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

• Section I – Background information on the Rita’s Italian Ice franchise opportunity, including relevant news updates

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

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

• 2020 average, median, highest, and lowest gross sales for the top tier, middle tier, and bottom tier of the 424 Rita’s Italian Ice shops that reported gross sales during the 2020 season

• 2020 product percentages (i.e. sales mix) for Italian ice, gelati, frozen custard, Misto shakes, Blendini/concrete, milkshakes, and miscellaneous items, as a percentage of total systemwide sales

Section I – Background Information

19 Things You Need to Know About the Rita’s Italian Ice Franchise

Anticipates Record-Breaking 2021 Season Following 75 New Franchise Signings Amid the Pandemic

1.  At the end of April 2021, Rita’s Italian Ice & Frozen Custard announced that even amid the ongoing COVID-19 pandemic, the company was continuing to grow. Following an impressive 2020 featuring franchise sales growth numbers that haven’t been reached since 2014, the frozen treat franchise is planning on having another banner year.

2.  In addition to signing 75 new franchise agreements in 2020, Rita’s grew same-store sales year-over-year, expanded into new markets, and remained innovative in order to keep its teams and guests safe in a time of uncertainty.

3.  The brand kicked-off the year with an impressive first quarter with openings across Florida, Pennsylvania, and Alabama, all of which make up its strategic plan to bring the beloved concept to well over 600 markets across the country.

4.  While 2020 presented a year filled with challenges, Rita’s leadership team and franchisees found opportunities with new ways to grow, adapt, and expand their offerings in local communities. Many implemented third-party delivery, curbside pick-up, and some even built drive-thrus to keep communities safe and maintain social distancing. These innovations are still an active part of Rita’s strategy today and have fueled growth that will surely impact overall performance as the brand enters the busy spring and summer seasons.

5.  One of Rita’s franchisees went above and beyond to propose the creation of a DIY Treat Take Home Kit. This kit allows families to take home custard, Italian ice, and toppings to mix & match and “do it themselves” from the comfort of home. The piloted kit was such a success in 2020 that Rita’s has rolled out the DIY Treat Take Home Kit nationwide this year.

6.  Linda Chadwick, CEO of Rita’s Italian Ice & Frozen Custard, said, “Rita’s locations across the country served as a sweet escape throughout 2020 and will continue to be there for our guests in every capacity in 2021. Prospective franchisees saw firsthand that Rita’s brand loyalty, adaptive systems and innovative thinking helped the brand achieve positive growth amid a difficult year.”

Signs Milestone Multi-Unit Agreement to Bring First Location to Kentucky

7.  At the beginning of May 2021, Rita’s Italian Ice & Frozen Custard announced that it was expanding into Kentucky. The brand signed its latest multi-unit deal to bring franchise locations to the state with the first slated to open in 2021. The agreement was finalized with a multi-generational family franchise team.

8.  Soon to be a neighborhood favorite, the franchise group has already secured a location for their first shop at 1840 Christian Care Way – right off of Campbell Lane in the heart of the city. The 1,500 square foot location will feature a drive-thru, a dine-in area for guests to enjoy treats on the spot, and will be open year-round.

9.  The local franchise is owned and operated by a husband-and-wife team, David and Erin Smith, with the addition of Erin’s mother, Christine Hillard. Before moving to Bowling Green in 2002, David and Erin lived in Pennsylvania and would frequent their neighborhood Rita’s. While they fell in love with the Bowling Green community, they were disappointed to find out there were no Rita’s locations nearby.

10.  Two decades and three kids later, the Italian ice franchise was still top of mind for the Smiths. In 2020, the two started researching franchises to invest in – Rita’s was first on the list. When they brought Erin’s mother, Christine, to try the Italian ice, she was immediately hooked.

11.  David Smith said, “Rita’s has always held a special place in our hearts, so when the opportunity arose to invest, we were incredibly excited to have the opportunity to bring the brand to Kentucky. Erin, Christine and I can’t wait to introduce our neighborhood to a business that has meant so much to our family – we hope to one day pass this business down to our children. And, while Rita’s may not be a household name in Kentucky yet, you can bet it will be soon.”

12.  Prior to becoming Rita’s franchisees, Christine, David, and Erin have all been passionate about helping others and giving back to their local community. Erin works as a teacher at an area school, while David has spent the last two decades working at an auto body shop. Christine will bring her wealth of business management to the group as she’s currently a part-owner and operator of 27 radio stations throughout Kentucky and Tennessee. Christine will head up behind the scenes operations, such as bookkeeping and marketing, and David will be the day-to-day partner, leveraging his years of customer service experience.

13.  Christine Hillard added, “David and Erin have been long-time fans of the brand. When they brought me in, I was immediately impressed with the quality of the product, but also with the support of the Rita’s team. They have really perfected the franchise sales and development process, and have continued to provide expertise on everything from marketing to training to real estate selection. David, Erin and I all feel confident in our choice to invest in the Rita’s brand, and we know the community will fall in love with it just as we did!”

Company History

14.  Rita’s Italian Ice (also called Rita’s Water Ice) was founded in 1984 by Bob Tumolo from his front porch in a suburb of Philadelphia, Pennsylvania. Tumolo’s Italian ice was based on a recipe that he acquired from an elderly neighbor and then adjusted it to enhance the flavors and feature fresh fruit.

15.  Following his early success, Tumolo opened a storefront in Bensalem, Pennsylvania, where Rita’s Italian Ice is still headquartered. After a few years, Tumolo opened a second location and started franchising the concept in 1989.

16.  Over the next few decades, Rita’s Italian Ice continued to expand around the country and new items were added to the menu, including frozen custard, sundaes, milkshakes, fat-free soft serve, and numerous items that blend Italian ice with Rita’s other products.

17.  The Tumolos owned and operated Rita’s until 2005, when the family sold the business to McKnight Capital Partners, a private equity group with extensive franchise experience. Less than a decade later, a controlling interest in Rita’s Italian Ice was acquired by Falconhead Capital. In 2017, Argosy Private Equity and MTN Capital acquired a controlling stake in Rita’s from Falconhead Capital.

18.  Today, there are Rita’s Italian Ice & Frozen Custard locations in more than 31 states.

Entrepreneur’s Franchise 500

19.  Rita’s Italian Ice did not rank on Entrepreneur’s 2021 Franchise 500 list.

Section II – Estimated Costs

• Please click here for detailed estimates of Rita’s Italian Ice 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 Rita’s Italian Ice’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:  591
• Outlets at the End of the Year:  565
• Net Change:  -26

2019

• Outlets at the Start of the Year:  565
• Outlets at the End of the Year:  564
• Net Change:  -1

2020

• Outlets at the Start of the Year:  564
• Outlets at the End of the Year:  532
• Net Change:  -32

Company-Owned

2018

• Outlets at the Start of the Year:  0
• Outlets at the End of the Year:  0
• Net Change:  0

2019

• Outlets at the Start of the Year:  0
• Outlets at the End of the Year:  0
• Net Change:  0

2020

• Outlets at the Start of the Year:  0
• Outlets at the End of the Year:  0
• Net Change:  0

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

• This Item 19 presents information about the financial performance of certain Shops that operated at a minimum during the period starting March 1, 2020 and ending September 30, 2020 (the “2020 Season”).

• Rita’s Italian Ice has not made permanent, material changes to its concept as a result of the COVID-19 pandemic (the “Pandemic”).

Part 1 – Reported Gross Sales for Shops Systemwide Open During at Least the 2020 Season

• Except as noted below, Part 1 reflects reported Gross Sales data for Shops Systemwide that were continuously operating during at least the 2020 Season and reported Gross Sales for the 2020 Season. Rita’s Franchise Agreements require all Shops operating under the System to operate for the entire Season.

• Shops that are Seasonal are only required to operate for the Season, and Shops that are Year Around must operate the entire year. Shops that are Seasonal are permitted, at their option, (i) to open before the Season starts and (ii) to close after the Season ends.

• The reported Gross Sales data in Part 1 includes Gross Sales for both Seasonal and Year Around Shops. There were 71 Year Around Shops and 353 Seasonal Shops operating during the 2020 calendar year.

• Some Shops that are Seasonal (i) are located in resort towns/cities and operated for less than the 2020 Season, and (ii) operated for longer than the 2020 Season (in some cases, the entire 2020 calendar year). The data reflects the Gross Sales for the entire period that each Shop operated in 2020.

• Gross Sales for each Shop includes any sales through Mobile Units and/or Satellites operating under such Shop’s Franchise Agreement. Many System franchisees actively pursue Catering Activities and Mobile Events at a location other than the Shop. The reported Gross Sales data in Part 1 includes Catering Activities and Mobile Events for Shops that engage in those opportunities. Franchisees who do not pursue these opportunities may be negatively affected and have less Gross Sales.

• The figures reflected in Part 1 (i) reflect 424 Shops that reported Gross Sales during the 2020 Season (the “2020 Sample”), and (ii) do not include 16 Shops (excluded from the Sample) that operated for the 2020 Season but closed at some point in 2020 or were terminated at some point in 2020 (because such Shops were generally in winddown mode and/or operating with a reduced staff and a product offering limited to their remaining inventory).

• There were 134 Shops in the 2020 Sample that reported between 1 and 6 weeks where they did not maintain full operations due to Restrictions & Orders or other issues related to the Pandemic. Of those 134 Shops, the average Shop reported 1 week where they did not maintain full operations due to Restrictions & Orders or other issues related to the Pandemic and the median weeks those Shops did not maintain full operations due to Restrictions & Orders or other issues related to the Pandemic was 3 weeks.

• Additionally, because of the Pandemic and Restrictions & Orders, many Shops were limited or prohibited from engaging in Catering Activities and Mobile Events during the 2020 Season. Many walk-in Shops also faced Restrictions & Orders that limited the capacity of guests in the Shops.

• During the 2020 Season, many of the Shops in the 2020 Samples offered products through third-party delivery services (e.g., Uber Eats, Grubhub, DoorDash), preorder pickup, and curbside service which became a focus because of the Pandemic and Restrictions & Orders.

• The 2020 Sample excludes 7 Express Shops that are located in special venues or captive venues (the “Excluded Special and Captive Shops”) that did not open in 2020 because of Restrictions & Orders. The Excluded Special and Captive Shops remain operational but are temporarily unable to provide services until the Restrictions & Orders are lifted and/or the venues reopen.

• Of the Shops in the 2020 Sample, 7 of the Shops did not operate their Satellites because those Satellites were located in special venues or captive venues that did not open in 2020 because of Restrictions & Orders. Therefore, those 7 Shops did not have revenue from their Satellites in 2020.

• Part 1 divides the Sample into three categories (Top Tier, Middle Tier, and Bottom Tier), based on their Gross Sales as compared with the sales for the 424 total Shops considered in arriving at these figures. Each average represents the average Gross Sales for Shops within each Tier. High sales and low sales represent the Shops within each tier that attained the highest and lowest Gross Sales.

Top Tier

• Number of Shops in Tier:  141
• Highest Gross Sales for Tier:  $705,764
• Lowest Gross Sales for Tier:  $271,332
• Average Gross Sales for Tier:  $352,771
• Number of Shops in Tier That Obtained or Exceeded Average Gross Sales for Such Tier:  62 (44.0% of the Top Tier and 14.6% of the 2020 Sample)
• Median Gross Sales for Tier:  $342,925

Middle Tier

• Number of Shops in Tier:  142
• Highest Gross Sales for Tier:  $271,282
• Lowest Gross Sales for Tier:  $202,939
• Average Gross Sales for Tier:  $239,230
• Number of Shops in Tier That Obtained or Exceeded Average Gross Sales for Such Tier:  73 (51.4% of the Middle Tier and 17.2% of the 2020 Sample)
• Median Gross Sales for Tier:  $240,504

Bottom Tier

• Number of Shops in Tier:  141
• Highest Gross Sales for Tier:  $201,607
• Lowest Gross Sales for Tier:  $43,192
• Average Gross Sales for Tier:  $151,508
• Number of Shops in Tier That Obtained or Exceeded Average Gross Sales for Such Tier:  85 (60.3% of Bottom Tier and 20% of the 2020 Sample)
• Median Gross Sales for Tier:  $161,647

Part 2 – Mix of Menu Items Sold Systemwide in 2020

• Part 2 reflects the mix of menu items sold systemwide during the 2020 calendar year. The figures in the table below reflect the sales of each menu item as a percentage of total systemwide sales during the 2020 calendar year.

• Italian Ice:  29.8%
• Gelati:  27%
• Custard:  19.6%
• Misto Shake:  4.3%
• Blendini/Concrete:  6.2%
• Milkshakes:  4.1%
• Miscellaneous:  9%
• Total:  100.0%

• Rita’s and its affiliates do not own any Shops and, therefore, the financial performance representation is not based on any company or affiliate-owned Shops.

• The financial performance representation figures do not reflect the cost of goods, operating expenses, or other costs or expenses (i.e. rent) that must be deducted from the Gross Sales figures to obtain potential net income or profit. You should conduct an independent investigation of the costs and expenses you will incur in opening and operating a Shop.

• Many of the Shops included in this data have been open and operating for years. These franchisees have achieved their level of sales after spending many years building customer goodwill at a particular location. A newly-opened business should not be expected to achieve sales volume (or maintain expenses) similar to those of an established business.

• The sales results for a Shop are affected by a number of factors including but not limited to:

• whether the Shop has a Satellite and/or engages in Mobile Events and Catering;
• weather conditions in the market;
• the physical location of the Shop;
• local demographics (including daytime and residential population and income levels);
• site characteristics (i.e. visibility, traffic count, ease of ingress and egress, parking availability);
• seating;
• the offering of online ordering and/or curbside service;
• the presence of a walk-up window and/or drive thru;
• seasonality (particularly in colder climates);
• local competition;
• brand and product awareness in the market;
• the number of Shops in the market;
• the use of third-party delivery apps in the market;
• the presence of a Cooperative in the market; and
• your individual marketing efforts.

• Sales may also be affected by other factors such as the length of the seasons, unusual weather events, and road construction affecting traffic patterns.

• Sales may also be affected by the strength of and public reception to the Rita’s brand in the market, the length of time the Rita’s brand has been in the market, by overall brand marketing within the market (which is determined by the number of Shops in the media market and whether there is a Cooperative in the media market), by flavor availability, by the overall public familiarity with Italian ice in the market, and by the overall public desire for Italian ice and custard in the market.

• Rita’s does not make any promises or representations of any kind that you will achieve any particular results or level of sales or profitability or even achieve break-even results in any particular year of operation.

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