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

• Section I – Background information on the Donatos Pizza franchise opportunity, including relevant news updates

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

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

• 2019 and 2020 average, median, highest, and lowest net sales and average check totals for the 150 company-owned and franchisee-owned Donatos Pizza Restaurants that operated consistently throughout each of the 2019 fiscal year (from January 1, 2019 to December 30, 2019) and the 2020 fiscal year (from December 31, 2019 to December 28, 2020) (“Covered Restaurants”)

• 2020 average net sales, food costs, beverage costs, production supply costs, labor & delivery reimbursement costs, and gross profit margin for all 53 company-owned Covered Restaurants and 41 franchisee-owned Covered Restaurants owned and operated by Titan (Donatos’ largest franchisee) during the 2020 fiscal year

• 2020 average net sales, cost of goods sold (food costs, beverage costs, production supply costs, labor & delivery reimbursement costs), gross profit, operating expenses (payroll related, direct operating expenses, utilities, admin & general, repairs & maintenance, other delivery costs, marketing, other occupancy fees & expenses, rent, license fees), and EBITDA for the 20 non-Titan franchisee-owned Covered Restaurants which each achieved total Net Sales between $900,000 and $1,200,000 during the 2020 fiscal year

Section I – Background Information

16 Things You Need to Know About the Donatos Pizza Franchise

Looks to Fill Staffing Needs Through ‘Dinnerviews’

1.  In mid-May 2021, Donatos Pizza announced it had a system-wide goal to hire at least 2,500 new associates ranging from delivery drivers and hourly associates to managers. To achieve this goal, Donatos began holding “Dinnerviews” on Wednesdays from 2-5 p.m. in all of its local restaurants starting on May 19.

2.  While the entire restaurant industry is battling a labor shortage as businesses begin reopening and increasing their capacity to serve, having adequate staffing has been compounded for Donatos as the brand has seen significant sales growth over the past year as well as expanding its footprint with the opening of new restaurant locations – both good problems to have but challenging without enough help.

3.  The Donatos Dinnerviews are designed to make landing a job as simple as possible while at the same time allowing applicants to enjoy what the brand is famous for – a large one-topping pizza covered edge to edge with their favorite topping. The Dinnerviews will consist of walk-in interviews with no appointment necessary. After meeting with a member of the Donatos team that could land the prospective associate a job on the spot, applicants will receive a certificate for a free large one-topping pizza.

4.  Donatos CEO Tom Krouse said, “Just like we’ve worked hard over the history of our brand to keep our operation processes simple and consistent, we want to make the process of landing a new job easy. We also want to make it fun and rewarding, and we know that our pizza is always a great way to bring people together.”

Expands Nashville Presence Through Delivery-Only Kitchens

5.  In late June 2021, Donatos Pizza announced a new partnership with REEF Kitchens to expand its presence in Nashville beginning on June 23. In just five years since coming to Music City, Donatos has become a favorite of locals, visitors, and students from both Vanderbilt and Belmont at its location in Midtown. An additional restaurant opened in nearby Murfreesboro four years ago, but requests for more locations and expanded delivery options around Nashville have continued to pour in.

6.  This is the first of what both Donatos and REEF hope will be a multi-city growth venture throughout the country between the brands. Combining increased interest with new franchise partners, its partnership with Red Robin, and potential with REEF, the Donatos brand, which can now be found in 300 locations, is positioned for explosive growth in 2021 and beyond.

7.  Now, through the delivery-only partnership with REEF, customers in more areas of Music City and the surrounding communities will be able to order Donatos on demand. REEF has a national network of Neighborhood Kitchens that enables food entrepreneurs, local restaurants, and national brands to open and quickly expand their delivery business.

8.  The newest Donatos location in Nashville will service the East Nashville neighborhoods via delivery from all major delivery platforms including UberEats, DoorDash, Postmates, and Grubhub.

9.  Donatos CEO Tom Krouse said, “We are excited about this new partnership and the ability to help more Nashville residents enjoy our pizza. REEF is a scalable way to grow our business through delivery.”

10.  Carl Segal, REEF’s chief enterprise success officer, added, “In a time where delivery, convenience, and quality are king, we’re honored to tap our Neighborhood Kitchens to help Donatos reach new customers in Nashville.”

Adds Ultimate Grilled Cheese Pizza to Signature Menu

11.  In late August 2021, Donatos Pizza announced the newest mouth-watering addition to its signature pizza lineup with the Ultimate Grilled Cheese Pizza available in all of its traditional locations beginning on August 23. Combining two of the top choices on nearly every list of best comfort foods, the Ultimate Grilled Cheese Pizza is loaded with premium ingredients starting with smoked Provolone cheese, Asiago cheese, hardwood smoked bacon, fresh Roma tomatoes, roasted garlic and then topped with bread crumbs toasted to perfection on the brand’s famous thin crust.

12.  Donatos CEO Tom Krouse said, “When it comes to comfort food, grilled cheese and pizza have always been at the top of the list. Our menu innovation team has done a great job of taking two of the biggest food trends of the year – comfort foods and mashups – and transforming these two craveable foods into a delicious pizza made with premium ingredients that we can’t wait for people to try. Whether it’s trying something new for lunch or dinner or ordering for a late-night snack, this pizza has something for everyone from pizza lovers to cheese lovers to foodies. This is comfort food with a unique and flavorful twist.”

Company History

13.  Donatos Pizza was founded in 1963 in Columbus, Ohio when Jim Grote purchased the pizza shop he had been working for since he was a teenager. When Grote took over, he decided to keep the shop’s original name, Donatos, which is a play on a Latin phrase that means “to give a good thing.” The name fit in perfectly with Grote’s three-part mission: to create a superior product, hire great people, and promote goodwill in business and the community.

14.  Over the next few decades, Grote continued to slowly grow Donatos. In 1991, Donatos began franchising and the first franchised restaurant opened in Zanesville, Ohio. A few years later, in 1999, McDonald’s purchased Donatos in an attempt to enter the pizza market. However, this was not successful and a majority interest in Donatos was repurchased by Jim Grote and daughter Jane Grote Abell in 2003 as McDonald’s sought to refocus on its core business.

15.  Over the years, Donatos has mostly remained a regional chain, but in 2018, Donatos partnered with Red Robin to sell pizzas in their restaurants. Today, Donatos has become a national brand through its presence in Red Robin restaurants across the United States.

Entrepreneur’s Franchise 500

16.  Donatos Pizza ranked No. 313 on Entrepreneur’s 2021 Franchise 500 list.

Section II – Estimated Costs

• Detailed estimates of Donatos Pizza franchise costs, based on Item 7 of the company’s 2021 FDD.

Section III – Initial Franchise Fee, Royalty Fee, Marketing Fee, and Other Fees

• Detailed information on Donatos Pizza’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:  105
• Outlets at the End of the Year:  105
• Net Change:  0

2019

• Outlets at the Start of the Year:  105
• Outlets at the End of the Year:  104
• Net Change:  -1

2020

• Outlets at the Start of the Year:  104
• Outlets at the End of the Year:  113
• Net Change:  +9

Company-Owned

2018

• Outlets at the Start of the Year:  55
• Outlets at the End of the Year:  55
• Net Change:  0

2019

• Outlets at the Start of the Year:  55
• Outlets at the End of the Year:  56
• Net Change:  +1

2020

• Outlets at the Start of the Year:  56
• Outlets at the End of the Year:  54
• Net Change:  -2

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

• As of December 28, 2020 (the end of Donatos’ 2020 fiscal year), there were 167 Donatos Pizza Restaurants open and operating. Of those, 3 restaurants are Non-Traditional Sites, 10 restaurants did not operate for all of 2020, because they were either first opened during the year or there was a fire causing a closure, and therefore were not operational for a full 12-month period.

• Additionally, of those 167 Donatos Pizza Restaurants, 3 restaurants did not operate for all of 2019, because they first opened during the year, 1 location transferred from a franchise to Donatos, and therefore were not operational for a full 12-month period.

• Part 1 of this financial performance representation covers certain Net Sales for the 150 company-owned and franchisee-owned Donatos Pizza Restaurants that operated consistently throughout each of the 2019 fiscal year (from January 1, 2019 to December 30, 2019) and the 2020 fiscal year (from December 31, 2019 to December 28, 2020) (collectively, the “Covered Restaurants”).

• The franchisor owns and operates 53 of the Covered Restaurants and franchisees operate the other 97 Covered Restaurants.

• Each chart in Part 1 below sets forth certain Net Sales of the Covered Restaurants operating for each fiscal year and compares the two fiscal years by providing a percentage increase or decrease.

• Part 2 of this financial performance representation covers certain costs and the average percentage of such costs of the Net Sales incurred by all 53 company-owned Covered Restaurants and 41 franchisee-owned Covered Restaurants owned and operated by Titan Restaurant Group (“Titan”), Donatos’ largest franchisee, during the 2020 fiscal year.

• Part 3 includes certain results from all non-Titan franchisee-owned Covered Restaurants which each achieved total Net Sales between $900,000 and $1,200,000 during the 2020 fiscal year (from December 31, 2019 to December 28, 2020).

• Parts 1, 2, and 3 of this financial performance representation do not include results for kiosks or other outlets at Non-Traditional Sites selling products under the “Donatos” name that are not full-size Donatos Pizza Restaurants or which only offer a limited menu of Donatos items.

• This financial performance representation contains:

• (1) the actual average Net Sales for the Covered Restaurants during the period from December 31, 2019 through December 28, 2020, which is Donatos’ 2020 fiscal year, and during the period from January 1, 2019 through December 30, 2019, which is Donatos’ 2019 fiscal year (Part 1);

• (2) Food Costs, Beverage Costs, Production Supply Costs, and Labor Costs for all 53 company-owned Covered Restaurants and 41 franchisee-owned Covered Restaurants owned and operated by Titan, during Donatos’ 2020 fiscal year (Part 2); and

• (3) EBITDA (as defined below) of each non-Titan franchisee-owned Covered Restaurants which each achieved total Net Sales between $900,000 and $1,200,000 during the 2020 fiscal year (Part 3).

Part 1 – Net Sales of Covered Restaurants

A. Average Net Sales of All Covered Restaurants (150 Units)

• 2020 High Net Sales:  $2,686,919
• 2019 High Net Sales:  $2,357,552
• % Increase Between Years:  +13.97%

• 2020 Low Net Sales:  $545,250
• 2019 Low Net Sales:  $434,545
• % Increase Between Years:  +28.43%

• 2020 Average Net Sales:  $1,284,311
• 2019 Average Net Sales:  $1,137,941
• % Increase Between Years:  +12.86%

• 2020 Median Net Sales:  $1,190,365
• 2019 Median Net Sales:  $1,090,662
• % Increase Between Years:  +9.14%

• 2020 Average Check Totals:  $23.08
• 2019 Average Check Totals:  $21.30
• % Increase Between Years:  +8.37%

B. Average Net Sales of Company-Owned Covered Restaurants (53 Units)

• 2020 High Net Sales:  $2,686,919
• 2019 High Net Sales:  $2,357,552
• % Increase Between Years:  +13.97%

• 2020 Low Net Sales:  $932,882
• 2019 Low Net Sales:  $851,681
• % Increase Between Years:  +9.53%

• 2020 Average Net Sales:  $1,639,757
• 2019 Average Net Sales:  $1,492,975
• % Increase Between Years:  +9.83%

• 2020 Median Net Sales:  $1,504,100
• 2019 Median Net Sales:  $1,387,124
• % Increase Between Years:  +8.43%

• 2020 Average Check Totals:  $22.36
• 2019 Average Check Totals:  $20.72
• % Increase Between Years:  +7.92%

C. Average Net Sales of Titan Franchisee-Owned Covered Restaurants (41 Units)

• Titan is Donatos’ largest franchisee.

• 2020 High Net Sales:  $1,540,791
• 2019 High Net Sales:  $1,383,741
• % Increase Between Years:  +11.35%

• 2020 Low Net Sales:  $549,675
• 2019 Low Net Sales:  $424,545
• % Increase Between Years:  +29.47%

• 2020 Average Net Sales:  $954,083
• 2019 Average Net Sales:  $820,240
• % Increase Between Years:  +16.32%

• 2020 Median Net Sales:  $913,770
• 2019 Median Net Sales:  $762,429
• % Increase Between Years:  +19.85%

• 2020 Average Check Totals:  $23.81
• 2019 Average Check Totals:  $22.27
• % Increase Between Years:  +6.91%

D. Average Net Sales of Non-Titan Franchisee-Owned Covered Restaurants (56 Units)

• 2020 High Net Sales:  $2,197,004
• 2019 High Net Sales:  $1,930,680
• % Increase Between Years:  +13.79%

• 2020 Low Net Sales:  $545,250
• 2019 Low Net Sales:  $440,194
• % Increase Between Years:  +23.87%

• 2020 Average Net Sales:  $1,189,680
• 2019 Average Net Sales:  $1,034,528
• % Increase Between Years:  +15.00%

• 2020 Median Net Sales:  $1,153,192
• 2019 Median Net Sales:  $1,014,251
• % Increase Between Years:  +13.70%

• 2020 Average Check Totals:  $23.64
• 2019 Average Check Totals:  $21.56
• % Increase Between Years:  +9.63%

Part 2 – Average Net Sales, Food Costs, Beverage Costs, Production Supply Costs, and Labor Costs for the 2020 Fiscal Year for All 53 Company-Owned Covered Restaurants and All 41 Titan-Owned Covered Restaurants

A. Company-Owned Covered Restaurants

• Average Net Sales:  $1,639,757
• Average Food Costs as a Percentage of Net Sales:  23.9%
• Average Beverage Costs as a Percentage of Net Sales:  1.2%
• Average Production Supply Costs as a Percentage of Net Sales:  3.0%
• Average Labor & Delivery Reimbursement Costs as a Percentage of Net Sales:  29.0%
• Average Gross Profit Margin as a Percentage of Net Sales:  42.9%

B. Titan-Owned Covered Restaurants

• Average Net Sales:  $954,083
• Average Food Costs as a Percentage of Net Sales:  24.3%
• Average Beverage Costs as a Percentage of Net Sales:  1.1%
• Average Production Supply Costs as a Percentage of Net Sales:  3.0%
• Average Labor & Delivery Reimbursement Costs as a Percentage of Net Sales:  25.7%
• Average Gross Profit Margin as a Percentage of Net Sales:  46.0%

• “Food Costs” reflect the amounts paid for all edible products, such as breading, sauces, and pizza, sandwich and salad toppings, but exclude Beverage Costs.

• “Beverage Costs” reflect the amounts paid for beverage products, such as beverage cans, 20 ounce beverage bottles, 2 liter beverage bottles, fountain drinks and bottled water.

• “Production Supply Costs” reflect the amounts paid for paper products (such as boxes, plates, napkins, cups, straws, and disposable utensils) and CO2 used in the fountain drink dispenser.

• This figure does not cover all costs associated with operating a Donatos Pizza Restaurant, such as smallwares, kitchen equipment (including associated labor costs), and other supplies used to operate a Donatos Pizza Restaurant such as the costs for Operating Assets, office and janitorial supplies, and costs to obtain, maintain and repair equipment.

• “Labor & Delivery Reimbursement Costs” reflect wages (including overtime) paid to the store level company-owned and Titan-owned Donatos Pizza Restaurant employees who are compensated on an hourly and salaried basis, including delivery drivers who use personal vehicles and are reimbursed a per delivery fee.

• This figure does not cover all employee-related costs associated with operating a Donatos Pizza Restaurant. For example, this figure does not include incentive compensation, benefits costs, vacation pay and associated payroll taxes and other compensation for restaurant employees. This figure does not include any compensation payable to the franchisee. This figure also does not cover payroll processing fees, health insurance or workers’ compensation insurance premiums, uniforms, or meal, travel and other expenses for employees.

• “Cost of Goods Sold” means total costs and expense amounts of the Covered Restaurants spent on Food Costs, Beverage Costs, Production Supply Costs, and Labor & Delivery Reimbursement Costs.

• “Gross Profit” means the Net Sales minus the Cost of Goods Sold. There are a number of other costs of sales, operating expenses, or other costs or expenses that Donatos Pizza Restaurants incur that are not covered in the Cost of Goods Sold and that must be deducted from the Net Sales figures to obtain net income or profit.

Part 3 – Profit and Loss Statement for the 20 Non-Titan Franchisee-Owned Covered Restaurants Which Achieved Net Sales Between $900,000 and $1,200,000 During the 2020 Fiscal Year

Average

Net Sales:  $1,041,030 (100.0%)

Cost of Goods Sold

• Food Costs:  $258,454 (24.8%)
• Beverage Costs:  $15,614 (1.5%)
• Production Supply Costs:  $30,995 (3.0%)
• Labor & Delivery Reimbursement Costs:  $305,602 (29.4%)
• Total Cost of Goods Sold:  $610,666 (58.7%)

Gross Profit:  $430,364 (41.3%)

Operating Expenses

• Payroll Related:  $45,117 (4.3%)
• Direct Operating:  $26,841 (2.6%)
• Utilities:  $28,520 (2.7%)
• Admin & General:  $33,435 (3.2%)
• Repairs & Maintenance:  $18,332 (1.8%)
• Other Delivery Costs:  $2,101 (0.2%)
• Marketing:  $49,164 (4.7%)
• Other Occupancy Fees & Expenses:  $6,482 (0.6%)
• Rent:  $45,224 (4.3%)
• License Fees:  $46,739 (4.5%)
• Total Operating Expenses:  $301,956 (29.0%)

EBITDA:  $128,409 (12.3%)

• Payroll Related: employee-related benefits, workers’ compensation, employer taxes, non-cash awards, etc.

• Direct Operating: uniforms, business insurance, towels, utensils, office supplies, security systems, small equipment, cleaning supplies, etc.

• Utilities: gas, electric, water telecommunication utilities, and trash removal, etc.

• Admin & General: bank charges, credit card fees, recruiting fees, chargebacks, armored car fees, recruiting fees and training materials, professional fees, dues and subscriptions, background checks, freight-courier services, etc.

• Repairs & Maintenance: HVAC, electrical and equipment repairs, snow removal and grounds maintenance, premises upkeep maintenance, coolers and refrigeration repairs, window and awning cleaning, sign repairs, etc.

• Other Delivery Costs: insurance on delivery vehicles

• Marketing: print marketing, coupon flyers, printing costs for marketing purposes, food donations, miscellaneous marketing costs, newspaper coupons, freestanding inserts, mailers, door bags, box toppers, menus, National Marketing Fees and local advertising cooperative contributions, etc.

• Other Occupancy Fees & Expenses: real estate taxes, state and local taxes, building/premises insurance, etc.

• Rent: additional rent charges

• License Fees: paid to the franchisor

• EBITDA is equal to Net Sales minus the total sum of (i) Cost of Goods Sold plus (ii) the Total Operating Expenses.

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