In this FDD Talk post, you’ll learn the following:
- Section I – Background information on the Capriotti’s franchise opportunity, including relevant news updates
- Section II – Estimated initial investment for a Capriotti’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 Capriotti’s franchise, based on Items 5 and 6 of the company’s 2021 FDD
- Section IV – Number of franchised and company-owned Capriotti’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 Capriotti’s financial performance representations, based on Item 19 of the company’s 2021 FDD, including information on the:
- 2020 average, median, highest, and lowest unit volume for all franchised Capriotti’s Restaurants open during all of 2020, all franchised Capriotti’s Restaurants in “mature markets” as of December 31, 2020, all franchised Capriotti’s Restaurants open more than 2 years as of December 31, 2020, and all franchised Capriotti’s Restaurants open more than 10 years as of December 31, 2020, respectively
- 2020 average, median, highest, and lowest unit volume for all company-owned Capriotti’s Restaurants open during all of 2020, all company-owned Capriotti’s Restaurants in “mature markets” as of December 31, 2020, all company-owned Capriotti’s Restaurants open more than 2 years as of December 31, 2020, and all company-owned Capriotti’s Restaurants open more than 10 years as of December 31, 2020, respectively
- 2020 average and median total sales, prime cost, cost of goods sold, store level salary, store level bonus – salary, payroll and related expenses, operating expense, non-controllable expense, rent, royalty fee, national marketing fees, local marketing cooperative fees, and EBITDA for the 11 company-owned Capriotti’s Restaurants in the State of Nevada that operated during all of 2020
Section I – Background Information
19 Things You Need to Know About the Capriotti’s Sandwich Shop Franchise
Launches First Ghost Kitchens in California
1. At the end of August 2020, Capriotti’s Sandwich Shop announced the launch of its highly-anticipated ghost kitchens. Optimized for delivery, Capriotti’s ghost kitchens expand the brand’s reach. The brand rounds-out impressive culinary rosters at both CloudKitchen in Los Angeles (the Koreatown neighborhood) and Pasadena’s Kitchen United (55 S. Madison Ave.), where it joins the likes of brands such as Canter’s Deli, Wow Bao, and The Lost Cuban. Both Capriotti’s ghost kitchens are open and ready to fulfill orders.
2. Ghost kitchen facilities house multiple restaurant kitchens but may have an incognito appearance to the outside world, lending to the name ghost kitchen. These facilities feature the equipment, technology, and supplies required to operate multiple restaurants in one building and are tailor-made for restaurants selling food online for delivery orders. While some ghost kitchens feature signage and shared dine-in seating, many operate without.
3. Capriotti’s ghost kitchen locations are new outposts, helping fulfill the growing demand for online ordering and delivery of Capriotti’s. And, while Capriotti’s first two ghost kitchens are corporately owned and operated, franchise interest is booming as the platform is both cost effective and designed to thrive in the age of both online ordering and third-party delivery.
4. Capriotti’s is introducing ghost kitchen opportunities to franchise partners in available markets as a way to expand their reach beyond traditional brick and mortar. This allows existing owners to expand the customer base by now being able to deliver to more high-traffic areas. Strong partnerships with Door Dash, Postmates, Uber Eats, GrubHub, and EZ Cater make Capriotti’s even more accessible for regular third-party delivery users.
5. CEO Ashley Morris said, “Ghost kitchens are a natural next step and have long been a part of our brand’s strategic growth plans. Operating in these innovative new ghost kitchen facilities gives us the opportunity to bring our carefully curated menu to new communities, which is what it’s all about. There’s a reason why Capriotti’s has such a robust and loyal following, and we’re excited for others to give us a try and see for themselves what the hype is all about.”
6. The news of entering into ghost kitchens comes on the heels of the brand’s exceptional performance in Q2 of this year. Even amid a pandemic, Capriotti’s is growing and has finalized 18 signed agreements – five of them are with franchisees that will be operating ghost kitchens in a variety of urban markets.
7. Los Angeles County residents have a lot of mouthwatering menu items to look forward to. In addition to introducing the world’s first Impossible Cheesesteak sandwich earlier in 2020, Capriotti’s partnered with Snake River Farms to roll out an unparalleled sub line up featuring tender Wagyu beef. Showcased on several new menu items – the American Wagyu Roast Beef, Slaw Be Jo, Cheese Steak, and Wagyu & Bleu Salad – Wagyu beef is known for its marbled, rich flavor.
8. All shops – including ghost kitchen locations – are practicing extraordinary safety protocols including tightly-sealed packaging, strict social distancing as well as health and wellness protocols for both guests and team members. Fans can rest easy knowing that contactless delivery is available for all orders placed through Capriotti’s website, the CAPAddicts app, and third-party delivery partners.
Historic Year of Growth Culminates with Announcement to Acquire Wing Zone
9. In early January 2021, Capriotti’s Sandwich Shop announced that it had finalized the acquisition of Wing Zone. Capping off an impressive year, the Wing Zone acquisition marks a momentous turning point for the fast-casual brand and continues to cement the fan-favorite sandwich shop’s place at the forefront of the industry.
10. Even amidst the pandemic, Capriotti’s achieved incredible success in 2020, quickly overcoming never-before-seen obstacles impacting the restaurant industry and providing its franchise partners second-to-none support from start to finish. Capriotti’s has remained committed to innovation, growth, and profitability, which continues to propel the brand forward as it closes out another record year on all fronts.
11. Highlights from 2020 include:
- Rolled out the first Impossible Meat Cheese Steak and partnered with Snake River Farms to introduce a new line up of American Wagyu beef subs at shops across the nation.
- Introduced virtual brands that serve reimagined versions of extraordinary classic subs to fans through online delivery platforms like GrubHub, Postmates, and DoorDash.
- Opened the brand’s first corporate ghost kitchens in Los Angeles and Pasadena, CA; introduced the ghost kitchen franchise opportunity enabling franchise partners to satisfy a growing consumer demand for delivery, catering, and online ordering while avoiding brick and mortar shop rental rates. Ghost kitchen franchises are already open and under development in Columbus, OH, Baltimore, Philadelphia, Portland, Austin, and Miami.
- Partnered with Reef Kitchens to open the first vessel in Baltimore.
- Opened 18 high-performing new shops in 2020 – many during the midst of the pandemic – marking 115 shops open with an additional 210 in development, 30+ of which will open in 2021.
- Signed 24 multi-unit franchise agreements to bring a total of 106 new restaurants across the United States in the coming years in new markets like Miami, Philadelphia, Denver, New York City, and more.
- Reported best-in-class double-digit same-store sales increases throughout the year – solidifying Capriotti’s financial performance in the top 2% of the entire restaurant industry.
12. According to Ashley Morris, CEO of Capriotti’s, “This year has presented a unique set of challenges for restaurants nationwide and Capriotti’s was no exception. I am incredibly grateful for the commitment and support of our franchise partners and their teams for their dedication to helping Capriotti’s safely serve communities across the country. While 2020 has been filled with hurdles, it’s been one of the most rewarding and successful years in the history of the organization. We’re looking forward to growing from here!”
13. Looking ahead, Capriotti’s shows no signs of slowing. The fan-favorite fast-casual franchise has announced the completed acquisition of Wing Zone, a fast-casual wing concept living out its mission to make it easy to get flavorful food worldwide. With the acquisition, Capriotti’s is committed to leveraging its best-in-class leadership, sophisticated organizational structure, and strategic partners in order to protect, enhance, and promote the success of Wing Zone and invest in the future of the growing brand.
14. Capriotti’s and Wing Zone share a mutual focus on serving fans and flavor-seekers across the nation the highest-quality products both in-store and off-premise – as demand for delivery and online ordering skyrockets. Between Capriotti’s tech-forward strategy, infrastructure, and profitability, and Wing Zone’s innovative delivery systems that cater to the rising demand for off-premise dining, both brands will bring each other a tremendous depth of service, meant to cement Capriotti’s and Wing Zone as top players in the fast-casual sector.
15. Morris, who is now the CEO of Wing Zone as well, added, “The acquisition is a natural fit for both brands, as Capriotti’s and Wing Zone share many of the same internal values and organizational goals. We look forward to leveraging our expertise in franchising, operational excellence and technology with Wing Zone’s off-premise experience to help both brands continue to grow. We are thrilled to welcome Wing Zone into the Capriotti’s family and are excited about what lies ahead.”
16. Capriotti’s was founded in 1976 by siblings Lois and Alan Margolet in the Little Italy neighborhood of Wilmington, Delaware. Although there were already a lot of sandwich shops in the neighborhood, the Margolets wanted to do something different and set out to create a sandwich for “real turkey lovers.” The Margolets roasted whole fresh turkeys overnight then used the meat along with fresh produce, and high-quality cheese and bread. The turkey sandwich was really popular and over time, the Margolets expanded the menu to include what are now Capriotti’s signature sandwiches.
17. In 1987, the Margolets’ cousin, Diane Rizzo, joined Capriotti’s and they began opening additional restaurants in the Delaware area. A few years later, in 1991, the Margolets began franchising the Capriotti’s concept. Over the next decade, Capriotti’s grew around the United States.
18. In 2004, future Capriotti’s owners and executives, Ashley Morris and Jason Smylie, opened a franchise in Las Vegas. After gathering some other investors, Morris and Smylie bought Capriotti’s in 2008. At the time, the chain had 44 locations. Today, Capriotti’s has locations in more than 20 states.
Entrepreneur’s Franchise 500
19. Capriotti’s Sandwich Shop did not rank on Entrepreneur’s 2021 Franchise 500 list.
Section II – Estimated Costs
- Please click here for detailed estimates of Capriotti’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 Capriotti’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: 83
- Outlets at the End of the Year: 85
- Net Change: +2
- Outlets at the Start of the Year: 85
- Outlets at the End of the Year: 89
- Net Change: +4
- Outlets at the Start of the Year: 89
- Outlets at the End of the Year: 100
- Net Change: +11
- Outlets at the Start of the Year: 11
- Outlets at the End of the Year: 9
- Net Change: -2
- Outlets at the Start of the Year: 9
- Outlets at the End of the Year: 14
- Net Change: +5
- Outlets at the Start of the Year: 14
- Outlets at the End of the Year: 17
- Net Change: +3
Section V – Financial Performance Representations (Item 19, 2021 FDD) and Analysis
- This historical financial performance representation reflects certain actual operating results of the franchised and company-owned Capriotti’s Restaurants described below during the 2020 calendar year.
- All of the Capriotti’s Restaurants (both franchised and company-owned) whose information is included in this Item 19 are substantially similar to one another in terms of products and services offered and substantially similar to the Capriotti’s Restaurants for which Capriotti’s is offering franchises in the disclosure document.
- Capriotti’s did not materially change the Capriotti’s Restaurant franchise concept or business model due to the COVID-19 pandemic. Capriotti’s continues to shore up national distribution, improve operational efficiency and performance, enhance training programs, sign competitive vendor contracts, negotiate national pricing with delivery service providers, and enhance national and local marketing efforts.
- This financial performance representation discloses the actual historical average, median, and high/low annual gross sales of all franchised (a total of 77 in 2020) and company-owned (a total of 12 in 2020) Capriotti’s Restaurants in the United States that were open and operating during all of 2020.
- It also discloses the average, median, and high/low annual gross sales during 2020 of: (i) the franchised (a total of 51 in 2020) and company-owned (a total of 11 in 2020) Capriotti’s Restaurants that operate in “mature markets” (defined in the tables below); (ii) the franchised (a total of 62 in 2020) and company-owned (a total of 11 in 2020) Capriotti’s Restaurants that had been open for more than 2 full years as of December 31, 2020; and (iii) the franchised (a total of 41 in 2020) and company-owned (a total of 5 in 2020) Capriotti’s Restaurants that had been open for more than 10 full years as of December 31, 2020.
- This financial performance representation does not include the results of the following 31 Capriotti’s Restaurants: (a) 15 franchised Restaurants and 3 company-owned Restaurants that opened during 2020 (and therefore were not open for the full calendar year); (b) 4 franchised Restaurants that closed during 2020 (and therefore were not open for the full calendar year); (c) 3 franchised Restaurants that were closed for extended periods of time during 2020 due to COVID-19 (ranging from 3 to 12 weeks); and (d) 6 franchised Restaurants that operate in non-traditional locations.
- Of the franchised and company-owned Capriotti’s Restaurants that were open during all of 2020, many experienced to varying degrees temporary closures, reduced operating hours, or reduced or no dine-in capacity due to COVID-19 restrictions. Capriotti’s has not modified any of the 2020 financial performance information disclosed in this portion of Item 19 to account for those disruptions.
- Besides the annual gross sales of all franchised and company-owned Capriotti’s Restaurants in the United States that were open and operating during all of 2020, this financial performance representation contains the actual average partial operating financial statement for 2020 for all 11 of those company-owned and operated Capriotti’s Restaurants.
- Capriotti’s obtained the gross sales information for franchised Restaurants from sales reports submitted by franchisees. Capriotti’s has not independently audited that information.
- “Gross Sales” is defined in Capriotti’s Franchise Agreement as the total of all revenue derived from operating the Restaurant, whether from sales for cash or credit, and irrespective of collection, including sales of merchandise, products, and services, but excluding sales tax, proceeds from the sale of equipment not in the ordinary course of business, franchisor pre-approved promotional discounts (provided physical evidence of the promotion/coupon is retained), and food purchased by employees for their own consumption as outlined in the Manual.
- The actual average, median, and high/low annual gross sales volumes reported below do not reflect the costs of sales, operating expenses, or other costs or expenses that must be deducted from the gross sales figures to obtain your net income or profit.
- The franchise program for Capriotti’s Restaurants is structured to provide to franchisees, in Capriotti’s capacity as franchisor, some of the services that Capriotti’s provides to the company-owned Capriotti’s Restaurants identified below. However, Capriotti’s does not provide certain services to franchisees that the business owner normally provides, such as financing, accounting, legal, personnel, and management services. The availability, cost, and quality of these services to a franchisee likely will affect operations.
Part 1 – Sales Volume Information
2020 Results for All Franchised Restaurants Open During All of 2020