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 2020 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 2020 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 2017, 2018, and 2019, based on Item 20 of the company’s 2020 FDD

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

• 2019 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, 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

23 Things You Need to Know About the Panda Express Franchise

Announces New Brand Commitments to Continue Menu Elevation Journey

1.  At the beginning of March 2020, Panda Express marked a milestone on its continuing journey to elevate its signature recipes and bring fresh thinking and delicious food to guests. Driven by its mission to inspire better lives, the restaurant announced its behind-the-wok efforts curated over the last decade and shared its timeline for recipe elevation over the next five years.

2.  Just in time for National Nutrition Month, the company revealed plans to implement menu changes including new ingredient introduction, sodium and sugar reduction, as well as the elimination of artificial flavors and colors, among other initiatives – all developed in partnership with trusted industry experts. Appealing to a variety of tastes and preferences, Panda Express believes in real food that tastes good and feels good for the body and soul.

3.  As the pioneer of American Chinese cuisine, Panda Express remains committed to delivering delicious food with integrity and offers freshly prepared choices without sacrificing flavor. Now, the brand is making the Panda Promise: a menu evolution inspired by what today’s diners are looking for, designed to continuously advance their beloved menu of flavor mashups that bring together innovation, quality, and comfort in unique executions only found at Panda Express.

4.  According to Andrea Cherng, chief marketing officer of Panda Express, “So many of our guests tell us that they don’t want to choose between food with flavor and food that fits healthy-ish and busy lifestyles. Over the last several years, our culinary team has made progressive changes to our recipes so that we can offer a variety of dishes that taste and feel good. There is more work to be done to bring our pledge to life but with time we are confident in the positive changes that we will make.”

5.  Panda Express’ ongoing commitment is evidenced by past and ongoing efforts including:

• Fresh vegetables from whole to cut, hand-chopped, and wok-tossed for the entrees;
• Ongoing reduction of sodium in menu items over the last five years;
• Introduction of raised without antibiotics chicken for all limited-time offers (debuted with Sichuan Hot Chicken in July 2019);
• Introduction of cage-free eggs in 2020, with nationwide adoption in 2025;
• Protein-filled and low-calorie entrees with at least eight grams of protein and 300 calories or less, making up over half of the menu.

Announces Appreciation Discount to Healthcare Workers and First Responders for the Rest of the Year

6.  In mid-May 2020, in honor of National Hospital Week (May 10-16), Panda Express created an appreciation discount program for hospital staff and first responders to show its deep appreciation and gratitude to these everyday heroes during this global health crisis.

7.  Starting on May 11, hospital staff and first responders can enjoy 10 percent off on purchases made in-store at participating Panda Express and Panda Inn locations all year long, by showing their employment badge at checkout. This appreciation discount is one of many initiatives that Panda has implemented as part of their ongoing commitment to protecting, inspiring, and bettering the communities they serve.

8.  Since March, the company’s philanthropic arm Panda Cares and co-founders Andrew and Peggy Cherng have donated nearly $9 million to support various COVID-19 relief efforts, including partnering with Feeding America as well as providing hot meals and personal protective equipment (PPE) to healthcare workers.

9.  Panda will continue to fundraise for its COVID-19 Community Care Fund with a new focus on the race to find a cure, supporting a team of renowned scientists that are developing a treatment for SARS-CoV-2, the virus that causes COVID-19. This initiative is led by Dr. David Ho, a famed virologist who pioneered the HIV/AIDS treatment in the 1990s.

10.  Dr. Peggy Cherng, co-founder and co-CEO of Panda Restaurant Group, said, “In a time when connection seems difficult to grasp, we hope to bring comfort and hope by giving back and letting our communities know that they are not alone. The appreciation discount program for hospital workers and first responders is a small token of our appreciation for all that they do for us. We will continue to support hospitals with PPE and food donations. Our commitment to caring for our frontline caregivers extends beyond Hospital Week – we will do everything in our ability, however big or small, to take care of our heroes.”

Accelerates Plans for Direct Delivery Amid Ongoing COVID-19 Pandemic

11.  In June 2020, Panda Express discussed its plans that would allow customers to order directly from its website and app while retaining a third party to fulfill the order. Panda Express said that the increased demand for food delivery amid the ongoing COVID-19 pandemic has pushed the brand to accelerate its strategy.

12.  The news comes as Panda Express appears primed for growth. The company’s sales rose 7.8 percent in 2019, increasing from $3.5 billion in 2018 to $3.8 billion in 2019, according to FoodserviceResults; unit size grew by 4.6 percent. Looking further ahead, the brand wants to hire 30,000 employees in response to increased health and safety standards and growth in off-premises business. The restaurant has also begun bringing back its full menu at locations across the nation.

13.  QSR Magazine conducted an interview with Nidhin Mattappally, executive director of digital and restaurant experience at Panda Restaurant Group – parent of Panda Express – regarding the brand’s plans to roll out direct delivery. According to Mattappally, “With city lockdowns, guests were looking for convenience and value, and we believe this need and behavior will continue to stick around. We also saw the percentage of our third-party delivery business double, but our own digital business grew even faster at over five times.”

14.  Mattappally added, “Seeing that our guests preferred to engage with Panda directly on our digital channels, we accelerated the launch of ‘Panda Delivers’ service on our app and website by half a year. We also redesigned our ordering website and mobile apps to closely mirror our in-store experience to make it simpler for our guests and ensure they have a frictionless digital experience. So far, the reception has been great – our digital business continues to be very strong and direct delivery is already becoming a sizeable business.”

15.  At the time of the interview, Panda Delivers was available at over 1,700 stores nationwide. Mattappally said that by the end of July, the option would be available for customers at close to 2,000 stores.

16.  When asked about recent tensions between third-party delivery partners and restaurant operators during the pandemic because of high fees, Mattappally said, “Keeping guests on our Panda-owned platforms allows for a direct relationship and communication channel between Panda and our guests. For ‘Panda Delivers,’ the total check is lower for our guests than when ordering from other delivery services, but our current vendors like Uber Eats, DoorDash, Postmates, and Grubhub continue to be valued partners for Panda to reach new and current guests. Consumers like to have options and at Panda, we want to continuously serve their needs, whether it’s the ability to choose from a variety of dishes or picking the delivery service they prefer.”

17.  Regarding the challenges that come with transitioning from third-party delivery to direct delivery, Mattappally said, “We are definitely new to this space and we want to ensure we deliver a great guest experience through this critical channel. As such, we are keeping a close eye on all of our guest feedback as well as our key performance indicators to ensure we provide a consistent, frictionless experience and identify ways to get better.”

18.  On a final note on the future of the restaurant industry, Mattappally said, “Research has shown that consumers prefer to interact directly with the restaurants themselves rather than through a third party and so, I believe more brands will look to provide delivery through their own channels to serve this need as well as retain the relationship with their consumers.”

Company History

19.  Panda Express was founded in 1983 by Andrew and Peggy Cherng at the Glendale Galleria Mall in Glendale, California. Andrew Cherng and his father, Master Chef Ming Tsai Cherng, had been in the restaurant industry since the early 1970s, running Panda Inn.

20.  While operating Panda Inn, Andrew Cherng became acquainted with then-UCLA head football coach Terry Donahue, as well as Terry’s brother Dan, who happened to be in the real estate business. In 1983, Donahue Schriber Real Estate, the manager of the Glendale Galleria, invited the Cherngs to develop a fast-food version of Panda Inn for the Galleria’s food court and Panda Express was launched later in the year.

21.  Over the next few years, Panda Express opened additional locations, primarily in mall food courts. In 1987, Chef Andy Kao developed Panda Express’ signature dish, Orange Chicken, inspired by the flavors of Hunan Province. By the end of the 1990s, Panda Express had grown to well over 100 locations and opened its first stand-alone drive-thru location in Hesperia, California.

22.  This exponential growth continued into the 2000s and 2010s. In 2017, Panda Express established the Panda Innovation Kitchen in Pasadena with the Cherngs’ daughter, Andrea Cherng, to experiment with different flavors and new menu items. Panda Express has become the largest Asian segment restaurant chain in the United States. It also has locations in Canada, Guatemala, Japan, Mexico, El Salvador, the Philippines, South Korea, and the United Arab Emirates.

Entrepreneur’s Franchise 500

23.  Panda Express did not rank on Entrepreneur’s 2020 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 2020 FDD.

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

• Please click here for detailed information on Panda Express’ 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:  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:  125
• Net Change:  +17

2019

• Outlets at the Start of the Year:  125
• Outlets at the End of the Year:  138
• Net Change:  +13

Company-Owned

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

2019

• Outlets at the Start of the Year:  1,979
• Outlets at the End of the Year:  2,046
• Net Change:  +67

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

Captive Venues – Licensed Restaurants Only – Financial Performance Representations/Full Year 2019

• The chart below contains unaudited historical gross sales data for calendar year 2019 reported by Restaurants operated by Licensees and located exclusively in airports, military facilities, hospitals, and universities (“captive venues”).

• The information relates only to 111 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).

• 43 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 20 licensed Restaurants that were open less than a year, and for 1 licensed Restaurant that closed in 2019 and which had been operating more than a year before closing.

• The franchisor also excluded data for 6 Restaurants located in a theme park, a corporate campus, travel plaza, casino, 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 32 states and with approximately 29% 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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