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

• Section I – Background information on The Human Bean franchise opportunity, including relevant news updates

• Section II – Estimated initial investment for The Human Bean franchise, based on Item 7 of the company’s 2021 FDD

• Section III – Initial franchise fee, royalty fee, marketing fee, and other fees for The Human Bean franchise, based on Items 5 and 6 of the company’s 2021 FDD

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

• 2020 average sales, loyalty and promotional discounts, net sales, cost of goods sold, gross profit, advertising, amortization expense, automobile expense, bank service charges, computer expense, contributions, depreciation expense, dues and subscriptions, employee benefits, insurance, interest expense, landscape maintenance, linens, licenses and permits, maintenance, office supplies, operating supplies, payroll expenses, payroll taxes, postage and delivery, printing and reproduction, professional fees, rent, repairs, security, taxes, telephone, travel and entertainment, utilities, total expenses, net income, and adjusted net income for the 13 affiliate-owned The Human Bean drive-thru stores that were in operation for the entire 12-month period ending December 31, 2020

• 2020 average and median sales for the 81 franchised The Human Bean drive-thru stores that were in operation for the entire 12-month period ending December 31, 2020

Section I – Background Information

14 Things You Need to Know About The Human Bean Franchise

Recognized as a Top 100 Franchise in Entrepreneur’s 43rd Annual Franchise 500

1.  In early January 2022, The Human Bean was recognized as one of the Top 100 franchises in Entrepreneur’s Franchise 500, a highly sought-after honor in the franchise industry. The 2022 Franchise 500 ranks The Human Bean 88 out of 500 top franchises for its outstanding performance in areas including unit growth, financial strength and stability, and brand power.

2.  Jason Feifer, Entrepreneur’s editor-in-chief, said, “The past year has been one of the most challenging for businesses in recent memory, which made putting together our 43rd annual Franchise 500 list more enlightening than ever. The companies named to this year’s list showed us how being resilient, supportive, and nimble can help navigate extraordinary challenges and also underscore the grit and innovation that define entrepreneurship.”

3.  Scott Anderson, The Human Bean’s chief operating officer, said, “These past two years during this global pandemic have really put business models and their leadership teams to the test, and we did not skip a beat as we managed impressive unit sales and transaction increases. There has never been a better time to be a part of The Human Bean family, from the relatively small piece of real estate needed, to the drive-thru only business model, to the contactless payment and loyalty rewards application, to our outstanding people and quality products.”

4.  When co-founder and CEO Dan Hawkins was asked what was most important to him after being named one of the top franchises in America, he said, “Keeping the integrity of the brand is the most important thing for us in everything that we do. We would not be expanding at this rate if we did not think we could maintain the ethos of the brand and partner with people who will grow the brand the way we envision it. I am especially proud of the relationship that The Human Bean has built with its franchisees.”

Holds 16th Annual Coffee for a Cure Event

5.  In late October 2021, The Human Bean hosted its 16th annual Coffee for a Cure event, an annual event that raises funds for local breast cancer foundations. All proceeds from food and beverage sales on October 22 at all Human Bean locations were donated to breast cancer foundations, assisting in the funding of preventative scans for early detection, education, and patient support during treatment.

6.  In a statement, The Human Bean said, “Coffee for a Cure has grown into a tremendously successful and effective event, and we are honoured to contribute to the fight against breast cancer. Since founding Coffee for a Cure, we have lost a barista, a franchise owner, family, and friends to breast cancer, so we understand firsthand the devastation this disease causes and the critical nature of community support.”

7.  Human Bean franchisees and customers have collectively raised more than $2.2 million for breast cancer research. Human Bean claims to work directly with local foundations at each drive-thru location. Patient support funds are allocated to patients who are most in need of financial assistance.

8.  The company added, “With a bean on top, The Human Bean is on a mission to inspire authentic human connections and to give back to the communities in which we operate. Please visit any of The Human Bean locations on this day and all food and beverage sales will benefit a local breast cancer care centre in that community. Additionally, we will be selling limited edition Coffee for a Cure merch that day to help raise additional funds.”

Opens Two New Locations

9.  The Human Bean’s drive-thru business model has been very appealing to prospective franchisees and the brand has continued to grow despite the struggles in the food industry from the ongoing COVID-19 pandemic. In December 2021, The Human Bean opened two new locations: one in Visalia, California and the other in Colorado Springs, Colorado.

10.  The Visalia location is owned and operated by Fred and Kellie Gibby of VTP Coffee, LLC. This is their third The Human Bean location and their second in the city of Visalia. Their other location is in Tulare. The Gibbys have plans to open two additional locations in Porterville in early 2022.

11.  The Colorado Springs Human Bean is owned and operated by Stanley Kelly and Aaron and Callie Claborn. This is the first location for The Human Bean in the city of Colorado Springs.

Company History

12.  The Human Bean was founded in 1998 by Dan Hawkins, his wife Rhonda, his best friend Tom Casey, and Tom’s wife Tami in Ashland, Oregon. The Hawkinses wanted to offer premium coffee products through the convenience of a drive-thru. The first location was a success and demand grew quickly.

13.  The Hawkinses and Caseys opened more Human Bean locations in other cities around Southern Oregon. The Human Bean began franchising in 2002. Over the past few decades, The Human Bean has expanded primarily around the Western half of the United States. Today, there are locations open or under development across 25 states.

Entrepreneur’s Franchise 500

14.  The Human Bean ranked No. 88 on Entrepreneur’s 2022 Franchise 500 list.

Section II – Estimated Costs

• Detailed estimates of The Human Bean 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 The Human Bean’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:  58
• Outlets at the End of the Year:  67
• Net Change:  +9

2019

• Outlets at the Start of the Year:  67
• Outlets at the End of the Year:  85
• Net Change:  +9

2020

• Outlets at the Start of the Year:  85
• Outlets at the End of the Year:  100
• Net Change:  +15

Company-Owned

2018

• Outlets at the Start of the Year:  13
• Outlets at the End of the Year:  13
• Net Change:  0

2019

• Outlets at the Start of the Year:  13
• Outlets at the End of the Year:  13
• Net Change:  0

2020

• Outlets at the Start of the Year:  13
• Outlets at the End of the Year:  13
• Net Change:  0

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

Part 1 – Affiliate Financial Performance

• Part 1 provides historical financial performance data based on the unaudited financial statements of 13 affiliate-owned stores for the 12-month period ending December 31, 2020. Part 1 also provides an adjusted average net income figure, based on The Human Bean’s estimate of the cost differentials between affiliate-owned and franchised stores.

• Net income or net profit means net sales (gross sales less promotional discounts), less expenses and cost of goods.

• During the fiscal year ending December 31, 2020, a total of 98 outlets were in operation. Of those, 13 were affiliate-owned outlets and 85 were franchised outlets.

• The Human Bean presents total costs and average net profits exclusive of owner income and owner expenses, meaning owner travel expenses and owner use of a company car. The Human Bean does not treat these as expenses a franchisee should expect to incur for purposes of this Item 19.

• Expenses for bookkeeping, payroll, and accounting are likewise excluded. As a franchisee, you will choose how you treat owner expenses (if any) and how to account for and pay any tax on owner income from your outlet.

• Some affiliate-owned outlets have sold or earned as much as in the table. Your individual results may differ. There is no assurance you’ll sell or earn as much.

2020 Average

• Sales:  $828,448.21 (100.0%)
• Loyalty and Promotional Discounts:  $(59,544.04) (-7.2%)
• Net Sales:  $768,585.36 (92.8%)
• Cost of Goods Sold:  $266,666.73 (32.2%)
• Gross Profit:  $561,781.49 (67.8%)
• Advertising:  $5,879.37 (0.7%)
• Amortization Expense:  $104.78 (0.0%)
• Automobile Expense:  $0.00 (0.0%)
• Bank Service Charges:  $19,447.26 (2.3%)
• Computer Expense:  $4,665.48 (0.6%)
• Contributions:  $11,278.46 (1.4%)
• Depreciation Expense:  $17,663.03 (2.1%)
• Dues and Subscriptions:  $151.72 (0.0%)
• Employee Benefits:  $473.56 (0.1%)
• Insurance:  $2,605.87 (0.3%)
• Interest Expense:  $2,045.56 (0.2%)
• Landscape Maintenance:  $1,773.81 (0.2%)
• Linens:  $3,335.12 (0.4%)
• Licenses and Permits:  $953.19 (0.1%)
• Maintenance:  $15,309.19 (1.8%)
• Office Supplies:  $7,220.51 (0.9%)
• Operating Supplies:  $1,494.31 (0.2%)
• Payroll Expenses:  $192,439.56 (23.2%)
• Payroll Taxes:  $17,913.51 (2.2%)
• Postage and Delivery:  $73.57 (0.0%)
• Printing and Reproduction:  $211.66 (0.0%)
• Professional Fees:  $2,452.69 (0.3%)
• Rent:  $33,775.06 (4.1%)
• Repairs:  $276.18 (0.0%)
• Security:  $333.45 (0.0%)
• Taxes:  $4,034.39 (0.5%)
• Telephone:  $1,744.55 (0.2%)
• Travel and Entertainment:  $142.36 (0.0%)
• Utilities:  $14,442.23 (1.7%)
• Total Expenses:  $362,240.42 (43.7%)
• Expenses + Cost of Goods:  $628,907.15 (75.9%)
• Net Income:  $139,997.03 (16.9%)
• Adjusted Net Income*:  $116,820.78 (14.1%)

• *The figure for Adjusted Net Income in Part 1 is the average net income for the affiliate-owned stores, less the estimated average cost differential for franchisees. The cost differential is based on three factors: coffee products, non-coffee products/supplies, and shipping costs.

• Franchisees currently pay approximately 30.8% more than affiliates for coffee products, and approximately 22% of the franchisee’s total cost of goods will be for coffee products. The Human Bean reserves the right to increase this price differential in the future up to 34%.

• Most franchisees pay the same price for non-coffee products/supplies as The Human Bean, but in certain regions there is a differential, and The Human Bean averaged the differential across the 85 franchised outlets.

• Franchisees receive free shipping for coffee products on orders over the minimum size, so The Human Bean did not calculate any differential for shipping costs on coffee products.

• A few other supplies, namely branded coffee mugs, apparel, and temporary point-of-sale marketing materials, are sold by The Human Bean to the affiliate-owned stores for less than the price paid by the franchisees. The effect of this fourth differential on the Adjusted Net Income figure was insubstantial.

• The payroll expense figures in Part 1 include an hourly rate and bonus for a manager. You or your manager should expect to work full-time in areas such as general administration, bill paying, staffing, scheduling, general errands, and supply pick-up and delivery.

• If you do not delegate these functions to a manager, your payroll expenses will be lowered by the amount of that manager’s wages and bonus, payroll taxes on those wages, and any other employee-related expenses.

• Each of the 13 affiliate-owned outlets employed a manager other than the owners.

• These 13 affiliate-owned The Human Bean drive-thru locations used for Part 1 were in operation for the entire 12-month period ending December 31, 2020.

• Among these 13 affiliate-owned The Human Bean drive-thru locations, the most successful store had total sales of $1,158,721 and net income (excluding owner income and owner expenses) of $244,143. The least successful store had total sales of $584,513 and net income (excluding owner income and owner expenses) of $5,552.

• The criterion for most and least successful store is net income (loss) exclusive of owner income and expenses, not total sales. Total sales means gross sales, before promotional discounts and loyalty rewards.

• All of the 13 stores had positive net income (excluding owner income and owner expenses) during the 12-month period ending December 31, 2020.

• Eight of the 13 stores had cost of goods higher than the average figure, and the other five had cost of goods lower than the average.

• Eight of the 13 stores had total sales higher than the average, and the other five stores had total sales lower than the average.

• Six of the stores had total expenses higher than the average, and the other seven stores had total expenses lower than the average (excluding owner income and owner expenses).

• Six of the stores had net income (excluding owner income and owner expenses) higher than the average, and the other seven had lower net income (excluding owner income and owner expenses).

Part 2 – Franchisee Sales Performance

• Part 2 provides historical financial performance data based on the sales of 81 franchised stores for the 12-month period ending December 31, 2020.

• The Human Bean omitted one franchised location that was only intermittently operational throughout 2020 (the mobile unit based in Fort Collins, Colorado). Mobile units are used primarily for events.

• 2020 Average Sales:  $817,813
• 2020 Median Sales:  $799,439

• Among the 81 franchised The Human Bean drive-thru locations included in Part 2, the most successful store had total sales of $1,388,114. The least successful store had total sales of $316,114. The criterion for most and least successful franchised store is total sales.

• 36 of the 81 franchised stores had total sales higher than the average, and the other 45 stores had total sales lower than the average.

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