FDD Talk 2021: Moe’s Southwest Grill 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 Moe’s Southwest Grill franchise opportunity, including relevant news updates

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

• Section IV – Number of franchised and company-owned Moe’s Southwest Grill 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 Moe’s Southwest Grill’s 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 and weeks open for the 555 franchised traditional Moe’s Southwest Grill restaurants that were active franchises throughout the entire Fiscal Year 2020

• 2019 average, median, lowest, and highest net sales and weeks open for the 577 franchised traditional Moe’s Southwest Grill restaurants that were active franchises throughout the entire Fiscal Year 2019

• 2020 average total gross sales, cost of goods sold, personnel expenses, advertising, operating expenses, occupancy expenses, general and administrative expenses, and EBITDA for the 221 franchised traditional Moe’s Southwest Grill restaurants that were open for all weeks of Fiscal Year 2020 and submitted complete data

• 2019 average total gross sales, cost of goods sold, personnel expenses, advertising, operating expenses, occupancy expenses, general and administrative expenses, and EBITDA for the 262 franchised traditional Moe’s Southwest Grill restaurants that were open for all weeks of Fiscal Year 2019 and submitted complete data

Section I – Background Information

24 Things You Need to Know About the Moe’s Southwest Grill Franchise

Leverages Innovative Tech to Grow Consumer Base

1.  In mid-November 2020, Alex Williams, chief brand officer of Moe’s Southwest Grill, spoke with QSR Magazine about how the brand has survived the COVID-19 pandemic by working through a strategic playbook centered around three principles – how to modernize the brand, make processes easier, and win with food. Williams said, “It’s been a period of adaptation and trying to evolve to meet the new demand in this environment we’re currently working in.”

2.  Moe’s used the pandemic to implement technology that enables the first two aspects of the plan. In fact, the brand rolled out a two-year innovation calendar in just six weeks. For example, the chain launched a revamped app and online platform where consumers can order via curbside, pickup, or delivery. In addition, customers have the ability to add or subtract ingredients like they would in the store.

3.  Within these channels, average check has increased 30 to 40 percent as guests piled higher entrée counts per order. Williams said guests are responding well to the app, as half of digital orders are placed through the channel. Moe’s generated 3.7 million loyalty members, and continues to see a rise in signups. Additionally, in July, Moe’s announced it was rolling out virtual POS platform Revel Systems to support omni-payment transactions and contactless payments.

4.  Williams added, “We see technology as a true enabler to make that level of convenience for our guests even better and something that they truly expect at this time because they can’t get out and enjoy life like they typically have been. So for the balance of the year, we’re going to continue to remain focused on making sure that the guests feel comfortable whether they choose to dine in with us or dine through some of those other channels. But more importantly, we want to provide the meals that they’re craving.”

5.  Moe’s furthered its digital mission with the opening in June of its first kiosk-only unit in Pittsburgh. Williams said he visited the store about a month prior and remembers seeing consumers coming into the 1,700-square-foot store looking for a seamless experience through the self-order kiosks, digital menu boards, and customizable beverages. The unit is near the University of Pittsburgh and University of Pittsburgh Medical Center – an area full of technologically-enabled consumers. Although the store opened in June, Moe’s Franchise Advisory Board was moving toward the model pre-COVID. But the launch proved timely as indoor dining didn’t return to the area until mid-July.

6.  According to Williams, “It’s a neat experience. It’s a unique experience. As I watched guests use the restaurant when I was there that day, it was pretty seamless. I’m glad that we’re getting into this type of experience because we really need to focus on ensuring our guests, who are these transformational guests who want that digital experience, are able to use Moe’s how they like it.”

7.  The third leg of Moe’s pandemic strategy – culinary innovation – began with taco kits and the roll out of Moe’s Market, which was an opportunity for consumers to buy grocery store items like proteins, rice, beans, salsa, and more. After experiencing success from the taco kit debut, the brand launched two more in July – fajita kits and nacho kits.

8.  Most recently, the fast casual has turned its attention toward reimagining burritos. In September, Moe’s released the limited-time Grande Homewrecker – an 8-inch-long product filled with two pounds of ingredients. The item is 100 percent larger than the regular Homewrecker. A month later, the restaurant introduced its limited-time Loaded Steak & Potato Burrito and Bowl, which is filled with sirloin steak, seasoned potatoes, bacon, sour cream, cheese, and queso.

9.  The new food items were the result of a socially-distanced research group that gathered in late June to help guide culinary innovation for the rest of 2020. So far, Williams said the Grande Homewrecker and Loaded Steak and Potato Burrito and Bowl have exceeded expectations. Another piece of menu innovation was expected to enter stores in December.

10.  “I could not be more pleased with the way we’re looking at innovation of our food and how we’re actually delivering to our guests,” Williams said. “I think the most important thing is that guests are responding because they’re purchasing these items that we’re giving. It says that we’re doing the right thing and giving the customers what they want.”

11.  Regarding development, Williams said Moe’s is still focused on a steady rate of growth. The brand was on pace to open 14 restaurants in 2020. The chain is also mulling enhancements to store design and testing several elements to improve its prototype. The options range from smaller footprints, more kiosk-only concepts, and potentially adding kiosks into other units.

12.  Moe’s will also look to accelerate the inclusion of drive-thrus, a mission its biggest competitors – Chipotle and Qdoba – are also striving toward. Chipotle opened its 100th drive-thru location in July and Qdoba plans to nearly double its drive-thru footprint before the end of the year. “That’s a piece that during the pandemic we felt like would be an added value as we move forward,” Williams said.

13.  Williams said Moe’s positioning in a post-COVID world is dependent on providing a safe and sanitary place for consumers to order their favorite Moe’s item. He adds that the company has spent the past 20 years building a culture that allows for convenience without sacrificing service. The main goal is to spread that culture beyond the four walls of the restaurant.

14.  On a final note, Williams said, “We really want to extend that Welcome to Moe’s love and culture in everything that we do whether you’re eating in our restaurants or you dine out. When this pandemic started, we were able to be nimble. We provided support to our guests, we provided support to our franchisees as well as the communities we served.”

Revel Systems to Deploy Across All Locations

15.  Near the end of July 2020, Revel Systems, a cloud-based point of sale (POS) and complete business management platform, announced a new contract with fast casual restaurant brand Moe’s Southwest Grill. Moe’s was on track to roll out the Revel Enterprise solution across the entire restaurant portfolio of more than 700 restaurants by the end of 2020.

16.  This new contract marks the fourth engagement in which Revel has partnered with Focus Brands. The previous three engagements were with Auntie Anne’s, Cinnabon, and Carvel.

17.  In the current climate, where digital restaurant orders increased 63 percent in March, restaurant technology that enables innovative ways for customers to order and pick up food is more important than ever. Revel Systems delivers the digital tools and technology necessary to help Moe’s deliver a better customer experience, including a variety of online ordering options, as well as a smooth and efficient order pickup experience.

18.  Erik Hess, president of Moe’s Southwest Grill, said, “As we work through the challenging restaurant landscape, we understand the increasing importance of making everything easier for our customers and in-restaurant crew members. Ensuring Moe’s has best-in-class technology in place that is scalable, flexible and includes advanced digital consumer capabilities is imperative to our success and ability to innovate. Revel’s platform has demonstrated that this is the best technology solution to roll out to our entire franchise system.”

19.  Greg Dukat, CEO of Revel Systems, added, “Revel has become the leading choice for large chains who want to move from legacy solutions to a cloud-based POS and we are very proud to partner with Moe’s Southwest Grill to fuel the success of their business. Even during these very demanding times, major brands realize the need to move away from solutions that hamper their ability to meet rapidly changing consumer needs. We are working hand-in-hand with Moe’s to deploy our flexible solutions to help improve the customer experience, increase efficiency and drive down costs.”

20.  Moe’s will leverage Revel’s open API to easily integrate with key Revel partners including Decision Logic for restaurant cost management. HonorBuilt, a trusted partner providing nationwide technology implementation services and 24/7 U.S.-based support for quick service and fast casual restaurants, will deploy the Revel solution at all Moe’s locations. Moe’s is leveraging Revel’s FreedomPay commerce platform integration to support secure omni-payment transactions including P2PE and EMV contactless payments.

21.  Revel Enterprise is curated for the needs of larger chains with more complex business and organizational needs, providing rapid integration and deployment across stations and locations at the push of a button. Easy-to-use, key tasks are simple to implement, including the setup of groups of locations, central control of menus, generation of brand-level reports in real-time, and analysis and management of ingredient inventory, as well as other critical operational tasks.

Company History

22.  Moe’s Southwest Grill was founded in 2000 by Raving Brands, Inc., which was started by Martin Sprock and his business partner Daryl Dollinger in Atlanta, Georgia. Sprock and Dollinger are also the founders of Planet Smoothie. Despite popular belief, “Moe” isn’t a person, it actually stands for “Musicians, Outlaws and Entertainers,” which is why Moe’s restaurants feature music-related artwork. Like with Planet Smoothie, Sprock and Dollinger wanted to offer higher-quality fast food in a familiar package.

23.  Moe’s grew quickly within its first few years and by 2004, there were 100 restaurants around the United States. A few years later, in 2007, Moe’s Southwest Grill was acquired by Focus Brands, an affiliate of private equity firm Roark Capital Group. Focus Brands also owns Schlotzsky’s, Carvel, Cinnabon, McAlister’s Deli, and Auntie Anne’s. Since then, Moe’s Southwest Grill has continued to grow and in 2018, there were more than 700 restaurants around the country.

Entrepreneur’s Franchise 500

24.  Moe’s Southwest Grill ranked No. 191 on Entrepreneur’s 2021 Franchise 500 list.

Section II – Estimated Costs

• Please click here for detailed estimates of Moe’s Southwest Grill 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 Moe’s Southwest Grill’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:  701
• Outlets at the End of the Year:  714
• Net Change:  +13

2019

• Outlets at the Start of the Year:  714
• Outlets at the End of the Year:  719
• Net Change:  +5

2020

• Outlets at the Start of the Year:  719
• Outlets at the End of the Year:  679
• Net Change:  -40

Company-Owned

2018

• Outlets at the Start of the Year:  4
• Outlets at the End of the Year:  5
• Net Change:  +1

2019

• Outlets at the Start of the Year:  5
• Outlets at the End of the Year:  3
• Net Change:  -2

2020

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

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

• This Item 19 presents information about the financial performance of certain Traditional Restaurants during the fiscal year ended December 29, 2019 (“Fiscal Year 2019”) and the fiscal year ended December 27, 2020 (“Fiscal Year 2020”).

• Moe’s has not made permanent, material changes to its concept as a result of the COVID-19 pandemic.

• “Traditional Restaurants” include franchised Restaurants located in traditional locations, including strip shopping centers, power centers, and street-level retail.

• “Non-Traditional Restaurants” include franchised Restaurants located in non-traditional locations, including airports, colleges, convenience stores, government buildings, hospitals, hotels, lifestyle centers, malls (including open air, traditional, and outlet malls), military bases, office building interiors, theme parks, transit hubs, and travel plazas.

• Moe’s has not included in this Item 19 any data related to Non-Traditional Restaurants and affiliate-owned Restaurants, because certain aspects of their operations can vary significantly from the Traditional Restaurants that are represented in this Item 19.

Part 1 – Average Net Sales by Quarter for Traditional Restaurants for Fiscal Year 2019 and Fiscal Year 2020

Fiscal Year 2020 – Traditional Restaurants (555 Locations)

Quarter 1