FDD Talk 2021: 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 2021 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 2021 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 2018, 2019, and 2020, based on Item 20 of the company’s 2021 FDD

• Section V – Presentation and analysis of Great Harvest’s financial performance representations, based on Item 19 of the company’s 2021 FDD, including information on the:

• 2020 average and median annual gross sales for the 24 single-site Great Harvest bakery cafes and 5 sets (10 total) of hub and spoke Great Harvest bakery cafes (new concept) that were open and operating during all of 2019 and 2020

• 2020 average and median annual gross sales for the 5 hub and 5 spoke Great Harvest bakery cafes (new concept) that were open and operating during all of 2019 and 2020

• 2019 average and median annual gross sales for the 24 single-site Great Harvest bakery cafes and 5 sets (10 total) of hub and spoke Great Harvest bakery cafes (new concept) that were open and operating during all of 2019 and 2020

Section I – Background Information

13 Things You Need to Know About the Great Harvest Franchise

Announces ‘The Return of the Lunchbox’ Charity Initiative

1.  In mid-August 2020, Great Harvest Bakery Cafe owners wanted to help families scratch off pack lunch from the to-do list, inspire new favorite sandwich ideas, and feed families in need. Great Harvest Bakery Cafe announced The Return of the Lunchbox social share and local charity initiative. This new campaign was a way to engage and spark kids’ creativity, while also giving back to the local community through its charitable aspect.

2.  From mid-August through the end of September, parents and kids were encouraged to post a photo of their sandwich masterpiece on Facebook or Instagram served on any of the signature Great Harvest loafs of bread. To participate, participants had to tag their local Great Harvest location and use the hashtag: #returnofthelunchbox and #LunchboxCity (e.g., #LunchboxBoise). In the post, they could share their short list of ingredients and why the sandwich is their “go-to” lunch box item. For every social post, the local Great Harvest made a bread donation to the local food bank and/or charity of their choice.

3.  Mike Ferretti, CEO of Great Harvest, said, “We know that parents, teachers and kids are stressed right now and if there is a small way to bring a smile to a little ones face whether they are eating lunch at school or at home, we want to be a part of that. It’s a simple way for parents to see what other fun, sandwich ideas are kid-approved all while helping to support other families who are in need of bread donations.”

4.  There’s no better way to celebrate National Sandwich Month than by enjoying a loaf of Great Harvest Bread, made with the world’s finest protein-packed premium wheat and freshly grounded into 100 percent whole grain flour. From PB&J’s served on Cinnamon Chip bread with added bananas, Turkey on Cheddar Garlic, a BLT with signature Sourdough, Salami on Cracked Pepper Parmesan, Roast Beef on Rosemary Garlic, to Ham on Oregon Herb – the creative flavor options are endless.

5.  “Better bread makes a difference and we’re excited to see what creative sandwich ideas come from our Great Harvest bread enthusiasts,” said Eric Keshin, president and CMO of Great Harvest. “When the quality of the bread on the outside of the sandwich is as good as what parents are putting in the inside, families will discover new go-to lunch options.”

Franchisee Exceeds Initial Donation Goal

6.  In late March 2021, a northern Virginia news source reported that the owners of a Great Harvest franchise in Fairfax County has stepped up over the past year in an unbelievable way. Due to food insecurity during the COVID-19 pandemic, the Great Harvest franchise was hoping to donate up to 5,000 loaves of bread to local food banks and shelters. However, the location has donated over 20,000 loaves of bread (at the time of the news release). Owner Jeffrey Connelly said, “It’s just incredible. We’ve donated to about 40 or 50 food banks and shelters. We never knew it would be that much.”

7.  Since the pandemic started last year, the company has been asking the public to donate cash to the business so it can donate loaves of bread to people in need. For every $5 the business gets, it is able to make and donate one loaf of bread. If someone donates $100, the business throws in an extra five loaves of bread for a total of 25 loaves. “We get donations every week – sometimes three or four times a week,” Connelly said. “We have people just walk in the bakery and hand us $100 and say, ‘Put this toward the bread fund.’”

8.  The company estimated that it has received roughly $75,000 in donations so far. There were two major donations that stood out. A $22,500 donation came from Prince William Food Rescue, a group that partners with food retailers and nonprofits to bring food directly to people experiencing food insecurity. The other large donation of $5,000 came from the company X-Chair, which is headquartered in Beltsville, Maryland. “We are very grateful and thankful for everyone who has helped us to be able to do this,” Connelly said.

9.  A group called the Lorton Community Action Center, which provides food and financial assistance to low-income individuals, receives 2,000 loaves of donated bread from Great Harvest during a typical year. But over this past year, that number has quadrupled to 8,000. “When we deliver to the Lorton Community Action Center, there’s a line of people that’s 60 people deep and they’re all happy and thankful,” Connelly said. “It’s just amazing.”

10.  Great Harvest is continuing to reach out to other businesses and organizations, asking for donations so it can continue its effort throughout 2021. Connelly has two locations in Burke and Lorton, Virginia.

Company History

11.  Great Harvest was founded in 1976 by Pete and Laura Wakeman in Great Falls, Montana. The Wakemans had been selling scratch made bread to help pay for their tuition at Cornell University. After they graduated, the Wakemans got married and traveled through Montana and decided they never wanted to leave. Building upon their previous bread making and selling experience, the Wakemans opened the first Great Harvest bakery to much success. Two years later, the Wakemans opened the first franchised Great Harvest location in Kalispell, Montana.

12.  Over the next few decades, Great Harvest continued to grow around the United States and eventually became the first whole grain bread franchise in the country. 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 locations in all 50 states.

Entrepreneur’s Franchise 500

13.  Great Harvest did not rank on Entrepreneur’s 2021 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 2021 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 2021 FDD.

Section IV – Number of Franchised and Company-Owned Outlets

Franchised

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

2020

• Outlets at the Start of the Year:  173
• Outlets at the End of the Year:  171
• Net Change:  -2

Company-Owned

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

2020

• 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, 2021 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.

• The bakery cafes whose results are reflected in Parts 1, 2, and 3 below are the same “census” of bakery cafes; those bakery cafes were open during all of 2019 and 2020. Excluded from Parts 1, 2, and 3 are bakery cafes that were not open during all of 2019 and 2020 (regardless of the reason), even if they were open during all of 2019 or all of 2020.

• 13 single-site, new concept bakery cafes opened before 2020 but did not operate during all of 2020 due to the COVID pandemic. These 13 bakery cafes were closed for anywhere between approximately 1 month and 6 months during 2020 due to either government mandates or the franchisee’s personal decision to remain closed for personal safety reasons (including the safety of its employees and customers).

• Because 13 bakery cafes were closed for a significant timeframe during 2020 due to COVID and therefore are excluded from this Item 19, including in the 2020 system-wide performance the results for certain bakery cafes that were open during all of 2020 but not during all of 2019 would, because of the performance of those particular bakery cafes, skew the 2020 system-wide performance upward due solely to the difference in the group of bakery cafes covered.

• For that reason, this Item 19 presents performance during all of 2020 and 2019 for the same group of bakery cafes (that is, it compares the 2020 performance of a group of bakery cafes open during all of 2020 with the 2019 performance of that same group of bakery cafes during all of 2019).

Part 1 – Average and Median System-Wide Sales by Category of Bakery Cafe (for the 12 Months Ended December 31, 2020)

• Part 1 shows the average and median annual Gross Sales for the 12 months ended December 31, 2020 for the Great Harvest bread companies falling into the following categories:

• (a) single-site, new concept bakery; and

• (b) new concept hub and spoke.

Single-Site Bakery Cafe (New Concept)