In this FDD Talk post, you’ll learn the following:
- Section I – Background information on the Culver’s franchise opportunity, including relevant news updates
- Section II – Estimated initial investment for a Culver’s 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 Culver’s franchise, based on Items 5 and 6 of the company’s 2021 FDD
- Section IV – Number of franchised and company-owned Culver’s 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 Culver’s financial performance representations, based on Item 19 of the company’s 2021 FDD, including information on the:
- 2020 average, median, high, and low sales for the 723 franchised Culver’s Restaurants open for the entire 12-month period ended December 31, 2020
- 2020 average sales, food cost, paper cost, gross profit, salaries and wages, employee benefits, direct operating expenses, supplies and chemicals, utilities, general and administrative expenses, repairs and maintenance, advertising royalty, local advertising, service royalty, and income as a percentage of sales, for the 6 company-owned Culver’s Restaurants open for the entire 12-month period ended December 31, 2020
Section I – Background Information
19 Things You Need to Know About the Culver’s Franchise
Appoints New CEO
1. At the end of February 2021, Culver’s announced the appointment of Enrique “Rick” Silva as its new CEO to lead the chain. Culver’s previous CEO was Joe Koss, who retired at the end of 2020 after successfully supporting and leading the organization for 23 years. In his new position, Silva will lead the system of 792 restaurants, 496 owner-operators, 31,000 team members, and the Culver’s franchise support team.
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2. Silva previously led Checkers & Rally’s Restaurants, Inc. in his 13 years as CEO. While at the organization, he created a “family-serving-family” culture among its franchisees, support teams, and restaurant teams; grew the enterprise value from $180 million to $525 million; improved unit-level operating margins by more than 300 basis points; and built a world-class franchise sales strategy and unit growth process. For the 13 years prior to Checkers & Rally’s, Silva’s category knowledge was further enhanced by leadership positions at Burger King corporate.
3. Craig Culver, co-founder of Culver’s, said, “As we searched for Culver’s next leader, we were looking for several key characteristics – a true culture and values fit, the ability to support and expand the successful growth of our current and future franchisees and a drive to genuinely deliver on our Culver’s Mission: We genuinely care, so every guest who chooses Culver’s leaves happy. We are confident that Rick can do all three and are excited to see what he brings to further accelerate Culver’s.”
Adds New Harvest Veggie Burger to Core Menu
4. In late September 2020, Culver’s introduced its new Harvest Veggie Burger, which has been in development since 2016. The Harvest Veggie Burger separates itself from meat alternative competitors with a signature blend of dairy and vegetables that highlights Culver’s history.
5. Best known for its ButterBurgers and Fresh Frozen Custard, it’s no mistake that Culver’s Harvest Veggie Burger contains dairy. The inclusion of rich Wisconsin cheeses means the burger is not vegan, but provides the basis for a great taste that will exceed guests’ expectations while staying true to Culver’s longstanding traditions of menu diversity and support of farmers and agriculture.
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6. The burger blend is rounded out with wholesome grains and delicious veggies including roasted corn, portobello mushrooms, red and green bell peppers, spinach, and chickpeas. The sandwich is customizable based on each guest’s preferred toppings, with recommended toppings including crisp lettuce, ripe tomatoes, pickles, onions, and Culver’s signature mayo. Served on a lightly buttered and toasted Kaiser bun, the sandwich is a perfect vegetarian lunch or dinner option.
7. To make sure its taste rises above other meatless sandwiches, the Harvest Veggie Burger has been tested for over two years in multiple Culver’s markets. The rollout represents Culver’s most lengthy and robust testing regimen, with the burger receiving rave reviews from guests throughout the process.
8. Quinn Adkins, director of menu development for Culver’s, said, “We wanted to ensure that guests seeking a plant-forward option could enjoy a signature, only-at-Culver’s experience. The Harvest Veggie Burger is a perfect representation of what Culver’s stands for, and we’re confident we’ve landed on the ideal combination of ingredients that our guests will love.”
Saw a Four Percent Increase in Sales in 2020
9. At the beginning of March 2021, Craig Culver, co-founder and former CEO of Culver’s, joined a Wisconsin Alumni Association event to share the story of Wisconsin’s iconic drive-thru chain, which fared differently during the pandemic than most dine-in restaurants in the U.S. According to Culver, the company saw a 4 percent sales increase in 2020 over 2019 and opened 50 new restaurants nationwide, including three in Wisconsin.
10. During the pandemic, Culver’s drive-thru business went from 60 percent of sales to 90 percent. This shift was a big factor in how Culver’s evolved during the pandemic, according to spokesman Eric Skrum. In fact, Culver said the drive-thru saved the home of the ButterBurger. Skrum added, “Where would we have been without the drive-thru? Well, we would have been in the same position as everybody else who has spoken today.”
11. But the start of the pandemic wasn’t smooth sailing for Culver’s restaurants. On March 12, when Governor Tony Evers’ “Safer at Home” order shut down Culver’s dining rooms, Craig Culver said he, franchise owners, and the support team panicked. He said there were layoffs and furloughs until business actually grew. Culver’s also faced supply chain disruption between to-go food bags, sanitary paper products, and pork tenderloin.
12. Culver added, “We weren’t ready for this situation because we did not have online ordering in place. We weren’t ready as far as innovation was concerned as far as technology was concerned.” Skrum said innovation started with local owner-operators being creative in their communities to meet their guests’ needs and ensure they could serve their guests safely and in a timely way, including the implementation of multiple order points in the drive-thru.
13. Culver’s has 142 locations in Wisconsin. At the time of the interview with Craig Culver, 117 of those restaurants were operating in some capacity with the dining room and lobby open while following federal, state, and local guidelines.
14. One Wisconsin location did $5.5 million in sales, the highest in the system, and has yet to open its dining room and lobby, Culver said. The location, which Culver was unable to disclose, closed its lobby in March of 2020 and stayed closed for the rest of the year. Skrum said most of the sales can be attributed to the drive-thru and “line busting” serving techniques – where cashiers can walk up the line, taking orders with a handheld POS.
15. Culver’s was founded in 1984 by Craig Culver, his wife Lea, and his parents George and Ruth Culver in Sauk City, Wisconsin. George and Ruth Culver had been in the fast food business for a few decades as A&W franchisees. So, Craig had grown up in the industry and after graduating from college, he became a restaurant manager for McDonald’s.
16. After a few years, Craig decided he wanted to start his own restaurant business and felt that his mother’s “ButterBurgers” would stand out from the competition. Craig decided to also serve frozen custard, a regional treat that the Culver family had always enjoyed.
17. The Culvers’ restaurant concept was a success and in 1988, the family made their first attempt to franchise the restaurant. However, because the Culvers did not establish a concrete franchise agreement, the franchisee decided to quit after just a year. As a result, the Culvers spent the next few years developing a set of standard franchising procedures that form the basis for those currently used by Culver Franchising System, Inc. The first official Culver’s franchise location opened in 1990 in Baraboo, Wisconsin.
18. Throughout the rest of the 1990s and early 2000s, Culver’s expanded around the Midwestern United States. Around 2005, Culver’s began opening restaurants in other regions of the country. Today, there are Culver’s restaurants across 25 states with plans to continue expanding into other territories. Additionally, the Culver family maintains majority ownership of the company although they have stepped down from day-to-day operations.
Entrepreneur’s Franchise 500
19. Culver’s ranked No. 5 on Entrepreneur’s 2021 Franchise 500 list.
Section II – Estimated Costs
- Please click here for detailed estimates of Culver’s 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 Culver’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
- Outlets at the Start of the Year: 634
- Outlets at the End of the Year: 680
- Net Change: +46
- Outlets at the Start of the Year: 680
- Outlets at the End of the Year: 726
- Net Change: +46
- Outlets at the Start of the Year: 726
- Outlets at the End of the Year: 776
- Net Change: +50
- Outlets at the Start of the Year: 7
- Outlets at the End of the Year: 6
- Net Change: -1
- Outlets at the Start of the Year: 6
- Outlets at the End of the Year: 6
- Net Change: 0
- Outlets at the Start of the Year: 6
- Outlets at the End of the Year: 6
- Net Change: 6
Section V – Financial Performance Representations (Item 19, 2021 FDD) and Analysis
Schedule of Restaurant Financial Data
- The following information discloses sales of the 723 franchised Culver’s Restaurants (“Franchised Restaurants”) and the 6 company-owned Culver’s Restaurants (“Company-Owned Restaurants”) open for the entire 12-month period ended December 31, 2020, and also selected cost percentages for the 6 Company-Owned Restaurants for the entire 12-month period ended December 31, 2020.
- This includes information about non-traditional locations (including 1 Culver’s Restaurant that does not have a drive-thru window, 5 Culver’s Restaurants that share a building with a convenience store, and 1 Culver’s Restaurant that occupies an end-cap of a multi-tenant building).
- The following information does not include information from the Restaurants that did not operate for the entire 12-month period, including the 50 franchised Culver’s Restaurants that opened in 2020 or 3 franchised Culver’s Restaurants that were closed from 5 to 7 weeks from March 2020 until May 2020 due to COVID-19.
- The Company-Owned Restaurants are located in Sauk City, Spring Green, Richland Center, Baraboo, Middleton, and Madison, Wisconsin.
- The buildings housing the Company-Owned Restaurants are single-purpose, one story, and freestanding, seating 88 to 120 guests at one time, which is comparable to the Culver’s Restaurants expected to be operated under the Franchise Agreement.
- Substantially the same services were offered to the Company-Owned Restaurants as are provided to the Franchised Restaurants. The franchisor does not, however, provide certain services to franchisees such as financing, accounting, legal, personnel, construction, management, financial, and food and labor cost systems.
- The Company-Owned Restaurants also offered substantially the same products and services to the general public as will the Culver’s Restaurants to be operated under the Franchise Agreement.
- The following tables were prepared on a basis consistent with generally accepted accounting principles and the same accounting system was used for each Company-Owned Restaurant.
- The figures used in the tables are based on an annual performance. The information presented in the tables has not been audited, and the franchisor has not independently verified that the information provided by Franchised Restaurants is correct.
Part 1 – Franchised Restaurants Open 12 Months
- $3,750,000 and Above: 27 Restaurants
- $3,500,000 to $3,749,999: 22 Restaurants
- $3,250,000 to $3,499,999: 47 Restaurants
- $3,000,000 to $3,249,999: 67 Restaurants
- $2,750,000 to $2,999,999: 116 Restaurants
- $2,500,000 to $2,749,999: 126 Restaurants
- $2,250,000 to $2,499,999: 111 Restaurants
- $2,000,000 to $2,249,999: 99 Restaurants
- $1,750,000 to $1,999,999: 65 Restaurants
- $1,500,000 to $1,749,999: 35 Restaurants
- $1,250,000 to $1,499,999: 7 Restaurants
- Below $1,250,000: 1 Restaurant
- Highest Sales: $5,397,617
- Lowest Sales: $1,147,769
- Average Sales: $2,612,276
- Median Sales: $2,584,287
- Of the 723 Franchised Restaurants, 342 (or 47%) met or exceeded the average sales.
- Average sales were taken from Franchised Restaurants open for the 12-month period ended December 31, 2020.
- “Sales” are defined as the total revenue received from the sale of goods and services, whether by cash or by check or credit card, at or through a Culver’s Restaurant, less sales tax, customer refunds, and unreimbursed amounts involving the franchisor’s approved coupon or discount programs.
Part 2 – Company-Owned Restaurants Open 12 Months
- Average Sales: $3,075,679 (100.0%)
Select Cost Percentages
- Food Cost: $920,740 (29.9%)
- Paper Cost: $87,801 (2.9%)
- Total Food and Paper Cost: $1,008,541 (32.8%)
Gross Profit: $2,067,138 (67.2%)
- Salaries and Wages: $858,167 (27.9%)
- Employee Benefits: $165,335 (5.4%)
- Direct Operating Expenses: $19,986 (0.6%)
- Supplies and Chemicals: $40,379 (1.3%)
- Utilities: $48,916 (1.6%)
- General and Administrative: $93,688 (3.0%)
- Repairs and Maintenance: $54,122 (1.8%)
- Advertising Royalty: $76,892 (2.5%)
- Local Advertising: $30,757 (1.0%)
- Service Royalty: $123,027 (4.0%)
- Total Operating Expenses: $1,511,268 (49.1%)
Income: $555,870 (18.1%)
- “Sales” are defined as the total revenue received from the sale of goods and services, whether by cash or by check or credit card, at or through a Company-Owned Restaurant, less sales tax, customer refunds, and unreimbursed amounts involving the franchisor’s approved coupon or discount programs.
- “Food Cost” includes costs of food and beverage items, as reduced by vendor rebates.
- “Paper Cost” includes paper product expenses.
- “Gross Profit” is Sales less Food Costs and Paper Costs.
- “Salaries and Wages” includes wages paid to Company-Owned Restaurant managers and crew. Hourly Manager wages range from $14.00/hour to $23.96/hour. Salaried Manager wages range from $62,594/yr to $69,827/yr. Crew wages range from $9.00/hour to $17.85/hour. Franchised Restaurants may incur higher percentages depending on wages paid and staffing levels.
- “Employee Benefits” includes payroll taxes and workers’ compensation, health, dental, life, STD, and LTD insurance, as well as a 401K plan and a flexible spending account, and team instruction and education account. Franchised Restaurants may incur different expenses depending on benefits offered to employees and staffing levels.
- “Direct Operating Expenses” includes licenses, permits, uniforms, laundry, music and cable, printed supplies, auto expenses, team recruitment, background checks, and miscellaneous expenses. Franchised Restaurants may incur different expenses for auto or travel expenses.
- “Supplies and Chemicals” includes supplies and chemicals used at the Company-Owned Restaurants.
- “Utilities” includes electricity, fuel, water and sewer, and garbage collection. Franchised Restaurants may incur different expenses depending on rate differences.
- “General and Administrative” includes bank charges, credit card fees, dues and subscriptions, liability insurance, office supplies, postage, telephone, POS support, internet, payroll service, and legal and accounting service. Franchised Restaurants may incur higher expenses because the Company-Owned Restaurants are supported by office personnel, and the personnel wages and benefits are not included in this expense.
- “Repairs and Maintenance” includes repair and maintenance expenses actually incurred. Franchised Restaurants may incur different expenses depending on the repairs and maintenance needed at the Franchised Restaurant.
- “Advertising Royalty” represents the percentage of sales that a Franchised Restaurant will pay to the Advertising Fund under the Franchise Agreement. This percentage will be 2.00% for all Franchise Agreements signed prior to March 31, 2012 and 2.50% for all Franchise Agreements signed on or after March 31, 2012.
- “Local Advertising” represents the minimum percentage of sales that a Franchised Restaurant must spend on local advertising expenses under the Franchise Agreement.
- “Service Royalty” represents the percentage of sales that a Franchised Restaurant would pay to the franchisor as a service royalty under the Franchise Agreement.
- “Income” is sales less the expenses listed above. The income above is before deductions for rent, real estate taxes, personal property taxes, interest costs, depreciation and amortization, or income tax.
- The statements shown in the table do not include the following expense items, which must be calculated and included separately for every Culver’s Restaurant:
- Depreciation of property and equipment;
- Rent, interest, or other financing cost for land, buildings, equipment, and inventory;
- Initial franchise fee and organization costs;
- Any management fees;
- Income taxes and property taxes;
- Other employee benefits, such as incentive, other team member compensation, team events, and team recognition;
- Other expenses, such as furniture and equipment, technology software and equipment, flowers and decoration, meeting expense, cash over/short, and credit card chargebacks and discrepancies.
- These excluded items will affect the net income and/or cash flow of any Culver’s Restaurant and must be carefully considered and evaluated by any prospective franchisee. The actual performance of any Culver’s Restaurant will depend on a number of factors specific to the property, including the above factors.