FDD Talk 2021: Qdoba Mexican Eats 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 Qdoba Mexican Eats franchise opportunity, including relevant news updates

• Section II – Estimated initial investment for a Qdoba Mexican Eats 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 Qdoba Mexican Eats franchise, based on Items 5 and 6 of the company’s 2021 FDD

• Section IV – Number of franchised and company-owned Qdoba Mexican Eats 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 Qdoba Mexican Eats’ financial performance representations, based on Item 19 of the company’s 2021 FDD, including information on the:

• 2020 average, median, lowest, and highest net sales (by quartile and overall) for the 294 franchisee-operated Qdoba Mexican Eats restaurants that were open for at least 1 year as of the end of the trailing twelve months ended September 27, 2020 (TTM) and that were not closed greater than 7 operating days in the TTM, with the exception of including 42 franchisee-operated Qdoba Mexican Eats restaurants which were temporarily closed due to operational impact from COVID-19

• 2020 average restaurant sales, promotions, net restaurant sales, cost of sales, salaries and benefits, other operating expenses, occupancy costs, royalty fee, advertising fee, total cost of revenues, and EBITDA for the 307 company-operated Qdoba Mexican Eats restaurants that were open for at least 1 year as of the end of the TTM and that were not closed greater than 7 operating days in the TTM, with the exception of including 7 company-operated Qdoba Mexican Eats restaurants which were temporarily closed due to operational impact from COVID-19

• 2020 average, median, lowest, and highest net sales (by quartile and overall) for the 65 non-traditional Qdoba Mexican Eats licensed restaurants that were open for at least 1 year as of the end of the TTM

Section I – Background Information

24 Things You Need to Know About the Qdoba Mexican Eats Franchise

Launches Bold Multi-Unit Franchise Growth Initiative

1.  In late September 2020, Qdoba Mexican Eats announced a focused franchise initiative targeting key U.S. markets. The strategy focuses on building out regions across the country, including Arizona, Southern California, Florida, Georgia, Ohio, Nevada, New Jersey, New York, Texas, New England, Pennsylvania, and New England. Backed by 25 years of proven success and more than 730 restaurants open (at the time of the announcement) in the United States and Canada, Qdoba is already working with several experienced franchisee groups interested in major markets.

2.  Keith Guilbault, CEO of Qdoba, said, “We are in a fantastic position to be aggressive with our franchise growth strategy. Qdoba has carved out its place in the growing fast-casual space, offering a flavorful menu and a business model well suited for off-premises, at a more affordable investment than a traditional QSR.”

3.  “We’re a nimble brand that has proven to adapt to evolving consumer needs quickly. We offer a series of formats including restaurants equipped with drive-thrus, pick-up windows, and dedicated curbside pick-up areas,” said Tim Welsh, chief development officer of Qdoba. “We see this continuing to be a strong suit for us in the future.”

4.  In recent years, Qdoba has set the stage for continued growth. It has hired nearly 100 corporate employees at its new San Diego headquarters, established a more distinctive brand identity, and expanded its menu innovation. Momentum is on the fast-casual concept’s side as its customer base and footprint alike continue to grow.

5.  Qdoba planned to open more than 30 restaurants in 2020. Since the onset of the COVID-19 pandemic, Qdoba has continued to prioritize growth, with 15 openings from mid-March to late September 2020. The brand was planning for more than 15 new stores to open between September and the end of 2020, including a location in San Diego.

6.  In March 2020, Qdoba responded rapidly to the developing pandemic and dedicated resources to supporting franchisees with temporary royalty relief. For customers, it moved to limited-contact ordering, including digital ordering through Qdoba.com or the Qdoba app, in-restaurant to-go ordering, and delivery via third-party providers. The early pivots worked – today more Americans are likely to purchase from Qdoba than they were at the onset of the pandemic, according to an independent study by YouGov. Additionally, well-timed investments in a robust digital platform have helped sustain Qdoba’s off-premises business in recent months.

7.  Further differentiating the Qdoba franchise opportunity is its flexible footprint options that allow the brand to work well in a variety of traditional and non-traditional venues. With several dayparts, broad consumer appeal, and a strong catering and off-premises business, franchisees are set up for sustained success. Furthermore, Qdoba’s streamlined and efficient buildouts reduce development costs for its franchisees.

8.  As Qdoba continues to expand throughout the United States, it is actively seeking qualified multi-unit and multi-segment groups with experience in development strategy and focused on diversifying with a bold concept.

Unveils New Floorplans and Restaurant Concepts, Designed for Growth

9.  In late October 2020, Qdoba Mexican Eats introduced new restaurant formats that set the stage for the brand’s continued growth. Qdoba’s new concepts feature buildouts including mobile-order drive-thrus, walk-up windows, mobile-order pick-up lockers, dedicated curbside pick-up areas, ghost kitchens, and concepts with updated outdoor seating. The new formats came on the heels of a major multi-unit franchise development strategy announced the previous month that is set to grow Qdoba to 2,000 units.

10.  Tim Welsh, chief development officer of Qdoba, said, “Today’s customer wants a frictionless, safe experience and we’re evolving to meet that need quickly with these new formats. The concepts are designed with our consumer in mind and position our stores to grow sales within and outside the four walls, while reducing buildout costs for franchisees.”

11.  Qdoba’s new footprints are built to fuel the 730-unit brand’s multi-unit growth in the years ahead. Many of the concepts are designed to grow off-premise sales, including ghost kitchen formats and smaller takeout footprints as low as 1,000 sq. ft. designed with high-rent urban areas in mind.

12.  “Our new formats are incredibly attractive to today’s multi-unit operators, who are looking for chef-driven food quality at a lower investment than a traditional QSR. With drive-thru equipped buildouts as low as 1,200 sq. ft., coupled with our strong average unit volumes, Qdoba is well-positioned to meet the needs of today’s franchisees,” added Peter Ortiz, Qdoba’s newly-appointed vice president of franchise development.

13.  As a national brand with many attractive markets available for multi-unit development, Qdoba is well-positioned for growth. In August, the fast-casual brand tapped Ortiz to drive growth into new markets with the nation’s top franchise groups. He is already working with several experienced franchisee groups interested in major markets.

Celebrates Opening of 400th Restaurant

14.  At the beginning of February 2021, Qdoba Mexican Eats announced the opening of its 400th franchise location. A testament to the joint success of Qdoba and its franchisee community, the landmark opening underscores the brand’s dynamic development strategy to expand to 2,000 units. Qdoba’s growth will be fueled by blending a mix of current franchisees expanding their portfolios, new franchisee acquisition, and corporate development.

15.  Qdoba’s 400th franchise restaurant had its grand opening on January 19 in Brighton, Michigan, a suburb of Detroit in the northwest corner of the market known for its lively dining and entertainment scene. The modernized Qdoba embraces Brighton’s vibe and features several of the recent innovations, including a new drive-thru format and the brand’s updated interior and exterior designs. The opening marks the 15th Qdoba for Southwind Restaurant Group, the franchisee owner/operator team that began franchising with the concept in 2005.

16.  Greg Johnroe of Southwind Restaurant Group said, “We were one of Qdoba’s earliest franchisees, so it means a lot to us to be a part of this celebrated opening. Of all the restaurants we’ve done, this one is special to us. The state-of-the-art drive-thru and streamlined kitchen layout are designed to give our customers new ways to engage with our freshly-prepared menu. We couldn’t be prouder to be a part of Qdoba and are excited to continue growing with the brand.”

17.  Southwind Restaurant Group’s Johnroe and Kevin Egnatuk have 20-plus years of restaurant franchise experience, including owning and operating 19 Burger King locations in Michigan. “What initially attracted us to Qdoba was the quality of the food,” added Egnatuk. “We were lucky enough to eat at an early franchise location in Grand Rapids. From that point on, we knew we wanted to be a part of the Brand.”

18.  “Talented and experienced franchisees like Greg, Kevin and their team are what make us who we are,” said Peter Ortiz, vice president of franchise development for Qdoba. “We are constantly working with our franchisees to create new ways to improve the customer experience, and we are proud that our 400th location is one that embodies many of our latest innovations.”

19.  Given Southwind Restaurant Group’s extensive restaurant industry experience, it is well equipped to help pioneer a new era of enhanced restaurant design and operations for Qdoba. Qdoba recently unveiled new restaurant footprints built to fuel the 740-unit brand’s multi-unit growth in the years ahead. Many of the newly-introduced concepts are designed to grow off-premise sales, including ghost kitchen formats and smaller takeout footprints as low as 1,000 square feet developed with high-rent urban areas in mind. Notably, restaurants with drive-thrus can enter spaces as low as 1,200 square feet.

Company History

20.  Qdoba Mexican Eats was founded in 1995 as Zuma Fresh Mexican Grill by Anthony Miller and Robert Hauser in Denver, Colorado. Hauser, who was working as a chef at Le Cirque, developed most of Qdoba’s recipes. He wanted the menu to be healthier by replacing traditional animal fats with vegetable oils and tried to incorporate as many fresh vegetables and herbs as he could into the menu items. Qdoba was an instant success and during its first year in business, there was a line stretched out the door on most nights.

21.  Over the next few years, Qdoba went through several name changes because of lawsuits from restaurants with the same or very similar names (for a while, Qdoba was called Z-teca). The company began franchising in 1997 around Colorado.

22.  In exchange for a large stake, Western Capital and other investors gave the company a large infusion of capital in early 1998 to allow the company to open 25 new locations and nearly triple its size. By the end of the 1990s, there were 49 locations across 19 states and the brand finally settled on the name Qdoba.

23.  Qdoba continued to grow and in 2003, the company was acquired by Jack in the Box, Inc. Over a decade and a half later, in 2018, Jack in the Box, Inc. sold Qdoba to a consortium of funds led by Apollo Global Management for $305 million. Today, there are Qdoba Mexican Eats restaurants in 47 states and a few in Canada.

Entrepreneur’s Franchise 500

24.  Qdoba Mexican Eats ranked No. 293 on Entrepreneur’s 2021 Franchise 500 list.

Section II – Estimated Costs

• Please click here for detailed estimates of Qdoba Mexican Eats 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 Qdoba Mexican Eats’ 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:  341
• Outlets at the End of the Year:  363
• Net Change:  +22

2019

• Outlets at the Start of the Year:  363
• Outlets at the End of the Year:  380
• Net Change:  +17

2020

• Outlets at the Start of the Year:  380
• Outlets at the End of the Year:  397
• Net Change:  +17

Company-Owned

2018

• Outlets at the Start of the Year:  385
• Outlets at the End of the Year:  389
• Net Change:  +4

2019

• Outlets at the Start of the Year:  389
• Outlets at the End of the Year:  350
• Net Change:  -39

2020

• Outlets at the Start of the Year:  350
• Outlets at the End of the Year:  344
• Net Change:  -6

Section V – Financial Performance Representations (Item 19, 2021 FDD) and Analysis

Part 1 – Franchised Qdoba Restaurants – Historical Average, Median, Lowest, and Highest Net Restaurant Sales

• The following figures represent the average, median, lowest, and highest restaurant sales for certain franchisee-operated Qdoba restaurants for the trailing 12 months ended September 27, 2020 (“TTM”).

• The information is based on unaudited information for 294 franchisee-operated restaurants that were open for at least 1 year as of the end of the TTM and that were not closed greater than 7 operating days in the TTM, with the exception of including 42 franchisee-operated restaurants which were temporarily closed due to operational impact from COVID-19.

• Qdoba excluded information for 23 franchisee-operated Qdoba restaurants because they were not open for at least 1 year (14 units) or were closed greater than 7 operating days in the TTM (9 units), as well as for non-traditional licensed Qdoba restaurants (80 units), which are included in a separate table in Part 3.

Top Quartile