In this FDD Talk post, you’ll learn the following:
- Section I – Background information on the McAlister’s Deli franchise opportunity, including relevant news updates
- Section II – Estimated initial investment for a McAlister’s Deli 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 McAlister’s Deli franchise, based on Items 5 and 6 of the company’s 2021 FDD
- Section IV – Number of franchised and company-owned McAlister’s Deli 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 McAlister’s Deli’s financial performance representations, based on Item 19 of the company’s 2021 FDD, including information on the:
- 2020 average, median, highest, and lowest net sales and weeks open by quarter and full year for the 392 franchised Traditional McAlister’s Deli Restaurants that were active franchises throughout the entire fiscal year 2020 (An “active franchise” is a franchise that has opened a Restaurant and has not permanently closed such Restaurant.)
- 2020 average total gross sales, cost of goods sold, personnel expenses, advertising, operating expenses, occupancy expenses, general and administrative expenses, and EBITDA for the 340 franchised Traditional McAlister’s Deli Restaurants that were open for all weeks of fiscal year 2020 and submitted complete data
Section I – Background Information
16 Things You Need to Know About the McAlister’s Deli Franchise
Opens 500th Restaurant
1. In mid-October 2021, McAlister’s Deli announced the opening in Dickson, Tennessee of its 500th restaurant. McAlister’s has opened 22 new locations since January of 2020 and has experienced strong sales putting the chain on track to be a billion-dollar brand by 2024, the first for a restaurant concept within the Focus Brands portfolio, which includes iconic brands like Auntie Anne’s, Carvel, Cinnabon, Jamba, Moe’s Southwest Grill, and Schlotzsky’s, to reach this milestone.
2. Mike Freeman, chief brand officer of McAlister’s Deli, said, “Over the past 13 years it has been exciting to watch McAlister’s Deli expand its footprint. The addition of a new prototype in 2018, updated interior design and greater emphasis on consumer accessibility contributed to this achievement. It’s rewarding to see the investments we’ve made positively impact our growth, and I am proud of our franchisees, corporate team members and each guest who played an integral part in our journey.”
3. Leading the charge is McAlister’s largest franchisee David Blackburn of Southern Rock Restaurants. Blackburn began franchising with McAlister’s in 2011, and the opening of the Dickson restaurant marks Southern Rock’s 95th location, with an additional 38 stores in their pipeline. Since becoming a McAlister’s Deli franchisee, Blackburn has served nine years on the Franchise Advisory Board, three years as the co-chair of the Operations Culinary Committee for product and execution development, and he is a member of the Brand Strategy committee.
4. David Blackburn, CEO and chief operating officer of Southern Rock Restaurants, said, “We’ve been a proud franchisee of McAlister’s Deli for over 10 years and are thrilled to be opening the doors to the brand’s 500th restaurant. The corporate team has consistently provided a high level of support, which has given me confidence to continue growing our portfolio.”
5. Like Southern Rock Restaurants, other large-scale McAlister’s Deli franchisees have plans to build new McAlister’s Deli restaurants. For example, longtime franchisee The Saxton Group recently signed a deal for 32 new restaurants, further demonstrating franchisee belief in the brand. Additionally, current McAlister’s franchisee Guillermo Perales, CEO of Sun Holdings, plans to open 51 restaurants over the next six years.
6. The chain’s accelerated growth has been fueled by the prioritization of enhancing the guest dining experience with improvements to its mobile app and loyalty program, leveraging digital technology to increase the number of service options to make the brand more accessible. McAlister’s launched tableside ordering in early 2021 that allows customers to skip the line and order at their table with the mobile app, creating an even more personalized service experience.
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7. Since the launch, participation rates on the mobile app are up seven times from what they were pre-pandemic, ultimately increasing revenue and driving customer loyalty among new and existing guests.
One of Its Largest Franchisees Signs 32-Unit Development Agreement
8. In mid-October 2021, The Saxton Group, a leading restaurant franchisee in the fast-casual space, has signed an agreement to develop more than 30 additional McAlister’s Deli restaurants in the next seven years. The deal represents one of the largest growth commitments by a developer in the brand’s history. The Saxton Group currently owns and operates 82 McAlister’s Deli locations across the Midwest. Expansion will take place throughout Texas, Oklahoma, and Kansas, all of which are home to existing territories.
9. Adam G. Saxton, co-CEO and owner of The Saxton Group, said, “I am thrilled to bring McAlister’s to more guests in more markets. Our growth pipeline has never been stronger, and with growth comes new opportunities for our people. This is an exciting venture for the company, and we can’t wait to get to work.”
10. The initiative is well underway as The Saxton Group expects to open two new restaurants in the final months of 2021. The new growth strategy involves substantial real estate development, working alongside McAlister’s Deli’s development team to bring additional locations to new and existing markets.
11. Matt Saxton, co-CEO and owner of The Saxton Group, added, “We anticipate at least five new store openings each year. Plus, we’re aggressively relocating existing restaurants to new freestanding buildings equipped with the latest features, including a pick-up window for digital orders. If there’s an opportunity to provide another convenient avenue for our guests, we will go the extra mile to make that happen.”
12. Since inception in 1982, The Saxton Group has operated more than 150 restaurants across multiple states. The company has been involved with several concepts and has over two decades of experience operating McAlister’s Deli restaurants. The new deal signals a firm commitment for years to come.
13. McAlister’s Deli was founded in 1989 by Don Newcomb in Oxford, Mississippi. At the time, Newcomb was a dentist, but he had years of experience in the restaurant industry. He owned Sonic and Danver’s franchises and worked as a soda jerk when he was teenager. Newcomb had always wanted to open his own restaurant and finally got the opportunity after a movie turned a gas station in Oxford into a 1950s-style diner. After production wrapped up, Newcomb bought the diner and turned it into McAlister’s Deli.
14. After a few years of successfully running McAlister’s Deli, Newcomb decided to start franchising the concept in 1994. By the end of the decade, there were a few dozen locations open around the South. In 1999, Newcomb sold McAlister’s Deli to CEO Michael J. Stack and executive Philip Friedman for an undisclosed amount. Newcomb remained in the company as a board director and as an exclusive franchisee for Kentucky.
15. Following the acquisition, McAlister’s Deli expanded further around the United States. In 2005, the company was acquired by Roark Capital Group. At the time, there were 170 franchised and company-owned locations in 19 states. McAlister’s is still owned and operated by Focus Brands, an affiliate of Roark Capital Group. Today, there are McAlister’s Deli locations across 29 states.
Entrepreneur’s Franchise 500
16. McAlister’s Deli ranked No. 40 on Entrepreneur’s 2022 Franchise 500 list.
Section II – Estimated Costs
- Detailed estimates of McAlister’s Deli 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 McAlister’s Deli’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: 381
- Outlets at the End of the Year: 415
- Net Change: +34
- Outlets at the Start of the Year: 415
- Outlets at the End of the Year: 438
- Net Change: +23
- Outlets at the Start of the Year: 438
- Outlets at the End of the Year: 448
- Net Change: +10
- Outlets at the Start of the Year: 28
- Outlets at the End of the Year: 29
- Net Change: +1
- Outlets at the Start of the Year: 29
- Outlets at the End of the Year: 31
- Net Change: +2
- Outlets at the Start of the Year: 31
- Outlets at the End of the Year: 33
- Net Change: +2
Section V – Financial Performance Representations (Item 19, 2021 FDD) and Analysis
- This Item 19 presents information about the financial performance of certain Covered Restaurants during the fiscal year ended December 27, 2020 (“Fiscal Year 2020”). McAlister’s Deli has not made permanent, material changes to its concept as a result of the COVID-19 pandemic.
- “Covered Restaurants” include franchised Traditional Restaurants located in traditional locations, including strip shopping centers, power centers, and street-level retail.
- “Excluded Restaurants” include franchised Traditional Restaurants and franchised Express Restaurants located in non-traditional locations, including airports, colleges, food trucks, government buildings, hospitals, hotels, lifestyle centers, malls (including open air, traditional, and outlet malls), military bases, office building interiors, sports venues, theme parks, transit hubs, and travel plazas.
- McAlister’s Deli has not included in this Item 19 any data related to Excluded Restaurants (including all Express Restaurants) and affiliate-owned Restaurants, because certain aspects of their operations can vary significantly from the Covered Restaurants that are represented in this Item 19.
Part 1 – Average Net Sales by Quarter for Covered Restaurants for Fiscal Year 2020 (392 Locations)
- Average Net Sales: $359,538
- Percent Change from 2019: -10%
- Number and Percent at or Above Average Net Sales: 172/44%
- Median Net Sales: $343,941
- Lowest Net Sales: $102,376
- Highest Net Sales: $871,541
- Average Weeks Open: 12.95
- Median Weeks Open: 13
- Lowest Weeks Open: 10
- Highest Weeks Open: 13
- Number Open All Weeks: 377
- Average Net Sales: $307,620
- Percent Change from 2019: -26%
- Number and Percent at or Above Average Net Sales: 179/46%
- Median Net Sales: $294,477
- Lowest Net Sales: $0
- Highest Net Sales: $959,339
- Average Weeks Open: 12.66
- Median Weeks Open: 13
- Lowest Weeks Open: 0
- Highest Weeks Open: 13
- Number Open All Weeks: 369
- Average Net Sales: $408,835
- Percent Change from 2019: -1%
- Number and Percent at or Above Average Net Sales: 169/43%
- Median Net Sales: $380,496
- Lowest Net Sales: $137,349
- Highest Net Sales: $1,127,647
- Average Weeks Open: 12.99
- Median Weeks Open: 13
- Lowest Weeks Open: 11
- Highest Weeks Open: 13
- Number Open All Weeks: 391
- Average Net Sales: $399,042
- Percent Change from 2019: 0%
- Number and Percent at or Above Average Net Sales: 167/43%
- Median Net Sales: $370,659
- Lowest Net Sales: $120,668
- Highest Net Sales: $1,080,995
- Average Weeks Open: 13.00
- Median Weeks Open: 13
- Lowest Weeks Open: 13
- Highest Weeks Open: 13
- Number Open All Weeks: 392
- Average Net Sales: $1,475,035
- Percent Change from 2019: -9%
- Number and Percent at or Above Average Net Sales: 168/43%
- Median Net Sales: $1,385,352
- Lowest Net Sales: $477,501
- Highest Net Sales: $3,964,513
- Average Weeks Open: 51.61
- Median Weeks Open: 52
- Lowest Weeks Open: 36
- Highest Weeks Open: 52
- Number Open All Weeks: 368
- The Fiscal Year 2020 data includes 392 Covered Restaurants that were active franchises throughout the entire Fiscal Year 2020 (out of 448 franchised Restaurants that were active franchises as of the end of Fiscal Year 2020).
- An “active franchise” is a franchise that has opened a Restaurant and has not permanently closed such Restaurant.
- The data includes Covered Restaurants that were temporarily closed for periods of Fiscal Year 2020 for any reason, which could include, for example, temporary closures for renovations, repairs, or personal reasons, as well as temporary closures due to the COVID-19 pandemic and related government restrictions on the operation of restaurants.
- It does not include (i) 36 Excluded Restaurants, (ii) 20 Covered Restaurants that opened during Fiscal Year 2020, and (iii) eight Covered Restaurants that permanently closed during Fiscal Year 2020.
- No Covered Restaurants were reacquired by McAlister’s Deli or both opened and closed during Fiscal Year 2020.
- These sales figures do not reflect the costs of sales, operating expenses, or other costs or expenses that must be deducted from the gross revenue or gross sales figures to obtain your net income or profit.
Part 2 – Profit and Loss Statement for Certain Covered Restaurants for Fiscal Year 2020 (340 Locations)
- This financial performance representation reflects the average Fiscal Year 2020 Gross Sales, Cost of Goods Sold, Personnel Expenses, Advertising, Operating Expenses, Occupancy Expenses, General and Administrative Expenses, and EBITDA for Covered Restaurants that were open continuously during the 2020 fiscal year and that provided McAlister’s Deli with complete financial information sufficient for it to complete this profit and loss statement (“P&L Statement”).
- McAlister’s Deli did not use any reports that were submitted late, included incomplete or illegible financial information, involved unique circumstances, or for which the information was presented in a manner that prohibited McAlister’s Deli from applying the information to one of the categories in the P&L Statement.
- Total Gross Sales: $1,553,869 (100.0%)
- Cost of Goods Sold: $471,265 (30.3%)
- Personnel Expenses: $440,469 (28.3%)
- Advertising: $62,115 (4.0%)
- Operating Expenses: $250,136 (16.1%)
- Occupancy Expenses: $160,040 (10.3%)
- General and Administrative Expenses: $18,766 (1.2%)
- EBITDA from Operations: $173,682 (11.2%)
- “Total Gross Sales” is the aggregate amount of revenue derived from food and beverage, catering, and merchandising sales, whether for cash or credit. Total Gross Sales equals Net Sales, plus the amount of any discounts from redemptions of coupons or other reductions made to calculate Net Sales.
- “Cost of Goods Sold” includes the cost of food, beverages, merchandise, packaging, and other products included in the preparation and sale of food, beverages, and other products to customers. The Cost of Goods Sold may vary considerably based on whether a Restaurant is located within the geographical area serviced by McAlister’s Deli’s Approved Suppliers and distributors.
- “Personnel Expenses” includes wages paid to management and employees of a Restaurant, including Managers and shift supervisors, management bonuses, payroll taxes, health insurance, workers’ compensation, vacation, other employee benefits, and associated payroll taxes paid to employees.
- “Advertising” includes Advertising Contributions, contributions to Co-ops, local marketing, discounts, coupons, and sponsorships.
- “Operating Expenses” includes costs for supplies, including smallwares, paper supplies, cleaning supplies; waste removal; controllable expenses like employee uniforms, repairs and maintenance on the equipment and restaurant premises, service contracts, computer expenses, office supplies, utilities, janitorial services, and Royalty Fees.
- “Occupancy Expenses” includes base rent, percentage rent, common area maintenance, real estate taxes, equipment lease expenses, and other miscellaneous expenses.
- “General and Administrative Expenses” includes non-controllable expenses like credit card fees, payroll processing fees, accounting and other professional fees, employee recruiting costs, general liability insurance, business licenses and fees, and bank service charges.
- “EBITDA” means Restaurant-level earnings before income taxes, depreciation, and amortization. In addition to those items, this category does not include pre-opening expenses and other miscellaneous expenses a franchisee may incur.
- McAlister’s Deli does not include costs for interest and other debt service costs, taxes, depreciation, or amortization because they vary considerably depending on the particular organization and typically are excluded when calculating the free cash flow from a Restaurant’s operation.
- There may be other expenses in operating a Restaurant that are not identified in the P&L Statement.
- Some Restaurants have sold or earned this amount. Your individual results may differ. There is no assurance that you’ll sell or earn as much.