FDD Talk 2021: Scooter’s Coffee 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 Scooter’s Coffee franchise opportunity, including relevant news updates

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

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

• 2020, 2019, 2018, 2017, 2016, 2015, and 2014 average, median, lowest, and highest gross sales for the franchised Scooter’s Coffee Kiosk Stores and Coffeehouse Stores that were open and operating during the entire 12-month period ending December 31 of the calendar year identified

• 2020 average and median ticket sales for the franchised Scooter’s Coffee Kiosk Stores and Coffeehouse Stores that were open and operating during the entire 12-month period ending December 31, 2020 and that provided complete information

• 2020 average gross sales, discounts, net sales, cost of goods sold, gross margin, labor costs, rental expense, royalty, card processing, overhead, total expenses, and earnings before depreciation, interest, taxes, and debt service for the franchised Scooter’s Coffee Kiosk Stores and Coffeehouse Stores that were open and operating during the entire 12-month period ending December 31, 2020 and that provided complete information

• historic same-store sales growth for those franchised Scooter’s Coffee Stores that were open for at least 13 months during each of the 7 measured periods (2013-2014 to 2019-2020)

• 2020, 2019, 2018, and 2017 average, median, lowest, and highest gross sales during the first full month of operations for all franchised Kiosk Stores and Coffeehouse Stores that opened for operation in each of calendar years 2017 to 2020, and remained open and operating as of December 31, 2020

Section I – Background Information

16 Things You Need to Know About the Scooter’s Coffee Franchise

Celebrates 300-Location Milestone

1.  In mid-February 2021, Scooter’s Coffee reported that despite the ongoing challenges of the COVID-19 pandemic, the brand continued its upward trend in 2020 by surpassing a major milestone with its 300th franchise location. The Midwest-based drive-thru coffee franchise reached the 300-store mark after seeing increases in average unit volume across the system in recent years, including 43 new stores in 2020.

2.  Tim Arpin, vice president of franchise sales for Scooter’s Coffee, said, “We’re thrilled with the growth we’ve seen in the past few years and hitting a milestone like 300 stores is a great reminder of what the brand has accomplished. We have always built our brand around amazing coffee as well as the amazing people who truly make Scooter’s Coffee what it is. It’s been that commitment from franchisees, both long-term and newer, that has allowed us to expand our footprint.”

3.  That confidence in the Scooter’s Coffee brand has informed much of the franchise’s future plans for growth. More than 140 stores are currently slated to open by the end of 2021, with the long-term goal of reaching the 1,000-store milestone in 2024. It is clear that the 550-square-foot drive-thru kiosk model has proven itself effective and viable.

4.  Arpin added, “We wouldn’t set such ambitious goals for growth if we didn’t see proof of the model’s success and sustainability. The past year threw so many challenges everyone’s way, especially in the foodservice industry. But our ability to pivot effectively and continue growing throughout the Midwest and beyond has truly excited our existing franchisees and prospective franchisees about what is possible going forward.”

Announces Historic Growth Numbers

5.  In mid-May 2021, Scooter’s Coffee released its 2021 Franchise Disclosure Document, providing a look into its system and sales growth during 2020. The franchise grew by almost 50 locations in 2020, while experiencing historic same-store sales growth. Compared to the year before, Scooter’s Coffee stores saw an increase of more than 26%.

6.  According to Tim Arpin, vice president of franchise sales for Scooter’s Coffee, “We have always been confident that the Scooter’s Coffee model was one that could not only drive sustainable profit margins but could provide amazing value to our customers. When compiling our data from this past year, it’s clear we have done just that. We’re extremely proud to have had an impact with our customers and to have provided security to our franchisees, along with optimism and excitement to those considering franchising with Scooter’s Coffee in the future.”

7.  The onset of a public health crisis introduced challenges levied on businesses of all shapes and sizes. Still, Scooter’s Coffee’s model of small drive-thru kiosks provided customers with an outlet to fill their demands for their favorite drinks with efficient, safe service. Diving deeper into the same-store sales growth figures, stores built around the drive-thru kiosk model experienced 31% growth. The top quartile among those stores saw an average unit volume just shy of $1 million thanks to their essential function. And while dine-in options were severely hampered, Scooter’s Coffee stores built as coffeeshop models still saw growth as well compared to the year before.

8.  Arpin added, “We couldn’t be more thrilled to report such impressive growth, especially given the challenges introduced in 2020. We’re most proud of the fact that it emphasizes the trust our brand has with customers. Everyone watched their spending last year, and yet so many customers saw our products and service worthy of their dollar. That’s incredibly exciting for the brand, its franchisees, and those looking to join the Scooter’s Coffee family going forward.”

Nathan Lester to Lead Drive-Thru Innovation

9.  In early July 2021, Nathan Lester joined Scooter’s Coffee as senior director of drive-thru innovation. Lester will lead innovation, speed acceleration and continuous improvement to enhance the interactive customer experience. Prior to Scooter’s Coffee, Lester led strategic initiatives for the past 9 years at McDonald’s, enabling a superior customer experience. Initiatives included digitizing supply chain processes, automating business practices, designing/building the first global sustainability data collection/reporting solution, and leading the implementation of its Automated Order Taking initiative.

10.  Lester also oversaw McDonald’s innovation restaurants, implementing breakthrough practices in live environments. Initiatives included voice-activated drive-thru capabilities, predictive production management, robotic/automated cooking equipment and more that drove better business efficiencies and performance.

11.  The senior director of drive-thru innovation is a key strategic position at Scooter’s Coffee as the company strives to achieve growth goals and provide innovative ways for customers to get amazing drinks, amazingly fast. Scooter’s Coffee continues to grow rapidly while it strives to provide the best customer drive-thru interaction in the world. Speed, consistency, and an amazing customer experience is at the heart of Scooter’s Coffee’s sales growth.

12.  Prior to his time at McDonald’s, Lester received a Bachelor of Science degree in Civil Engineering from the University of Illinois and worked as a Civil Engineer, master planning and designing municipal treatment solutions across the United States. He was enlisted in the United States Air Force where he was a computer programmer, served on the base Honor Guard, and completed a tour of duty in Kuwait.

Company History

13.  Scooter’s Coffee was founded as Scooter’s Java Express in 1998 by Don and Linda Eckles in Bellevue, Nebraska. The Eckleses got the idea for their specialty coffee shop when they saw a man building a drive-thru coffee hut while living in California. At the time, coffeehouses were popping up everywhere and the Eckleses wanted to combine quality coffee with drive-thru convenience.

14.  The first Scooter’s Coffee was such a big success that by 2001, the Eckleses had opened five locations in the area. As demand grew, the Eckleses decided to start franchising the Scooter’s Coffee concept. The first franchised store opened in Council Bluffs, Iowa.

15.  Over the next few decades, Scooter’s Coffee has expanded beyond the Midwest and there are now locations in more than 28 states.

Entrepreneur’s Franchise 500

16.  Scooter’s Coffee ranked No. 103 on Entrepreneur’s 2021 Franchise 500 list.

Section II – Estimated Costs

• Please click here for detailed estimates of Scooter’s Coffee 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 Scooter’s Coffee’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:  156
• Outlets at the End of the Year:  185
• Net Change:  +29

2019

• Outlets at the Start of the Year:  185
• Outlets at the End of the Year:  237
• Net Change:  +52

2020

• Outlets at the Start of the Year:  237
• Outlets at the End of the Year:  289
• Net Change:  +52

Company-Owned

2018

• Outlets at the Start of the Year:  15
• Outlets at the End of the Year:  17
• Net Change:  +2

2019

• Outlets at the Start of the Year:  17
• Outlets at the End of the Year:  27
• Net Change:  +10

2020

• Outlets at the Start of the Year:  27
• Outlets at the End of the Year:  19
• Net Change:  -8

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

• The following table summarizes the ownership of Stores in operation as of December 31, 2020:

Kiosk

• Franchised Stores:  187
• Affiliate-Owned Stores:  6
• Total Stores:  193

Coffeehouse

• Franchised Stores:  79
• Affiliate-Owned Stores:  7
• Total Stores:  86

Non-Traditional

• Franchised Stores:  23
• Affiliate-Owned Stores:  6
• Total Stores:  29

Total

• Franchised Stores:  289
• Affiliate-Owned Stores:  19
• Total Stores:  308

• This Item 19 does not include financial performance information for any of Scooter’s Coffee’s franchised nontraditional Stores as Scooter’s Coffee currently is not actively marketing non-traditional Stores, and they operate differently from Kiosk and Coffeehouse Stores.

• Non-traditional Stores are carts or small spaces located in specialty locations (e.g. airports, hospitals, stadiums, train stations, malls, military bases, amusement parks, and business atriums), or within other businesses such as large office buildings.

• As a result, non-traditional Stores operate differently from Kiosk and Coffeehouse Stores, as they generally do not have a drive-thru or significant customer seating available, may not have standard hours of operation, and typically are not located in freestanding locations that are visible to the public from outside.

• This Item 19 also does not include any financial performance information for any of Scooter’s Coffee’s affiliate-owned Stores.

• This Item 19 is separated into five sections. In each section, the franchised Stores that meet the criteria in this Item 19 are referred to as “Participating Stores” (for all such franchised Stores), or for a particular type of Store, “Participating Kiosk Stores” or “Participating Coffeehouse Stores.”

Part 1 – Statement of Average Gross Sales

• This statement includes average Gross Sales of Participating Stores (both Participating Kiosk Stores and Participating Coffeehouse Stores) for each of calendar years 2014 to 2020. For each year, Scooter’s Coffee only included Kiosk and Coffeehouse Stores that were open and operating during the entire 12-month period ending December 31 of the calendar year identified (each a “Measurement Period”).

• The information presented in this Part 1 is based on information Participating Stores provided to Scooter’s Coffee. Scooter’s Coffee has not verified or audited this information.

A.  Participating Kiosk Stores

2020