FDD Talk 2020: Great Harvest 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 Great Harvest franchise opportunity, including relevant news updates

• Section II – Estimated initial investment for a Great Harvest franchise, based on Item 7 of the company’s 2020 FDD

• Section III – Initial franchise fee, royalty fee, marketing fee, and other fees for a Great Harvest franchise, based on Items 5 and 6 of the company’s 2020 FDD

• Section IV – Number of franchised and company-owned Great Harvest outlets at the start of the year and the end of the year for 2017, 2018, and 2019, based on Item 20 of the company’s 2020 FDD

• Section V – Presentation and analysis of Great Harvest’s financial performance representations, based on Item 19 of the company’s 2020 FDD, including information on the:

• 2018 average and median annual gross sales for the 24 single-site Great Harvest bakery cafes and 3 sets (6 total) of hub and spoke Great Harvest bakery cafes (new concept) that were open and operating for the full 12-month period ended December 31, 2018

• 2019 average and median annual gross sales for the 3 hub and 3 spoke Great Harvest bakery cafes (new concept) that were open and operating for the full 12-month period ended December 31, 2019

• 2019 average and median annual gross sales for the 27 single-site Great Harvest bakery cafes and 3 sets (6 total) of hub and spoke Great Harvest bakery cafes (new concept) that were open and operating for the full 12-month period ended December 31, 2019

• 2019 average gross sales, variable costs, fixed costs, total operating expenses, and net operating income before bread company owners’ pay, depreciation, amortization, interest, and taxes for the 19 single-site Great Harvest bakery cafes and 3 sets (6 total) of hub and spoke Great Harvest bakery cafes (new concept) that were open and operating for the full 12-month period ended December 31, 2019 and reported their income statements to Great Harvest

Section I – Background Information

23 Things You Need to Know About the Great Harvest Franchise

Owners Rally to Solve Bread Shortage

1.  In mid-March 2020, with the rise of empty grocery shelves in the midst of the Covid-19 pandemic, Great Harvest business owners were able to regulate their made-to-order baking schedule and made-from-scratch commitment to fulfill the communities’ needs for bread and other meal-to-go options.

2.  Since every Great Harvest bakery cafe location bakes from scratch every day, they were able to take orders, plan, and bake accordingly to ensure customers got what they were for looking for and in the amounts they were requesting. To ensure availability, owners encouraged customers to place orders ahead of time and they worked with guests to coordinate the best possible next day pick-up time.

3.  With bread and many other items flying off grocery store shelves, Great Harvest business owners have the capacity to bake as much bread as needed to serve the needs of communities and flexibility to control the amount available. Franchisees worked hard to have orders ready and prepaid to get folks in and out as quickly as possible.

4.  While each bakery café has its own unique menu tailored to the community it serves, all include made-from-scratch bread with daily-milled Montana wheat, and a variety of baked goods. Many locations offer a line of delicious sandwiches, soups, and salads.

5.  Orders can be called in or done online to ensure availability. Some owners are also offering curb-side pickup and delivery through third-party delivery. Additionally, all locations temporarily shifted to offer only in-store pick up until further notice. As always, the company continues to heavily reinforce rigorous sanitization guidelines in each location.

6.  According to Mike Ferretti, CEO of Great Harvest, “Providing a safe environment for our customers and employees while offering necessities such as fresh bread is our top priority. Our franchisees want to give people a convenient and local option for freshly-baked bread and made-to-order meals, so customers can take care of their families at home without stressing about the availability of bread and nutritious options.”

Continues to Expand with Hub and Spoke Model

7.  In late April 2019, Great Harvest announced that it had signed five franchise agreements with new and existing Great Harvest franchisees. These entrepreneurs were set to open and/or expand in the following markets: Walt and Ellie Legits (Grand Junction, Colorado), Praveen and Prajna Munipalle (Northern Dallas, Texas), Nimesh and Natasha Patel (Long Island, New York), Lacey and Brian Loveless (Tulsa and Broken Arrow, Oklahoma), and Michele Ellis (Red Bank and Asbury Park, New Jersey).

8.  Great Harvest’s unique franchise model allows entrepreneurs to choose between owning a single bakery cafe or a cost effective hub and spoke model, built for multi-unit owners. The hub and spoke model allows owners to cover more territory and serve as their own supply chain with a central bakery cafe supplying fresh bread throughout the day to the cafe-only locations in surrounding communities.

9.  According to Mike Ferretti, chairman and CEO of Great Harvest, “We’re continuing to see franchise owners seek out the hub and spoke model, as it is the most efficient way to out-bake and out-localize the competition in high-traffic areas with as little as 1,500 square feet. Additionally, with new Great Harvest locations, each owner is able to make it their own with our freedom franchise, which lets franchisees choose their own design, décor, menu selection, and even set their own pricing and localize their marketing efforts.”

10.  Great Harvest knows that cookie-cutter franchises are not what communities need. Each of these neighborhoods will soon have a hub or spoke with their own unique style and menu that matches the community’s vibe and desired taste. Great Harvest is an investment opportunity that lets the owner decide how turnkey they want the process to be and lets franchisees call their own shots.

Launches Mobile App and Online Ordering

11.  In mid-July 2019, Great Harvest officially launched its mobile app and introduced online ordering in select locations. Additionally, a few locations would be testing bread home delivery services. Moving away from the traditional bread card and “baker’s dozen” special, where the 13th loaf is free, 30 Great Harvest bakery cafes are leading the change by ensuring their locations are rewarding and communicating with loyal, repeat customers via email and mobile notifications. The brand expected at least 70 more locations to adopt the mobile rewards program within the next few months.

12.  Great Harvest has drastically evolved over the last two years, going from a bread-centric establishment to a breakfast, lunch, and dinner bakery cafe offering cold and off-the-grill sandwiches, breakfast specialties, grain bowls, salads, coffee, and more. The mobile app rewards the frequent lunch and breakfast eaters, specialty bread enthusiasts, the sweet-treat lovers, and everyone else in between.

13.  The robust mobile app also allows guests to view their updated reward points with each purchase and can even refer a friend to earn additional points. It also includes a birthday reward offering via the app. Additionally, select locations offer online ordering and easy-to-order catering through the app.

14.  Mike Ferretti, CEO of Great Harvest, said, “From our initial testing prior to launch, we already saw a high redemption rate and the average ticket price increase. We’re encouraged and believe our franchisees who know their customers best will continue to embrace the mobile app for the multiple and mutual benefits. The app allows franchisees to more accurately market and communicate to their repeat customers and gives the fan base what they deserve: easier access to what they love and rewards them for their loyalty.”

15.  Great Harvest does not have a mandated design outside of the high baking standards and requirement of freshly-milled wheat sourced from trusted Golden Montana Triangle farmers. Each location is a version of Great Harvest that reflects the owner and the local community they serve. The Great Harvest franchise opportunity offers the security of a proven business model while still leaving room for franchisees to make their business their own.

16.  Known for being a freedom franchise, each location still has complete control over using the app to localize their marketing efforts with customizable templates. For instance, each location can create its own offering or use the pre-made templates to offer double-point Tuesdays, free cookies, and more based on their individual communities’ wants and preferences.

17.  All of this follows the brand’s most recent transformation and introduction of the hub and spoke model, designed for major expansion and multi-unit ownership. Existing franchisees and those joining the system can expand strategically and serve as their own supply chain with a central bakery cafe supplying fresh bread throughout the day to the cafe-only locations in surrounding communities.

18.  This approach allows franchisees to physically fit on “Main Street” by opening in high-traffic areas with as little as 1,500 square feet – unlike Panera and other bakery cafe chains that require a large square footage. Great Harvest bakery cafes may operate as standalone units in a market, or as “hubs” in conjunction with additional cafes operating as “spokes.”

19.  Hubs are full bakery cafes with seating for 40-45 people and have all the handmade bread production on-site. Spokes operate as cafes; they have fresh bread supplied by the hub daily and should be located within 40 minutes of said hub. Spokes have the same menu as its hub while baking some items on-site – like cookies, biscuits, scones, etc. – to maintain the aroma of a bakery.

Company History

20.  Great Harvest Bread Company was founded in 1976 by Pete and Laura Wakeman in Great Falls, Montana. The couple had met in college and were known for making whole grain bread from scratch to help pay for their tuition. After they were married in 1975, the Wakemans hiked the entire north-south length of Montana and fell in love with the “Big Sky Country.” The Wakemans decided to settle in the area and sell their bread.

21.  The Wakemans’ bread was a hit and in 1978, they opened the first Great Harvest Bread Company location in Kalispell, Montana. Great Harvest Bread Company continued to grow over the next few decades and it became the first whole grain bread franchise in the United States.

22.  In 2001, the Wakemans sold Great Harvest Bread Company to its employees and officers, including CEO Mike Ferretti and president Eric Keshin. Today, there are Great Harvest bakery cafe locations in all 50 states, including Alaska and Hawaii.

Entrepreneur’s Franchise 500

23.  Great Harvest did not rank on Entrepreneur’s 2020 Franchise 500 list.

Section II – Estimated Costs

• Please click here for detailed estimates of Great Harvest franchise costs, based on Item 7 of the company’s 2020 FDD.

Section III – Initial Franchise Fee, Royalty Fee, Marketing Fee, and Other Fees

• Please click here for detailed information on Great Harvest’s initial franchise fee, royalty fee, marketing fee, and other fees, based on Items 5 and 6 of the company’s 2020 FDD.

Section IV – Number of Franchised and Company-Owned Outlets

Franchised

2017

• Outlets at the Start of the Year:  180
• Outlets at the End of the Year:  181
• Net Change:  +1

2018

• Outlets at the Start of the Year:  181
• Outlets at the End of the Year:  182
• Net Change:  +1

2019

• Outlets at the Start of the Year:  182
• Outlets at the End of the Year:  173
• Net Change:  -9

Company-Owned

2017

• Outlets at the Start of the Year:  3
• Outlets at the End of the Year:  2
• Net Change:  -1

2018

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

2019

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

Section V – Financial Performance Representations (Item 19, 2020 FDD) and Analysis

• There historically have been 6 principal types of Great Harvest Stores:

• (1) a traditional Great Harvest bread company baking bread and other products for retail sale;

• (2) a traditional Great Harvest bread company that has added sandwiches to its menu with limited seating but without 2 customer restrooms;

• (3) a single-site, bread-baking Great Harvest “bakery cafe” with some seating and a menu that includes sandwiches;

• (4) a multi-unit operation where 2 or more locations described in (3) above owned by the same franchisee work together, with one location baking bread and then supplying it to the other locations;

• (5) a “new concept” Great Harvest bakery cafe distinguished by permanent seating for 35 or more people; 2 customer restrooms; and a menu that includes breakfast sandwiches, cold and hot sandwiches, baked goods, salads, and coffee;

• (6) a “new concept hub and spoke” with the primary “hub” location baking bread and other products to supply the “spoke” locations with the baked goods that supplement the cafe products made in the spoke(s), and at least one of the Great Harvest bakery cafes meets the “new concept” definition outlined in (5).

• Great Harvest currently offers franchises only for Great Harvest bakery cafes operating as single-site, new concept bread-baking bakery cafes (described in (5) above) or, if the franchisee intends to have a “hub and spoke” operation (described in (6) above), Great Harvest bakery cafes that are bread-baking (“hub”) locations and non-bread-baking (“spoke”) locations.

• Depending on local market conditions, however, Great Harvest may offer franchises for “new concept” bakery cafes even if they cannot have 35 permanent seats or all the standard features of the “new concept” bakery cafe.

Part 1 – Average and Median System-Wide Sales by Category of Bakery Cafe (for the 12 Months Ended December 31, 2018)

• Part 1 shows average and median annual Gross Sales for the 12 months ended December 31, 2018 for Great Harvest bread companies falling into the following categories:

• (a) a single-site, new concept bakery described in (5) above; and

• (b) a new concept hub and spoke described in (6) above when both hub and spoke have been open at least 1 year.

• Part 1 includes 24 single-site, new concept bakery cafes.

• The 6 new concept hub and spoke bakery cafes whose results appear in Part 1 are the same 6 hub and spoke bakery cafes that submitted their income statements for purposes of Part 4.

• The 24 single-site, new concept bakery cafes do not include any new concept bakery cafes that are part of a hub and spoke combination. Similarly, the sections showing hub and spoke combinations do not include any of the 24 single-site, new concept bakery cafes.

• Excluded from this Item 19 are 8 new concept bakery cafes that opened during 2018, 5 new concept bakery cafes whose ownership was transferred during 2018, and 2 new concept bakery cafes for which related spoke locations opened during 2018.

Single-Site Bakery Cafe (New Concept)