FDD Talk: Hooters 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 Hooters franchise opportunity, including relevant news updates

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

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

• 2018 average, median, high, and low gross sales for the 197 company-owned (83 legacy company-owned, 93 remodel company-owned, and 21 new company-owned) and 131 franchised Hooters Restaurants that operated in the United States for the full fiscal year 2018 (which ended December 30, 2018)

• 2018 aggregate food sales, beverage sales, merchandise sales, total revenue, food costs, beverage costs, merchandise costs, total cost of sales, gross profit, staff payroll, management payroll, indirect payroll and benefits, total controllable payroll, direct controllable costs, fixed controllable costs, non-operating expense, and restaurant EBITDA for the 197 company-owned, 83 legacy company-owned, 93 remodel company-owned, and 21 new company-owned Hooters Restaurants that operated in the United States for the full fiscal year 2018 (which ended December 30, 2018)

Section I – Background Information

21 Things You Need to Know About the Hooters Franchise

Acquired by Nord Bay Capital and TriArtisan Capital Advisors, LLC

1.  At the beginning of July 2019, Hooters announced that it had been sold to Nord Bay Capital and its advisors TriArtisan Capital Advisors, LLC. Financial terms of the deal were not disclosed. H.I.G Capital, Chanticleer Holdings, and other investors dealt the chain and, as part of the transaction, selling entities will each retain a stake in Hooters.

2.  Terry Marks, CEO of Hooters of America, said, “The partnership with Nord Bay and TriArtisan comes at an ideal time for the company, bringing fresh partners with complementary skills and experience to support our next phase of growth to the benefit of all our employees, franchisees and customers.”

3.  Marks added, “Since joining HOA, I have had the opportunity to work closely with our investors and I want to personally thank all of them for their guidance. In particular, I would like to recognize H.I.G. for its leadership on the board. I am pleased that all will remain invested in HOA, which speaks to their confidence in the brand’s positive trajectory and future upside.”

4.  William Pepper, principal of Nord Bay Capital, stated, “Hooters is an iconic global brand that has shown strong financial growth and development. With nine consecutive quarters of same store sales growth and thirteen consecutive quarters outperforming the casual dining bar & grill category, we see Hooters as a real jewel in the restaurant category. We’re excited to work with Terry, his senior leadership team, along with the Hooters global franchise community and employees to drive continued success in the years to come.”

5.  According to Rohit Manocha, a founding partner of TriArtisan, “As a true innovator in the chicken wing space for over 35 years, Hooters is highly differentiated in a category that is more popular than ever. Terry and the senior leadership team have done a tremendous job elevating the Company and tapping into what today’s consumer wants. We are confident about the future growth of this great brand.”

Launches Meatless Wings

6.  At the beginning of January 2020, Hooters announced that it was launching meatless wings dubbed Unreal Wings. Hooters Unreal Wings are made with Quorn’s meatless wings, which are fried and then tossed in Hooters’ classic sauces and dry rubs. The Unreal Wings are vegetarian, non-GMO, soy-free, and sustainably-produced.

7.  Carl Sweat, chief marketing officer of Hooters of America, said, “We’re excited to build upon our heritage of offering the broadest variety of wings under one roof by being the first to bring great tasting meatless wings to our guests! By partnering with Quorn, we were able to create the taste, texture and crispiness of our world-famous chicken wings perfectly. Similar to our launch of smoked wings and roasted wings with half the calories of our regular wings, the Unreal wings provide our guests a healthier option without compromising on the full Hooters Wing flavor they know and love.”

8.  All Quorn products are entirely meat-free and provide a great tasting nutrient-rich protein source low in cholesterol and saturated fats. Quorn products are sustainably-produced, using less land and water to produce than meat.

9.  According to Kevin Brennan, chief executive officer of Quorn Foods, “We’ve been in the meat alternative game since the 1980s, and the new Hooters Unreal Wings taste just as good as chicken. The rise of meatless options especially at quick service and fast casual restaurants has largely centered on burgers, and we’re excited to partner with Hooters to roll out the first meatless poultry item on a national scale in the US.”

Introduces Line of Premium Spirits

10.  At the end of July 2019, Hooters announced the launch of Hooters Spirits, a line of high-quality spirits. The Hooters Spirits portfolio, which includes a premium array of vodka, gin, rum, tequila, American and cinnamon whiskey, became available at Hooters restaurants and select retailers around the country starting in Fall 2019.

11.  This line of premium spirits was developed in partnership with United Spirits, Inc., a leading private label beverage company and affiliate of publicly-traded Iconic Brands, Inc.

12.  In advance of the official launch, Chase Elliott drove a special No. 9 Hooters Spirits Chevrolet Camaro ZL1 at Bristol Motor Speedway on August 17. Hooters has expanded its sponsorship with Elliott and 12-time NASCAR Cup Series Champions, Hendrick Motorsports, to include the Bristol night race.

13.  Hooters Spirits delivers on the same high-quality experience that Hooters guests have enjoyed for decades at its iconic restaurants. The new Hooters Spirits include the following:

• Hooters Vodka is a flavorful and smooth six times distilled, gluten free, corn-based organic vodka, perfect for any cocktail;
• Delivering a memorable gin experience, Hooters Gin uses only select natural botanicals and Juniper berries;
• Hooters Dark Rum is aged in barrels and made with choice Caribbean blackstrap sugar cane molasses;
• Slightly sweet and smooth, Hooters Light Rum mixes beautifully in your favorite tropical cocktails or soft drinks;
• Hooters Tequila Silver is a unique blend sure to satisfy fans looking for an adventurous drinking experience, while Hooters Tequila Gold is a beautiful amber-hued tequila, perfectly suited for cocktails or neat;
• Hooters American Whiskey is a two year aged true American Whiskey that is perfect for any occasion, mixed or as a shot;
• Finally, Hooters Heat Cinnamon Whiskey is a compilation of premium American Whiskey with natural cinnamon and a touch of heat.

14.  The new spirits launched in the fall and Hooters incorporated the new line into a selection of signature drinks. Consumers are also able to purchase Hooters Spirits at leading retailers.

Company History

15.  Hooters was founded on April Fools’ Day in 1983 by six friends – Lynn D. Stewart, Gil DiGiannantonio, Ed Droste, Billy Ranieri, Ken Wimmer, and Dennis Johnson – in Clearwater, Florida. The friends, dubbed the “Hooters Six,” were jokesters and chose April Fools’ Day to start Hooters because they didn’t think their new business venture would work out.

16.  They also wanted Hooters to feature all of their favorite things, including “manly” finger foods, 50s and 60s music that they felt best exemplified a happy, nostalgic time in most Americans’ memories, and lots of wood (floors, walls, tables, and bars).

17.  The Hooters Six also decided to hire beautiful young women as servers, which has now become the brand’s most iconic aspect. Despite the initial skepticism from its founders, the Hooters concept was a hit from the start.

18.  Although the Hooters Six were having a lot of fun running the business, they decided to sell Hooters to Hugh Connerty in 1984. Connerty wanted to turn Hooters into a large national franchise. After a few years, Connerty sold Hooters to Robert Brooks and a group of Atlanta investors. Under this new leadership, Hooters continued to expand in the U.S. as well as internationally.

19.  As Hooters continued to grow, the restaurant and its scantily clad waitresses became part of American pop culture. This helped fuel Hooters’ success over the next few decades. After Brooks’ death in 2004, many investors showed interest in acquiring the company. A number of bids were submitted and Hooters was eventually sold to Chanticleer Holdings for $55.1 million in 2008.

20.  Despite its long success, Hooters’ popularity has stagnated in recent years. The brand launched a redesign and menu update in 2013. In 2019, Hooters was sold to Nord Bay Capital and TriArtisan Capital Advisors. Hooters’ previous owners, Chanticleer Holdings and H.I.G. Capital, both retain stakes in the casual-dining chain.

Entrepreneur’s Franchise 500

21.  Hooters did not rank on Entrepreneur’s 2020 Franchise 500 list.

Section II – Estimated Costs

• Please click here for detailed estimates of Hooters 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 Hooters’ 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:  144
• Outlets at the End of the Year:  144
• Net Change:  0

2017

• Outlets at the Start of the Year:  144
• Outlets at the End of the Year:  138
• Net Change:  -6

2018

• Outlets at the Start of the Year:  138
• Outlets at the End of the Year:  132
• Net Change:  -6

Company-Owned

2016

• Outlets at the Start of the Year:  193
• Outlets at the End of the Year:  194
• Net Change:  +1

2017

• Outlets at the Start of the Year:  194
• Outlets at the End of the Year:  200
• Net Change:  +6

2018

• Outlets at the Start of the Year:  200
• Outlets at the End of the Year:  209
• Net Change:  +9

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

Part 1 – 2018 Average and Median Annual Gross Sales for 197 Company-Owned and 131 Franchised Hooters Restaurants

• There were 197 company-owned and 131 franchised Hooters Restaurants that operated in the United States for the full fiscal year 2018 (which ended December 30, 2018). The table below shows their average and median annual Gross Sales in fiscal year 2018.

A.  Company-Owned Restaurants (197 Restaurants)