In this FDD Talk post, you’ll learn the following:

• Section I – Background information on the Freddy’s Frozen Custard & Steakburgers franchise opportunity, including relevant news updates

• Section II – Estimated initial investment for a Freddy’s Frozen Custard & Steakburgers 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 Freddy’s Frozen Custard & Steakburgers franchise, based on Items 5 and 6 of the company’s 2021 FDD

• Section IV – Number of franchised and company-owned Freddy’s Frozen Custard & Steakburgers 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 Freddy’s Frozen Custard & Steakburgers’ financial performance representations, based on Item 19 of the company’s 2021 FDD, including information on the:

• 2020 average, median, and range of (average) weekly gross receipts and annual gross receipts for the 25 stand alone with drive-thru, 2 end cap with drive-thru, 2 in-line with no drive-thru, and all 29 company-owned Freddy’s Frozen Custard & Steakburgers restaurants that were open for the entire fiscal year that ended December 30, 2020

• 2020 average, median, and range of (average) weekly gross receipts and annual gross receipts for the 297 stand alone with drive-thru, 29 end cap with drive-thru, 4 in-line with no drive-thru, and all 330 franchised Freddy’s Frozen Custard & Steakburgers restaurants that were open for the entire fiscal year that ended December 30, 2020

• 2020 average cost of sales, labor costs, and controllable expenses (as percentages of total gross receipts) for the 29 company-owned Freddy’s Frozen Custard & Steakburgers restaurants that were open for the entire fiscal year that ended December 30, 2020

Section I – Background Information

21 Things You Need to Know About the Freddy’s Frozen Custard & Steakburgers Franchise

Acquired by Private Equity Firm

1.  In early March 2021, Thompson Street Capital Partners (TSCP), a private equity firm based in St. Louis, announced it has acquired Freddy’s Frozen Custard & Steakburgers. Terms of the transaction were not disclosed.

2.  Randy Simon, co-founder and CEO of Freddy’s (at the time), said, “When Freddy, Bill, Scott and I started Freddy’s in 2002, our goal was to serve craveable food to our guests with quick-service speed and full-service hospitality at a price that was fair and competitive. There remains a large segment of the country where we are not present and by partnering with TSCP we will be better able to expand in those areas and continue our strong growth going forward. Obviously, the credit goes to our Team Members who have contributed immensely to our success to date and to our close-knit family of franchisees who have devoted their time and capital to develop the Freddy’s brand. We are confident that TSCP shares our values and philosophies as we continue to be guided by The Freddy’s Way in all we do.”

3.  Scott Redler, co-founder and COO of Freddy’s, added, “By operating The Freddy’s Way, we have developed close relationships with each and every franchisee, prioritizing their growth and success above all. We have continued to invest in an unparalleled corporate support system to ensure our operators have the resources they need, and our partnership with TSCP will elevate those capabilities and enable us to take our franchisee support to another level. When we were introduced to the exceptional team at TSCP, it was apparent that our core values and company culture aligned, making them the perfect fit for our Freddy’s family of Team Members, franchisees and vendor partners.”

4.  Bob Dunn, managing partner, TSCP, said, “Freddy’s is a highly unique, scaled franchisor platform that has built a premium brand over the past two decades with leading franchisee retention, remarkable growth, and a passionate guest following of ‘FredHeads.’ We look forward to working with the outstanding team at Freddy’s to accelerate the Company’s already exceptional growth.”

5.  Joe St. Geme, director, TSCP, added, “Freddy’s presents an exciting opportunity to partner with the founders and management to continue to grow a premier system by accelerating franchise development, increasing focus on marketing and technology deployment, and enabling operational best practices across the footprint. We are thrilled to join the Freddy’s family and are excited to invest behind the continued successful expansion of the Freddy’s brand.”

Appoints New CEO

6.  In early May 2021, Freddy’s Frozen Custard & Steakburgers announced that franchise and restaurant industry veteran Chris Dull has joined the company as its new chief executive officer, effective immediately. Dull joins the franchise on the heels of its recent acquisition by private equity firm Thompson Street Capital Partners (TSCP) in March of 2021.

7.  Freddy’s partnership with TSCP marks an exciting period of transition for the established restaurant brand, positioning the company to elevate its capabilities through investments in marketing and technology, as well as further fuel growth through franchise development.

8.  With more than 25 years of experience in the franchise and restaurant industries, Dull has been instrumental in building, reviving, and growing iconic brands throughout the U.S. and worldwide. He most recently served as president and CEO of Global Franchise Group, which has a portfolio of six brands – Great American Cookies, Marble Slab Creamery/MaggieMoo’s, Pretzelmaker, Hot Dog on a Stick, and Round Table Pizza.

9.  In his new role as CEO of Freddy’s, Dull will leverage his extensive industry experience to increase Freddy’s focus on marketing and technology deployment while continuing to evolve the brand’s operational best practices, as well as accelerate franchise development. Dull succeeds Freddy’s co-founder Randy Simon, who will remain engaged in the business as chairman of the board and continue to play a critical role in Freddy’s strategic development.

10.  Randy Simon, co-founder and chairman of the board of Freddy’s Frozen Custard & Steakburgers, said, “As we look to continue Freddy’s positive momentum, we’re proud to welcome Chris into the Freddy’s family. His background and expertise will be a true asset in building upon the success we’ve achieved and expand our footprint nationwide, while continuing to prioritize the success of our franchisees. Most importantly, Chris shares our commitment to operating The Freddy’s Way, our promise to approach every aspect of our business the right way, holding true to our values and emphasizing quality.”

11.  Chris Dull, CEO of Freddy’s Frozen Custard & Steakburgers, said, “Freddy’s has emerged as one of the strongest and most viable franchise opportunities within the fast-casual segment today, creating a customer experience that is unparalleled in every aspect, from its hospitality and service to the one-of-a-kind menu offerings and product innovation. Once I was introduced to the brand and saw firsthand the operational excellence of its business model, I immediately jumped at the chance to join this exceptional team. With a simple yet craveable menu and proven processes, as well as some of the best training capabilities I’ve seen within the industry, the Freddy’s concept is easy to execute and boasts a profitable AUV for franchisees. Our system being comprised of dozens of franchisees who operate hundreds of units is a true testament to the viability of this franchise opportunity and growth potential, and I have no doubt the sky is the limit.”

Announces New Prototype Option Amid Franchise Development Momentum

12.  In early June 2021, Freddy’s Frozen Custard & Steakburgers announced it had broken ground on a new site set to host the brand’s newest restaurant prototype. Located in Salina, Kansas, this prototype marks an exciting new chapter for the brand’s design evolution as this option is its first model without a dining room, hosting a double drive-thru and a walk-up ordering station. The new prototype offers an additional option for franchisees looking to capitalize on the consumer demand following the pandemic.

13.  Features of the new restaurant design were determined following a thorough brand study on drive-thru operations and guest habits, and include a double drive-thru lane, parking stalls for curbside pickup, a walk-up window, and patio seating. Construction is expected to take place throughout the summer, with a potential opening date in late August.

14.  According to Chris Dull, CEO of Freddy’s Frozen Custard & Steakburgers, “As we continue to make such great strides in our franchise development growth, we’re proud that our restaurant design strategy has continued to evolve, allowing us to offer a variety of options to meet the varying needs of our Guests. This prototype is the latest in a variety of available options and will cater to the growing number of our on-the-go Guests who are mobile-minded and benefit from the ease and convenience of this prototype’s features. This new restaurant design option will fit seamlessly with our existing drive-thru and mobile ordering capabilities.”

15.  Among the new openings in 2021 so far, Freddy’s has celebrated new locations in key markets such as Florida, Tennessee, and Georgia. The brand continued its non-traditional expansion with the opening of a location in the Wichita Wind Surge Minor League Baseball stadium. Upcoming openings taking place in the coming months include El Paso, Texas; Durango, Colorado; Florence, South Carolina; Streetsboro, Ohio; Lexington, Kentucky; Newton, Kansas, and a Linden, New Jersey location that will mark the first Freddy’s in the state. By July, the brand expects to have expanded its presence to a milestone 33 states.

16.  Dull added, “As our year-to-date growth demonstrates, we are well positioned to bring the Freddy’s experience to a number of new communities throughout the country. The continued growth we’re experiencing is a direct result of the hard work that our incredible Freddy’s family of Team Members and franchise owners continue to deliver, and we’re thrilled to share in this success with them. This new prototype option is just another example of our constant efforts to continue The Freddy’s Way as we expand our offerings to franchise owners and look forward to the many new possibilities and benefits it offers our Guests.”

Company History

17.  Freddy’s Frozen Custard & Steakburgers was founded in 2002 by brothers Bill and Randy Simon and their friend/business partner Scott Redler in Wichita, Kansas. The inspiration behind the throwback diner theme of Freddy’s Frozen Custard & Steakburgers is Freddy Simon, the father of the Simon brothers. The Simons wanted to serve high-quality, yet simple food like what their father grew up eating, especially following World War II.

18.  The first Freddy’s Frozen Custard & Steakburgers restaurant was a success and it was followed up by two additional locations in the area. Franchising began in 2004 and the first franchised location opened in Hutchinson, Kansas. Growth was slow and steady over the next few years and by 2013, Freddy’s Frozen Custard & Steakburgers had 100 locations in operation.

19.  By 2018, there were 300 Freddy’s Frozen Custard & Steakburgers restaurants across the United States. That same year, Freddy’s opened its first international locations in the Middle East. Today, there are Freddy’s Frozen Custard & Steakburgers restaurants across 31 states as well as international locations in the United Arab Emirates, Saudi Arabia, Bahrain, Jordan, Kuwait, Lebanon, Oman, and Qatar.

20.  In early 2021, Freddy’s Frozen Custard & Steakburgers was acquired by Thompson Street Capital Partners.

Entrepreneur’s Franchise 500

21.  Freddy’s Frozen Custard & Steakburgers ranked No. 34 on Entrepreneur’s 2021 Franchise 500 list.

Section II – Estimated Costs

• Please click here for detailed estimates of Freddy’s Frozen Custard & Steakburgers 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 Freddy’s Frozen Custard & Steakburgers’ 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:  263
• Outlets at the End of the Year:  305
• Net Change:  +42

2019

• Outlets at the Start of the Year:  305
• Outlets at the End of the Year:  335
• Net Change:  +30

2020

• Outlets at the Start of the Year:  335
• Outlets at the End of the Year:  357
• Net Change:  +22

Company-Owned

2018

• Outlets at the Start of the Year:  19
• Outlets at the End of the Year:  25
• Net Change:  +6

2019

• Outlets at the Start of the Year:  25
• Outlets at the End of the Year:  29
• Net Change:  +4

2020

• Outlets at the Start of the Year:  29
• Outlets at the End of the Year:  32
• Net Change:  +3

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

• As of December 30, 2020, there were 32 company-owned Restaurants and 357 franchised Restaurants.

• Parts 1 through 5 below display the Gross Receipts of 29 company-owned Restaurants that were open for the entire fiscal year that ended December 30, 2020 (“2020 Fiscal Year”) and 330 franchised Restaurants that were open for the entire 2020 Fiscal Year.

• These tables exclude the results of three company-owned Restaurants and 24 franchised Restaurants that were not open for the entire 2020 Fiscal Year and the three non-traditional franchised Restaurants that are located on college campuses that are not open seven days per week and operate during limited hours.

Part 1 – Weekly Gross Receipts of Company-Owned Restaurants for 2020 Fiscal Year by Facility Type

Stand Alone with Drive-Thru

• Number of Restaurants:  25
• Average Weekly Gross Receipts:  $40,811
• Number and Percentage of Restaurants That Met or Exceeded the Average:  13 (52%)
• Median Weekly Gross Receipts:  $41,512
• Range of Average Weekly Gross Receipts:  $22,897 to $60,920

End Cap with Drive-Thru

• Number of Restaurants:  2
• Average Weekly Gross Receipts:  $54,179
• Number and Percentage of Restaurants That Met or Exceeded the Average:  1 (50%)
• Median Weekly Gross Receipts:  $54,179
• Range of Average Weekly Gross Receipts:  $52,165 to $56,194

In-Line with No Drive-Thru

• Number of Restaurants:  2
• Average Weekly Gross Receipts:  $38,373
• Number and Percentage of Restaurants That Met or Exceeded the Average:  1 (50%)
• Median Weekly Gross Receipts:  $38,373
• Range of Average Weekly Gross Receipts:  $33,973 to $42,773

All Restaurants

• Number of Restaurants:  29
• Average Weekly Gross Receipts:  $41,565
• Number and Percentage of Restaurants That Met or Exceeded the Average:  15 (52%)
• Median Weekly Gross Receipts:  $42,773
• Range of Average Weekly Gross Receipts:  $22,897 to $60,920

Part 2 – Annual Gross Receipts of Company-Owned Restaurants for 2020 Fiscal Year by Facility Type

Stand Alone with Drive-Thru

• Number of Restaurants:  25
• Average Annual Gross Receipts:  $2,162,992
• Number and Percentage of Restaurants That Met or Exceeded the Average:  13 (52%)
• Median Annual Gross Receipts:  $2,200,136
• Range of Annual Gross Receipts:  $1,213,541 to $3,228,760

End Cap with Drive-Thru

• Number of Restaurants:  2
• Average Annual Gross Receipts:  $2,871,487
• Number and Percentage of Restaurants That Met or Exceeded the Average:  1 (50%)
• Median Annual Gross Receipts:  $2,871,487
• Range of Annual Gross Receipts:  $2,764,745 to $2,978,282

In-Line with No Drive-Thru

• Number of Restaurants:  2
• Average Annual Gross Receipts:  $2,033,769
• Number and Percentage of Restaurants That Met or Exceeded the Average:  1 (50%)
• Median Annual Gross Receipts:  $2,033,769
• Range of Annual Gross Receipts:  $1,800,569 to $2,266,969

All Restaurants

• Number of Restaurants:  29
• Average Annual Gross Receipts:  $2,202,945
• Number and Percentage of Restaurants That Met or Exceeded the Average:  15 (52%)
• Median Annual Gross Receipts:  $2,266,969
• Range of Annual Gross Receipts:  $1,213,541 to $3,228,760

Part 3 – Weekly Gross Receipts of Franchised Restaurants for 2020 Fiscal Year by Facility Type

Stand Alone with Drive-Thru

• Number of Restaurants:  297
• Average Weekly Gross Receipts:  $31,402
• Number and Percentage of Restaurants That Met or Exceeded the Average:  134 (45%)
• Median Weekly Gross Receipts:  $29,855
• Range of Average Weekly Gross Receipts:  $14,929 to $72,165

End Cap with Drive-Thru

• Number of Restaurants:  29
• Average Weekly Gross Receipts:  $28,548
• Number and Percentage of Restaurants That Met or Exceeded the Average:  15 (52%)
• Median Weekly Gross Receipts:  $28,593
• Range of Average Weekly Gross Receipts:  $15,780 to $42,822

In-Line with No Drive-Thru

• Number of Restaurants:  4
• Average Weekly Gross Receipts:  $15,671
• Number and Percentage of Restaurants That Met or Exceeded the Average:  2 (50%)
• Median Weekly Gross Receipts:  $17,395
• Range of Average Weekly Gross Receipts:  $12,919 to $17,556

All Restaurants

• Number of Restaurants:  330
• Average Weekly Gross Receipts:  $30,961
• Number and Percentage of Restaurants That Met or Exceeded the Average:  151 (46%)
• Median Weekly Gross Receipts:  $29,576
• Range of Average Weekly Gross Receipts:  $12,919 to $72,165

Part 4 – Annual Gross Receipts of Franchised Restaurants for 2020 Fiscal Year by Facility Type

Stand Alone with Drive-Thru

• Number of Restaurants:  297
• Average Annual Gross Receipts:  $1,664,306
• Number and Percentage of Restaurants That Met or Exceeded the Average:  134 (45%)
• Median Annual Gross Receipts:  $1,582,315
• Range of Annual Gross Receipts:  $791,237 to $3,824,745

End Cap with Drive-Thru

• Number of Restaurants:  29
• Average Annual Gross Receipts:  $1,513,044
• Number and Percentage of Restaurants That Met or Exceeded the Average:  15 (52%)
• Median Annual Gross Receipts:  $1,515,429
• Range of Annual Gross Receipts:  $836,340 to $2,269,566

In-Line with No Drive-Thru

• Number of Restaurants:  4
• Average Annual Gross Receipts:  $830,563
• Number and Percentage of Restaurants That Met or Exceeded the Average:  2 (50%)
• Median Annual Gross Receipts:  $948,064
• Range of Annual Gross Receipts:  $684,707 to $930,468

All Restaurants

• Number of Restaurants:  330
• Average Annual Gross Receipts:  $1,640,933
• Number and Percentage of Restaurants That Met or Exceeded the Average:  151 (46%)
• Median Annual Gross Receipts:  $1,567,528
• Range of Annual Gross Receipts:  $684,707 to $3,824,745

Part 5 – Systemwide Annual Gross Receipts of Company-Owned and Franchised Restaurants for 2020 Fiscal Year

• Number of Restaurants:  359
• Average Annual Gross Receipts:  $1,686,301
• Number and Percentage of Restaurants That Met or Exceeded the Average:  151 (46%)
• Median Annual Gross Receipts:  $1,620,790
• Range of Annual Gross Receipts:  $684,707 to $3,824,745

• “Weekly Gross Receipts” means all gross revenue during each week of each 28-day operating period of every kind or nature related to the Restaurant, including all Restaurant revenue posted whether it is collected or remains uncollected, all charges for other products, services, and facilities and vending machine receipts, and any amounts payable from insurance policies to compensate you for loss of the same, but excluding sales taxes or other taxes collected by you from customers for transmittal to appropriate taxing authorities.

• “Annual Gross Receipts” is calculated in the same manner for the fiscal year.

• Freddy’s compiled the Gross Receipts of the company-owned Restaurants on the basis of generally accepted accounting principles. The information presented is unaudited. All company-owned Restaurants use the same accounting methods and system.

•  The information presented for franchised Restaurants are the result of information included in royalty reports and other financial reports provided by the franchisees. Freddy’s has not audited this information nor has Freddy’s verified its accuracy.

Part 6 – Cost of Sales, Labor, and Controllable Expenses of Company-Owned Restaurants for 2020 Fiscal Year

• As of December 30, 2020, there were 32 company-owned Restaurants.

• Part 6 below depicts the Cost of Sales, Labor, and Controllable Expenses for 29 company-owned Restaurants that were open during the entire Fiscal Year 2020 as percentages of total Gross Receipts for Fiscal Year 2020.

• Part 6 excludes the results of 3 company-owned Restaurants that were not open for the entire 2020 Fiscal Year.

• Cost of Sales:  31.98%
• Labor with Benefits:  33.64%
• Controllable Expenses:  9.40%

• “Cost of Sales” includes all costs associated with food, beverage, and disposable paper and plastic, but does not include any other costs, including costs related to real estate or leasehold improvements, rental payments, marketing costs, or costs related to equipment, fixtures, or décor.

• “Labor with Benefits” includes all salaries and wages paid to employees, payroll taxes, and short-term management incentive pay of 6% of store net profit, and includes 100% employer paid health insurance, 401K with employer match, employer paid health savings account contribution, and any other employee benefits.

• Labor expenses do not include deferred management compensation of 5% of store net profit, phantom stock bonuses, owners’ draws, or management expenses not directly attributable to a Restaurant, such as an area manager’s salary.

• Freddy’s believes its robust benefits package and management short-term and deferred incentive pay plans reduce turnover and are integral to the operations of its Restaurants.

• “Controllable Expenses” includes maintenance, supplies, utilities, uniforms, bank and credit card fees, equipment rental, and other miscellaneous expenses. It does not include items such as fixed costs, advertising, professional and accounting fees, licenses, insurance, or taxes, nor does it include rent, other real estate costs, depreciation, or amortization.

• Because the company-owned Restaurants in Part 6 are not franchised Restaurants, they are not subject to royalty fees.

• Based on the franchisor’s experience, the company-owned Restaurants experience seasonal fluctuations, with greater sales occurring during the months of March through August and lesser sales occurring during the months of September through February.

• The information provided is based on a number of conditions and assumptions that may not be applicable to you. For example, each of the company-owned Restaurants for which information is provided is located in the Midwest. The costs of labor, including the pay scale, bonus plans, and other benefits you choose to provide your employees or that may be mandated by local law for the market in which your Restaurant would be located may or may not be comparable to these Restaurants. Costs of inventory and supplies may or may not be comparable to those obtainable in the Midwest.

• The information provided does not include certain non-recurring, opening, and pre-opening costs such as grand opening advertising; initial employee training; real estate acquisition costs/rent; real estate or leasehold improvements; computer and points of sale equipment and software; equipment, furniture, fixtures, décor, signage, and neon; opening inventory and supplies; insurance; utility deposits; licenses and business permits; other prepaid expenses; legal and other professional fees; and recruitment.

• The financial performance representation figures do not reflect all of the costs or expenses that must be deducted from the Gross Receipts to obtain your net income or profit.

• Some Restaurants have earned this amount. Your individual results may differ. There is no assurance that you’ll earn as much.

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