FDD Talk 2021: Firehouse Subs 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 Firehouse Subs franchise opportunity, including relevant news updates

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

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

• 2020 average, median, high, and low weekly unit sales volume for the 38 company-owned traditional, 1,042 franchised traditional, 24 franchised free-standing with drive-thru, and 39 franchised end-cap center with drive-thru Firehouse Subs Restaurants that were open during the company’s fiscal year 2020

• 2020 average food sales, discounts, employee meals, total revenue, food costs, paper costs, total cost of sales, gross profit, wages and benefits, health insurance, marketing expenses, telephone and utilities, professional fees, rent and occupancy expenses, other operating expenses, royalty, total operating expenses, and EBITDA from operations for the 32 Firehouse Subs Restaurants that were operated in Florida and the 4 Firehouse Subs Restaurants that were operated in Iowa by the company’s affiliates for the year ending December 27, 2020, grouped according to average weekly unit sales volume (>$17,000; $14,000 to $17,000; $11,000 to $14,000; $8,000 to $11,000; and $0 to $8,000)

Section I – Background Information

27 Things You Need to Know About the Firehouse Subs Franchise

Made Technology Changes During COVID-19 Pandemic

1.  In mid-June 2020, Firehouse Subs published a blog post discussing how the company made several technological changes due to the COVID-19 pandemic. For Firehouse Subs, the emergence of COVID-19 on the American landscape triggered nothing short of a five-alarm emergency to get the sandwich brand in sync with consumers’ changed demands.

2.  Firehouse Subs said that speed has never been more important than with today’s restaurant technology systems. After all, patience has never been a virtue shared by restaurant customers, and amid COVID-19 constraints – with an ever-growing percentage of customers ordering online for pickup and delivery – the expectation is that their orders will be processed, prepped, and waiting at lightning speed.

3.  Mark Cline, senior vice president of sales for Netsurion, said, “The idea of curbside and contactless payments isn’t new, and due to COVID it is almost essential for any restaurant. I think we can all agree this will not be going away anytime soon so restaurants that can figure out how to optimize this process and build a procedure for speed will prosper. Wireless tablets, QR code scanning to alert the restaurant you have arrived and (are) in the parking lot, and others are technologies that can refine this curbside and contactless system and increase the amount of orders fulfilled. Buyers that have a quick and safe curbside experience will return knowing the efficiency and safety of a restaurant is the top priority.”

4.  Firehouse Subs found itself in just such a kind of emergency tech re-evaluation phase when the pandemic first began shutting down restaurant operations nationally, according to Vince Burchianti, chief financial officer of Firehouse Subs. In fact, the need was so urgent in March 2020, it almost forced the company’s hand in what ultimately became the direction it took with its technology.

5.  Burchianti said, “In my 30-year career in the restaurant industry, I have never seen such a dramatic, overnight shift in consumer trade demands, ever. In March, we were all faced with a new challenge and were forced to make changes in our lives, resulting in necessary changes to how consumers interact with retail businesses. Firehouse Subs, like all brands, especially in the restaurant industry, experienced a sharp decline in mid-March as consumers retracted from their normal spending patterns. Firehouse Subs needed to make fast changes in our 1,180 restaurants in order to continue serving our guests in this new way of life. Anticipating the new spending habits of consumers, we made immediate operational and technological changes.”

6.  In the sub sandwich brand’s case, Burchianti said that although the brand was right in the middle of a full POS upgrade when the pandemic hit the U.S. in mid-March, the brand needed faster answers to serve its new customer demands technologically. Firehouse Subs immediately stopped any further installations and switched tracks to answer the urgent new sales problem.

7.  Burchianti continued, “What led to this decision was that our consumer technology stack was 90% of where we needed it to be to serve our customers with increased off-premise demands without any disruptions. We considered ourselves very fortunate to be in that position. There was a 10% technology and operational hole we needed to quickly plug with our current technological capabilities, and that was serving our customers curbside.”

8.  Burchianti said with the brand’s dining rooms all closed, patrons moved to online web and app ordering, as well as orders via third-party delivery that served approximately 80% of its 1,180 units. Firehouse also still had phone-in orders and regular take-out channels available. When the brand cast about for a new sales channel, curbside delivery started looking better and better.

9.  “Both our Operations Services and IT departments went to work over a five-day period,” Burchianti recalled, relaying the sense of urgency throughout the process that many restaurant operators can clearly relate to. “Focusing on technology – which is always the most challenging – we identified we needed to add customer car information on our digital ordering platforms to make it easy for restaurant staff to identify which car to deliver the order to. With our IT department and the help of our partners at NCR Corporation, we had the required fields on our web ordering site within a week. We quickly turned to formatting our app and were able to make the needed changes within another week,” he added.

10.  Granted, it was a lot of fast work by a lot of people, but Burchianti said the brand has never looked back. With customer satisfaction a primary focus of the Firehouse mission and overall brand nimbleness receiving renewed importance, he said the new sales channel has been a lifesaver for the brand and its franchisees, not to mention customers craving a sub.

11.  But Firehouse’s story is one that underlines the importance now for all restaurant brands to give their tech systems a good long look in the mirror, to insure what they are now using is meeting these relatively suddenly changed consumer needs, Netsurion’s Cline said. What brands may find in their system evaluations, he said, is that they need to consider the overall benefits of adding on, versus a system revamp.

Public Safety Foundation Unveils First Annual ‘Book of Giving’

12.  In mid-November 2020, Firehouse Subs Public Safety Foundation unveiled its first annual Book of Giving, an 18-page digital and print catalog showcasing more than two dozen of the most requested pieces of lifesaving equipment first responders rely on to do their jobs.

13.  “Since its inception, the Firehouse Subs Public Safety Foundation has worked tirelessly to provide equipment and needed resources to first responders and public safety organizations to help save lives,” said Robin Peters, executive director, Firehouse Subs Public Safety Foundation. “Large or small, every donation is a heroic act, and we hope the Book of Giving inspires generosity this holiday season.”

14.  The assortment of equipment curated in the catalog allows consumers to choose ways to give back to first responders. Donors will also have an opportunity to share their contribution on social media with #BookofGiving, along with a direct link to the book to inspire others to do the same. Additionally, all Book of Giving donations will be eligible for the Sorensen Challenge match.

15.  Lifesaving equipment like this and much more is regularly awarded to first responder organizations thanks to Firehouse Subs Public Safety Foundation. In 2005, in the aftermath of Hurricane Katrina, Firehouse Subs founders Chris Sorensen and Robin Sorensen traveled to Mississippi where they fed first responders, as well as survivors. As they returned to Florida, exhausted and exhilarated, they knew more could be done, and the Firehouse Subs Public Safety Foundation was born. Over the past 15 years, the Foundation has awarded grants totaling more than $53 million in 49 states and Puerto Rico.

16.  Firehouse Subs Public Safety Foundation awards grants to first responders and non-profits on a quarterly basis, to support community safety. A majority of grants go toward purchasing lifesaving equipment for first responder organizations. Those interested in applying for a grant can do so through the Firehouse Subs Public Safety Foundation website: FirehouseSubsFoundation.org.

Set to Fill 12,000 Jobs During National Recruitment Event

17.  In early April 2021, Firehouse Subs announced that it was hosting its first ever national recruitment event from April 6 through April 8 from 2 to 5 p.m. local time each day. Firehouse Subs’ family of local restaurant owners was looking to fill more than 12,000 permanent full-time and part-time positions across all 1,130+ of its restaurants in the U.S. Open positions included crew member and management opportunities for various dayparts, weekdays and weekends. Interested applicants could visit their local Firehouse Subs restaurant during the event to apply for open positions with the potential for immediate hiring.

18.  The award-winning brand sought to fill these positions with positive, energetic, and dedicated individuals. Firehouse Subs team members enjoy competitive wages, discounts on delicious subs, and excellent growth opportunities. Job seekers can find their nearest Firehouse Subs location at FirehouseSubs.com.

19.  Firehouse Subs is focused on the health and safety of its team members and guests, and all restaurants have implemented additional cleaning protocols and procedures following CDC guidelines. On-site interviews were conducted following local and state COVID-19 safety protocols. Outdoor interviews were conducted based on restaurant location.

20.  Team members can feel good about the work they do each day as a portion of every purchase at all U.S. Firehouse Subs restaurants benefits Firehouse Subs Public Safety Foundation, which has granted more than $57 million to first responders and public safety organizations across the U.S., Puerto Rico, and Canada. Donations help the Foundation achieve its mission of providing lifesaving equipment and resources to first responders and public safety organizations across the country.

21.  Don Fox, chief executive officer of Firehouse Subs, said, “Our brand is lucky to be in a position where we can expand our restaurant teams and create opportunities within our local communities during these challenging times. Our restaurant owners are passionate about heartfelt service and hearty, flavorful food, and we’re excited to welcome new team members who share those values.”

22.  Many Firehouse Subs franchisees started their restaurant careers as crew members or general managers who advanced through the ranks and achieved their dreams of becoming entrepreneurs. “I started working at Firehouse Subs as a crew member in high school,” said Perry, Georgia franchisee, Will Stilley. “After serving in the U.S. Army for more than 10 years, I had the opportunity to return to the brand as a restaurant owner. It’s extremely fulfilling to be part of a brand that is so invested in its team members and making a positive impact across the country.”

Company History

23.  Firehouse Subs was founded in 1994 by brothers Chris and Robin Sorensen in Jacksonville, Florida. The Sorensens had initially followed in their father’s footsteps and worked as firefighters. However, the brothers had made several attempts at starting businesses, but none of them stuck until they opened Firehouse Subs. The Sorensens wanted their sandwiches to have the best meats, cheeses, and toppings.

24.  Building on the success of the first Firehouse Subs restaurant, the Sorensens began franchising in 1995. Not long after, however, the Sorensens decided that they didn’t want to go in that direction and bought back all of those franchised locations. The Sorensens focused on growing Firehouse Subs through company-owned stores. By the end of the 1990s, there were more than a dozen Firehouse Subs locations, including one outside of Florida.

25.  Around the year 2000, the Sorensens decided that they would try franchising Firehouse Subs again, but decided to go in with a different approach. After hiring consultants to come up with a better franchising plan, the Soresens began selling franchises again. This time it stuck, and by 2003, there were 100 Firehouse Subs stores in operation.

26.  Over the next decade, Firehouse Subs continued to grow around the United States and the first international location opened in Puerto Rico in 2011. A few years later, Firehouse Subs began opening stores in Canada. Today, there are Firehouse Subs locations across 46 states, Puerto Rico, and Canada.

Entrepreneur’s Franchise 500

27.  Firehouse Subs ranked No. 78 on Entrepreneur’s 2021 Franchise 500 list.

Section II – Estimated Costs

• Please click here for detailed estimates of Firehouse Subs 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 Firehouse Subs’ 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:  1,051
• Outlets at the End of the Year:  1,093
• Net Change:  +42

2019

• Outlets at the Start of the Year:  1,093
• Outlets at the End of the Year:  1,115
• Net Change:  +22

2020

• Outlets at the Start of the Year:  1,115
• Outlets at the End of the Year:  1,114
• Net Change:  -1

Company-Owned

2018

• Outlets at the Start of the Year:  37
• Outlets at the End of the Year:  37
• Net Change:  0

2019

• Outlets at the Start of the Year:  37
• Outlets at the End of the Year:  38
• Net Change:  +1

2020

• Outlets at the Start of the Year:  38
• Outlets at the End of the Year:  38
• Net Change:  0

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

Part 1 – Firehouse Subs’ Historical Average Unit Volume for Company-Owned and Franchised Locations

• The following charts show historical sales information regarding both franchised and affiliated Firehouse Subs Restaurants that were open during the company’s fiscal year 2020.

• This historical sales information was compiled using the reports provided to Firehouse Subs by these Restaurants. The reports are provided to Firehouse Subs on a cash accounting basis and are used to form the basis of royalty payments to the franchisor.

• The franchisor does not directly operate any Restaurants; all company-owned Restaurants are operated by affiliates, which are owned and controlled by the franchisor’s parent – FRG.

• The characteristics of those Restaurants are not materially different from the franchises that the franchisor offers for sale, except that they may incur greater marketing and promotional expenses (as a sponsor of Jacksonville Jaguars and other programs); and incur additional expenses to offer health insurance to all full-time employees.

• Also, franchisees may offer products utilizing third-party delivery services at their option, including you. Most of the company-owned Restaurants (but not all) do so. The cost of using these services is reflected in the financial performance of Firehouse Subs’ company-owned Restaurants.

• In mid-March of 2020, the COVID-19 pandemic had a material impact on the Firehouse Subs business in the United States and Puerto Rico. During this fiscal year ending December 27, 2020, Firehouse Subs experienced 46 permanent Restaurant closures and 41 temporary Restaurant closures, of which 4 Restaurants still remains closed.

• The sales for the permanently closed Restaurants have been excluded from the tables below, but not for those which have reopened.

• Not all Restaurant closures were related to the COVID-19 pandemic.

• Most Restaurants experienced, and continue to experience operational restrictions limiting them to take-out, delivery, and catering services, and with the varying limits on dine-in operational capacity from none permitted at all to various percentage capacities of dine-in service.

2020 Weekly Average Unit Volume (Company-Owned Traditional)

$17,000+