs overnight, and additional capacity for 4-6 cats. Location two hosted a total of 21,261 visitors in 2018 (11,948 daycare visitors and 9,313 boarding visitors).

• The owners of this location are absentee, employing an operations/general manager, a business manager, two assistant managers, and approximately four to six kennel staff. The owners paid themselves a salary in 2018.

Location 3 (Franchise)

• Year Open:  2012
• Indoor Size:  3,750 square feet
• Outdoor Size:  600 square feet

• Location 3 opened as a third affiliate-owned Hounds Town USA Business in 2012. In May 2015, the location was sold as a turn-key business and converted to a franchise.

• Location 3 has capacity for approximately 65 dogs during the day, 45 dogs overnight, and additional capacity for 1-2 cats. Location 3 hosted a total of 22,832 visitors in 2018 (13,058 daycare visitors and 9,774 boarding visitors).

• The owners of Location 3 are owner/operators (they each pay themselves an hourly wage for hours worked in the business in 2018). Two owners work in the business approximately 40 hours per week each and the third owner works approximately 25 hours per week. This business employs an additional six to eight kennel staff (two who operate as part-time groomers).

Location 4 (Franchise)

• Year Open:  2017
• Indoor Size:  5,500 square feet
• Outdoor Size:  250 square feet

• Location 4 opened as a franchised location in March 2017.

• Location 4 has capacity for approximately 80 dogs during the day, 60 dogs overnight, and additional capacity for 6-8 cats. Location 4 hosted a total of 8,465 visitors in 2018 (4,601 daycare visitors and 3,864 boarding visitors). There are two owners of this facility.

• One owner is an owner/operator and works in the facility as a manager approximately 40 hours per week (he did not pay himself a salary or an hourly wage for working in the business in 2018). The other owner is absentee and oversees the general management of the facility while maintaining another career. In addition to the two owners, this facility employs one full-time manager, four to six kennel staff, and a part-time groomer.

Location 5 (Franchise)

• Year Open:  2017
• Indoor Size:  3,500 square feet
• Outdoor Size:  2,200 square feet

• Location 5 opened as a franchised location in September 2017.

• Location 5 has capacity for approximately 55 dogs during the day, 35 dogs overnight, and additional capacity for 1-2 cats. Location 5 hosted a total of 9,019 visitors in 2018 (6,539 daycare visitors and 2,480 boarding visitors).

• The owners of this facility are owner/operators (they each paid themselves an hourly wage for hours worked in the business in 2018). Each works approximately 25 hours per week in the facility as a manager. In addition to the owners, this facility employs an additional four to six kennel staff.

Location 6 (Affiliate)

• Year Open:  2018
• Indoor Size:  4,000 square feet
• Outdoor Size:  1,500 square feet

• Location 6 opened as a fourth affiliate-owned Hounds Town USA Business in July 2018. It is one of two affiliate-owned locations.

• Location 6 has capacity for approximately 50 dogs during the day, 35 dogs overnight, and additional capacity for 1-2 cats. Location 6 hosted a total of 1,871 visitors in 2018 (505 daycare visitors and 1,366 boarding visitors).

• The owners of this location are absentee, employing two assistant managers, and approximately three to five kennel staff. The owners did not pay themselves an hourly wage or a salary in 2018.

Location 7 (Franchise)

• Year Open:  2018
• Indoor Size:  8,000 square feet
• Outdoor Size:  0 square feet

• Location 7 opened as a franchised unit in August 2018.

• Location 7 has a capacity for approximately 90 dogs during the day, 50 dogs overnight, and an additional capacity for 8-10 cats. Location 7 hosted a total of 1,072 visitors in 2018 (843 daycare visitors and 229 boarding visitors).

• The owners of this facility are semi-absentee, overseeing the general operations, marketing, and employee management while maintaining other careers. They employ one manager, two assistant managers, approximately four to six kennel staff, a part-time business manager, and a part-time groomer. The owners did not pay themselves an hourly wage or a salary in 2018.

• The average ticket price (calculated by dividing Gross Revenue by the total number of visitors for each location) for Franchise Locations in the 2018 Reporting Group during 2018 was $38.12, with a median of $38.09 and a range of $33.77 to $41.57.

• The average ticket price for Affiliate Locations in the 2018 Reporting Group during 2018 was $38.41, with a median of $38.41 and a range of $34.46 to $42.36.

Part 2 – Profit and Loss Information for the 5 Hounds Town USA Businesses That Had Been in Operation for at Least One Full Year as of December 31, 2018

• The information in the table below is a historical financial performance representation for the five Hounds Town USA Businesses that had been in operation for at least one full year as of December 31, 2018.

• The financial information provided in the following tables is based on the profit and loss statements submitted by the Franchise Locations, as well as the profit and loss statement of the Affiliate Location for fiscal year 2018. Hounds Town USA has not audited these statements but has no reason to doubt their accuracy.

Location 1 (Franchise)